Promissory Note

A promissory note is a signed written promise to pay a fixed sum of money to a named payee or to bearer, on demand or at a definite time.

Reviewed by GC AI Solutions Team•Updated September 8, 2026

Definition

A promissory note is a written instrument in which one party, the maker, promises to pay a sum of money to another party, the payee, on demand or at a definite time. The note states the principal amount, the interest rate, the repayment schedule, the maturity date, and what counts as default. Under Article 3 of the Uniform Commercial Code, a note that meets the negotiability test can be transferred to a holder who takes it free of many defenses the maker could raise against the original payee. A note may be secured by collateral or left unsecured.

_Updated September 8, 2026_

What It Does

For in-house counsel, the note needs to work with the loan or purchase agreement and any security or subordination documents. A practical test: trace a missed payment through those documents and identify the amount due, the cure period, the notice required, and the remedies available.

Records the maker's payment promise, including principal and any interest, and identifies related agreements that affect the obligation.
Sets demand, installment, and maturity terms that determine when payment comes due.
Specifies default events and any acceleration, late charges, or default interest, together with applicable notice and cure requirements.
States payment and transfer terms relevant to negotiability; holder in due course protection also requires the transferee to satisfy the applicable statutory conditions.
Identifies related collateral and priority arrangements for review alongside the security and subordination documents.

Recent SEC filings show notes issued across bank revolvers, acquisition seller financing, real estate lending, and related-party advances, so one clause name covers documents with materially different risk profiles.

When You'll See It

Acquisitions: Sellers take back part of the price as a subordinated note, which keeps cash in the deal and leaves the seller exposed to the buyer's senior lender.

Credit facilities: Banks ask the borrower to sign a separate revolving or term note alongside the credit agreement, and that note points back to the agreement for rates, advances, and payment dates.

Real estate: A note pairs with a mortgage or deed of trust, and the recorded security instrument secures the payment promise in the note.

Venture and bridge financing: Convertible notes fund a company between priced rounds and convert into equity on stated triggers.

Related-party funding: Founders, officers, and affiliates document advances they have already made, typically on demand and sometimes at zero interest.

Settlements and payment plans: A defendant converts a lump-sum obligation into scheduled payments backed by a note and a stipulated judgment.

A promissory note, a loan agreement, and an IOU serve different functions. An IOU acknowledges that a debt exists; a promissory note records a promise to pay and can be negotiated under Article 3 when it meets UCC section 3-104, including its unconditional-promise requirement. A loan agreement sets covenants, conditions precedent, and remedies for the financing and may require a separate note. Read the documents together: the AAON revolving note imports definitions for terms it leaves undefined from the loan agreement. That definitions cross-reference does not itself decide which document controls a conflict.

Examples

Innovative Industrial Properties

Bank Promissory Note Secured by Real EstateBank promissory noteOne-Sided2026

"FOR VALUE RECEIVED, IIP-IL 2 LLC, a limited liability company organized pursuant to the laws of the State of Delaware ("Borrower"), promises to pay to the order of Generations Bank, a state bank organized pursuant to the laws of the Arkansas ("Lender"), the principal amount of Twenty Million and No/100 Dollars ($20,000,000.00) (the "Principal") together with interest thereon at a fixed rate of interest equal to the lesser of Nine and No/100 Hundredths Percent (9.00%) per annum, or the highest lawful rate (the "Interest Rate") until paid in full."

