Promissory Note Delaware: What Does the Law Say?
Whenever two people do a financial transaction involving borrowing and lending, they require a formal promissory note to seal the deal. The agreement is the proof before a court that the transaction took place. A promissory note also guarantees payment to the lender if the borrower breaches the terms of the agreement .
Here we highlight a business promissory note in Delaware and its legal requirements.
Promissory Note Delaware: An Overview
A Delaware promissory note is a legally binding contract specifying the contract terms between a borrower and lender. In Delaware, a business promissory note is a security document, hence enforceable under the law.
Commercial Promissory notes are of two types: secured and unsecured.
A secured note protects the lender from financial losses by allowing provision for collateral. Under Title 6, Article 9 of the Delaware Law, a company promissory note is secured if it includes collateral. Thus, borrowers often include valuable possessions such as real estate, cars, and jewelry to help the lender recover the loan.
An unsecured note works without collateral. The agreement depends on mutual trust between the lender and borrower. If the borrower cannot pay the loan, the lender can only seek legal redress to recover the money. Owing to the level of risk, as the lender, you should only enter an unsecured contract if the borrower has a good credit history or you have a very close relationship.
Delaware Business Promissory Note: Maximum Interest
The Delaware State Law is clear on the maximum interest rate a lender may charge. Under the Usury law, the maximum interest rate should be 5% above the Federal Reserve discount Rates. In addition, all surcharges that lenders impose on borrowers should fall within the legal interest rates. However, the law doesn’t have a maximum limit for interest rates where the loan transaction exceeds $100,000.
How to Write a Promissory Note in Delaware?
When creating / writing a promissory note, it is essential to specify whether it is secured or unsecured. If you wish to create a secured agreement, the title should reflect that it is secured.
Moreover, you should provide sufficient information about the collateral. Without a proper title and adequate description of the collateral, the courts may treat the agreement as unsecured in case of default.
The following information applies to writing general promissory notes:
The basic promissory note should include when the note was created under the title. The date follows a specific format, starting from the month, day, and year.
The note should include the names and mailing addresses of the borrower and lender. The mailing addresses are essential if both parties need to communicate.
The document includes the principal amount the borrower receives from the lending institution. Before printing and signing the document, the involved parties should verify that the information is devoid of typo errors.
A standard promissory note reflects the legally accepted interest rate in the document. It is an offense for lenders to charge more than 5% above the Federal Reserve discount rate in Delaware.
Installments and Payment Information
A business promissory note includes essential information about repaying the loan. Most Delaware installments prefer weekly, biweekly, or monthly installments. The section also highlights the number of installments and the cost of each installment. If there is a penalty for late payment, the document also specifies the amount of late payment.
Formal Promissory notes include titled sections as follows:
- Due to interest in default
- Payment allocation
- Prepayment fines
- Attorney’s fees
- Presentments waiver
- Conflicting terms
- Choice of law
Signing and Notarization
According to Delaware laws, a standard promissory note should include the signatures of the lender and borrower and the date of signing. Whereas parties do not require notarizing their agreement, it is essential when formalizing it.
Need help in drafting a promissory note for loan payment? Download a general promissory note online in printable form from here now.