Is a promissory note legally binding in North Carolina?

Yes. A promissory note is legally binding in North Carolina when the borrower signs a written promise to pay a fixed amount of money, on demand or at a set time, in exchange for a real loan or other value. You do not need a notary. For a negotiable note, you generally have six years after the due date to sue.

What makes a promissory note enforceable in North Carolina?

North Carolina follows the Uniform Commercial Code. Under G.S. 25-3-104(a), a negotiable instrument is an unconditional promise to pay a fixed amount of money, with or without interest, that meets three tests. It must be payable to bearer or to order, it must be payable on demand or at a definite time, and it must not add other promises beyond paying money.

The statute lists a few extras that do not break those tests. Your note may include a promise to give or protect collateral, a waiver of laws that protect the borrower, a governing-law clause, and a clause choosing where disputes will be resolved.

The same elements apply whether you write a secured note backed by collateral or an unsecured note backed only by the borrower's promise. Make sure the note names both parties, states the amount and the payment terms, and carries the borrower's signature. The borrower must also receive something of value, which in most cases is the loan itself.

How long do you have to sue on a promissory note in North Carolina?

G.S. 25-3-118(a) gives you six years. For a note payable at a definite time, the action must begin within six years after the due date or dates in the note, or, "if a due date is accelerated, within six years after the accelerated due date."

Here is how the count works. If your note comes due on March 1, you have until March 1 six years later to file suit. If you accelerate the note on an earlier date, the six years start from that accelerated due date for the whole balance.

For an installment note, each payment has its own due date, so each missed payment starts its own six-year period unless you accelerate the balance.

A demand note works differently. Under G.S. 25-3-118(b), you must sue within six years after you demand payment. If you never make a demand, the note is barred once neither principal nor interest has been paid for a continuous period of 10 years. You can check other deadlines with our statute of limitations lookup.

What if the note is not a negotiable instrument?

Some notes fail the G.S. 25-3-104 tests. A common example is a note that is not payable to order or to bearer, or one that adds duties beyond paying money. Such a note can still be a binding contract, but the deadline may be shorter.

G.S. 1-52(1) allows three years for an action upon a contract, obligation, or liability arising out of a contract. If there is any doubt about whether your note qualifies as negotiable, plan around the three-year period and do not wait.

Does a seal give a North Carolina note more time?

It can. G.S. 25-3-118(h) says a sealed instrument that would otherwise fall under the UCC article is governed by the time limits of G.S. 1-47(2). That section allows 10 years for an action upon a sealed instrument against the principal.

Whether a particular signature block creates a valid seal is a legal question. If the extra four years matter to you, ask a North Carolina lawyer to review the signing format before the borrower signs.

What interest rate can you charge on a North Carolina promissory note?

It depends on the loan amount. Under G.S. 24-1.1(a), the parties must contract in writing. When the principal is $25,000 or less, the rate cannot exceed the maximum set under subsection (c). When the principal is more than $25,000, the parties may agree to any rate.

Subsection (c) tells the Commissioner of Banks to announce the maximum rate on the fifteenth day of each month. The rate is the latest six-month U.S. Treasury bill rate plus six percent, rounded to the nearest half percent, or 16%, whichever is greater. So the cap on a small loan is never below 16%. For a fixed-rate loan, the cap is the rate announced in the month before the loan is made, and it holds for the full term. Our usury limit checker can help you compare.

The penalty for going over is steep. Under G.S. 24-2, knowingly charging more than the law allows forfeits the entire interest the note carries. If the borrower has already paid the excess interest, the borrower may recover twice the amount of interest paid.

When interest is owed by law and the parties set no rate, such as on a contract award after a breach, G.S. 24-1 sets the legal rate at eight percent per year.

Do you need to notarize a promissory note in North Carolina?

No. Notarization is not one of the elements in G.S. 25-3-104. A note signed by the borrower is enforceable without a notary's stamp.

A notary can still help you. A notarized signature makes it harder for the borrower to claim later that the signature is not theirs. If your note is secured by a deed of trust on real estate, remember that the deed of trust is a separate document with its own signing and recording steps.

What should you include so the note holds up?

Write the full legal names of both parties, the principal amount, the interest rate, and the payment schedule. Define what counts as a default, say whether the lender may accelerate the balance, and state any late charge. Keep the rate within G.S. 24-1.1 if the loan is $25,000 or less. Give the borrower a copy, and keep the signed original somewhere safe, since you may need to produce it in court.

Think about interest after a lawsuit, too. Under G.S. 24-5(a), an award on a contract bears interest from the date of breach. After judgment, interest runs at the contract rate only if the parties agreed in the contract that the contract rate would apply after judgment. Otherwise, it runs at the legal rate. For credit extended for personal, family, household, or agricultural purposes, the judgment bears the lower of the legal rate or the contract rate. One sentence in your note stating that the contract rate continues after judgment can preserve it where the law allows.

Sources

• N.C. G.S. 25-3-104
• N.C. G.S. 25-3-118
• N.C. G.S. 1-52
• N.C. G.S. 1-47
• N.C. G.S. 24-1.1
• N.C. G.S. 24-2
• N.C. G.S. 24-1
• N.C. G.S. 24-5