Source

AAON

Second Amended and Restated Revolving NoteRevolving noteOne-Sided2025

"FOR VALUE RECEIVED, each of the undersigned, each a Borrower and collectively the Borrowers, hereby jointly and severally promises to pay to BOKF, NA dba BANK OF OKLAHOMA ... the amount of ONE HUNDRED FORTY FIVE MILLION DOLLARS and NO/100THS ($145,000,000.00) or, if less, the aggregate unpaid amount of all Revolving Loans made by the Lender to the undersigned under the Amended and Restated Loan Agreement, dated as of November 24, 2021"

Source

RCI Hospitality Holdings

12% Unsecured Promissory NoteUnsecured promissory noteOne-Sided2025

"FOR VALUE RECEIVED, RCI HOSPITALITY HOLDINGS, INC., a Texas corporation, having its principal place of business at 10737 Cutten Road, Houston, Texas 77066 (the "Company" or the "Maker") promises to pay to the order of ADW Capital Partners, L.P., a Delaware limited partnership, or its registered assigns (the "Holder"), the principal sum of $22,000,000.00"

Source

Pro-Dex

Subordinated Seller Note in an AcquisitionSubordinated seller noteOne-Sided2026

"FOR VALUE RECEIVED, the undersigned, Pro-Dex, Inc., a Colorado corporation ("Maker"), hereby promises to pay to the order of Advanced-Precision Machining Holding Company, Inc., a California corporation (together with its successors and assigns, "Holder"), the principal sum of Two Million Dollars ($2,000,000). ... This Note shall be fully amortized with equal quarterly payments over a sixty-three month (63)-month period commencing on the Issuance Date ... All amounts due or payable at any time under this Note shall be subject to setoff as provided in the Purchase Agreement."

Source

Helio Corporation

Related-Party Demand NoteRelated-party demand noteOne-Sided2025

"FOR VALUE RECEIVED, Helio Corporation, a Florida corporation (the "Company"), hereby promises to pay to the order of Gregory T. Delory ("Lender"), the Company's Chief Executive Officer, the principal sum of $25,404.00 ... This Note shall bear no interest. ... All unpaid principal shall be due and payable ON DEMAND upon written notice from Lender to the Company."

Source

Negotiate

Lender Positions

You want a clear payment obligation, usable default remedies, and transfer rights that fit the financing.

Language that makes payment contingent on another agreement can cost the note its negotiable status under UCC section 3-104, which limits resale and forecloses holder in due course protection for a buyer.
"Pay to the order of \[payee\] or its registered assigns" identifies the payee and contemplates transfer, as in the RCI Hospitality note above. Review the operative transfer provisions as well: that note also requires registration of transfers and compliance with its securities-law restrictions. Order wording does not override those requirements.
A stated default rate and a late fee give the lender a remedy short of acceleration.
Both bank notes cited above waive presentment and protest. The AAON note also waives demand; the Innovative Industrial Properties note waives notice of intent to accelerate but does not include demand in that waiver. Check the full default provisions for any notice and cure requirements that remain before pursuing acceleration or suit.
Tying default to breach of the purchase agreement or the loan agreement pulls non-payment defaults into the note's remedies.

Borrower Positions

You want manageable repayment terms, an opportunity to cure, and protection for negotiated defenses and setoff rights.

A savings clause set at the lesser of the stated rate or the highest lawful rate, as in the Innovative Industrial Properties note, seeks to limit the contractual interest rate. Do not rely on it to cure usury: assess the applicable law, the parties and transaction, and all charges treated as interest. In Samson Lending v. Greenfield, the New York court held that a savings clause did not cure a criminally usurious loan.
The Pro-Dex note allows prepayment in whole or in part with no premium or fee, and it re-amortizes the remaining quarterly payments after a partial prepayment.
In a seller note, an express right to offset indemnification claims against note payments keeps the buyer's escrow from being the only recovery source.
The Pro-Dex note gives five business days after written notice on a payment default, which prevents a clerical miss from accelerating the balance.
If preserving defenses against a later holder matters, assess a conspicuous non-negotiability statement under the applicable state's UCC section 3-104(d). Review assignment restrictions separately; a consent requirement alone does not establish that the note is non-negotiable.

Note review rewards consistency: the same checks on each note, applied the same way. GC AI’s Playbooks hold your lender-side and borrower-side fallback positions, and GC AI for Word runs those checks inside the document you're redlining, so the note, the purchase agreement, and the subordination agreement stay easy to compare.

