Is a promissory note legally binding in Oregon?

Yes. A promissory note is legally binding in Oregon when the borrower signs a written promise to repay a set amount on stated terms. Oregon also caps interest on many loans of $50,000 or less, and a lender who goes over that cap loses every dollar of interest.

Courts look for the basics. The note should name the lender and the borrower, state the principal, give the interest rate, explain when and how payments are due, and carry the borrower's signature. A note repaid on a fixed schedule works as an installment note, and one payable whenever the lender asks is a demand note. Oregon treats the two differently when it comes time to sue.

For a note payable at a definite time, ORS 73.0118(1) says a suit "must be commenced within six years after the due date or dates stated in the note," or within six years after an accelerated due date. Each missed installment can start its own six-year clock until the lender accelerates the whole balance. A demand note runs six years from the demand. If no demand is ever made, the note is barred once neither principal nor interest has been paid for 10 continuous years.

Timing works like this. Say a five-year installment note has monthly payments, the borrower stops paying after the 20th installment, and the lender never accelerates. Each unpaid installment gets its own six-year window, so the oldest missed payment expires first. If the lender accelerates on June 1, the whole remaining balance becomes due that day, and the six years for all of it run from June 1. Writing an acceleration clause into the note, and using it promptly, keeps the claims together.

Some loan papers aren't negotiable notes, for example an agreement that attaches conditions to the promise to pay. Those fall under ORS 12.080(1), which gives six years for "an action upon a contract or liability, express or implied." The length matches, though the start date can differ. Our statute of limitations lookup compares Oregon with other states.

How much interest an Oregon lender can charge

If the parties agree to interest but never name a rate, ORS 82.010(1) sets it at nine percent per year. The same subsection applies nine percent to money after it becomes due, when the parties haven't agreed on another rate, so an overdue balance can start earning interest even on a note that never mentioned it.

The cap sits in ORS 82.010(3). For a loan of $50,000 or less, a lender may not charge more than the greater of 12 percent or five percent above the discount rate on 90-day commercial paper at the Federal Reserve Bank in the lender's district, measured on the day the loan is made. An Oregon lender sits in the district of the Federal Reserve Bank of San Francisco. When the discount rate is low, 12 percent is the ceiling. The cap covers business and agricultural loans of $50,000 or less under paragraph (a), and every other loan of that size under paragraph (b), so lending to a friend's startup doesn't escape it. Check our usury limit checker before you set a rate near the line.

The penalty is steep. ORS 82.010(4) says a lender who breaks the cap forfeits the right to collect any interest, and "the borrower upon such loan shall be required to repay only the principal amount borrowed."

Here's the math. You lend a friend $20,000 for one year at 15 percent simple interest, at a time when 12 percent is the higher of the two tests. The note promises $3,000 in interest, while the legal maximum would have been $2,400. The $600 excess triggers forfeiture of all $3,000, and you collect only the $20,000 you lent.

Fees can push a legal rate over the line. ORS 82.020(1) treats any commission, bonus, fee, premium, or penalty the borrower pays to obtain the loan as part of the interest. Say that same one-year, $20,000 loan carries 11 percent, or $2,200, plus a $500 loan fee. The lender takes $2,700 for the year, which is 13.5 percent of the principal and over a 12 percent cap.

The cap doesn't reach every lender. ORS 82.025 exempts financial institutions and trust companies, licensed consumer finance lenders, and licensed pawnbrokers, among others. A private person lending to a friend or relative usually fits none of those categories.

Notarization isn't a condition in any of these statutes. The borrower's signature does the work, though a notary helps if the borrower later denies signing. If you want one and the borrower lives far away, ORS 194.277 lets an Oregon notary act for a remotely located person using communication technology, defined as a device or process that lets the two "communicate with each other simultaneously by sight and sound." The notary must make an audiovisual recording of the act. See does a promissory note need to be notarized for when a stamp is worth the trouble.

Sources

• ORS chapter 73 (ORS 73.0118, statute of limitations)
• ORS chapter 12 (ORS 12.080)
• ORS chapter 82 (ORS 82.010, 82.020, 82.025)
• ORS chapter 194 (ORS 194.277, remote notarial acts)