Red Flags

“The lesser of $X or the aggregate unpaid amount of all loans” can raise a fixed-amount problem under UCC section 3-104(a). In CadleRock, the Colorado Court of Appeals held that the revolving note before it was not negotiable because the principal amount fluctuated with advances and payments. Assess the full instrument under the applicable state law; a non-negotiable note may still be enforceable as a contract.
Cross-references that make payment subject to the terms of a separate agreement can defeat the unconditional promise requirement.
The Helio note requires written demand for payment and treats failure to pay within 15 days after that demand as an event of default. Distinguish when a demand payment becomes due from any default or acceleration procedure; do not assume that all demand notes provide the same notice or payment period.
A seller note that says nothing about senior debt can still be subordinated by a separate agreement the seller signs at closing, so read the subordination agreement alongside the note.
State usury limits, exemptions, and remedies vary. Review the stated rate and all charges treated as interest against the law applicable to the transaction; a savings clause alone may not prevent the loss of interest or invalidation of the obligation.
ESIGN excludes Article 3 notes from its general electronic-equivalence rule, but 15 U.S.C. section 7021 provides a federal transferable-record framework for qualifying electronic notes relating to loans secured by real property, with express issuer agreement and a control requirement. Review that framework where applicable, together with the relevant state's enacted UETA and UCC provisions; electronic enforceability does not turn solely on the state named in a governing-law clause.
A note payable “to the order of” the payee may also carry a securities legend restricting transfer without an inherent conflict. Read the legend with the registration, assignment, and other transfer provisions to determine what a permitted transfer requires; the RCI Hospitality note includes both order wording and operative transfer restrictions.

Promissory Note FAQs

Does a promissory note need to be notarized?

Notarization is not part of the UCC section 3-104 negotiability test, and published legal guidance treats an ordinary promissory note as valid on the maker's signature alone. Notarizing helps at the evidentiary stage by making the signature harder to dispute, and a note secured by real estate is a separate question because the recorded mortgage or deed of trust carries its own execution and acknowledgment requirements under state recording law.

What happens if you do not pay a promissory note?

Missing a payment triggers the note's default provisions, which typically let the holder accelerate the entire unpaid balance and apply a higher default interest rate. On an unsecured note the holder sues for the balance and collects on a judgment, and on a secured note the holder can also foreclose on the mortgage or enforce the UCC security interest that backs the payment promise.

Can a promissory note be transferred or sold?

A note payable to order or to bearer can be negotiated to a new holder by endorsement and delivery, and a note payable to a named person alone transfers by assignment. The difference matters because a transferee who takes a negotiable note for value, in good faith, and without notice of the problems listed in UCC section 3-302(a) can qualify as a holder in due course and take free of many defenses the maker had against the original payee.

Can a promissory note be signed electronically?

ESIGN at 15 U.S.C. section 7003(a)(3) excludes contracts governed by the Uniform Commercial Code from its electronic-equivalence rule, other than sections 1-107 and 1-206 and Articles 2 and 2A, so Article 3 notes sit outside the general rule. 15 U.S.C. section 7021 opens a narrow path for transferable records, defined as electronic records that would be notes under Article 3, that the issuer has expressly agreed are transferable records, and that relate to a loan secured by real property, and it substitutes a control standard for delivery, possession, and endorsement. State law fills the rest of the gap through each state's enacted UETA and UCC text, so confirm the governing-law state's version before signing a note electronically.

What's the best AI to review a promissory note?

Judge legal AI on whether it reads the whole instrument and shows you the language behind what it tells you. GC AI reviews notes against your own positions through Playbooks, works inside the document you are marking up through GC AI for Word, and returns the source text for each finding through Exact Quote, so you can confirm the maturity date, the setoff right, and the transfer restriction against the note itself.

Related Clauses

This content is for informational purposes only and does not constitute legal advice.