A Louisiana promissory note is a written promise to pay a fixed sum of money that, to be fully enforceable and negotiable, must name the parties, state the amount and payment terms, keep any interest within the state’s legal limits, and ideally be executed as an authentic act so the lender can use Louisiana’s fast-track collection procedure. The state’s civil law tradition changes several defaults that borrowers and lenders from other states take for granted, and a single missing word, like the one that creates solidarity among co-borrowers, can quietly cut a lender’s recovery in half.
What Must Appear on the Note
To qualify as a negotiable instrument under Louisiana law, the note must contain an unconditional written promise to pay a fixed amount of money. It has to be payable on demand or at a definite time, and payable either to a specific person (“to order”) or to whoever holds it (“to bearer”).1Justia. Louisiana Code 10:3-104 – Negotiable Instrument Adding conditions beyond paying money, such as requiring the borrower to perform services, destroys negotiability and limits the note’s transferability.
Parties and Solidarity
Name the maker (borrower) and the payee (lender). When two or more people sign as borrowers, pay attention to how their obligations are described. Louisiana does not presume solidarity among co-borrowers the way common law states presume joint and several liability. Solidarity must be expressly stated in the note, or each borrower is liable only for their own share. This is one of the most common and costly drafting mistakes in Louisiana lending, because it can leave a lender unable to collect the full balance from any single co-signer.
When someone signs on behalf of a business, the note should clearly identify the business as the maker and describe the signer’s authority; without that clarity, the individual signer risks personal liability. Co-signers and guarantors need their obligations spelled out in the note or in a separate guaranty.
Repayment Terms
Spell out whether repayment is in installments or a lump sum, the due dates, any grace period, and any late fee. If the note doesn’t state a time for payment, it’s treated as payable on demand, meaning the lender can call the full balance at any time.2Justia. Louisiana Code RS 10:3-108 – Payable on Demand or at Definite Time Keep late fees reasonable; Louisiana courts will not enforce a penalty that functions as disguised interest. If early payoff is allowed, say whether a prepayment penalty applies.
Interest Rate Rules and the Usury Cap
Louisiana caps conventional (contractual) interest at 12% per year for most private, non-consumer loans, and the agreed rate must be in writing.3Justia. Louisiana Code 9:3500 – Rates of Legal and Conventional Interest; Usury This is a ceiling, not a default. A note that is silent on interest earns the legal (judicial) interest rate set under a separate statute. Confusing the two is a common error.
If a lender charges more than 12% on a covered loan, the lender can still collect principal and interest up to the 12% cap, but the borrower can sue to recover any excess interest paid within two years of the overpayment.3Justia. Louisiana Code 9:3500 – Rates of Legal and Conventional Interest; Usury The lender forfeits only the excess, not all interest.
Two carve-outs matter. Consumer credit transactions are governed by the Louisiana Consumer Credit Law, which has its own rate structures and disclosures. Loans made for commercial or business purposes are entirely exempt from the 12% ceiling, so a business loan at 15% or 18% is lawful.3Justia. Louisiana Code 9:3500 – Rates of Legal and Conventional Interest; Usury
Active-Duty Military Borrowers
The federal Servicemembers Civil Relief Act caps interest at 6% per year on obligations the borrower took on before entering active-duty service. It covers pre-service debts including mortgages, car loans, student loans, and credit cards. For mortgages, the protection extends for one year after active duty ends; for other debts, only during the period of service.4GovInfo. 50 USC 3937 – Maximum Rate of Interest on Debts Incurred Before Military Service The servicemember must give the lender written notice and a copy of military orders within 180 days after service ends. Interest above 6% is forgiven, not deferred, and the lender must reduce monthly payments to match.
Why You Want an Authentic Act
Louisiana layers its Civil Code on top of the UCC, and the most consequential piece of that layering is the authentic act. An authentic act is a document signed by the parties, two witnesses, and a notary public, with each person’s typed or printed name appearing beneath their signature.5Justia. Louisiana Civil Code Article 1833 – Authentic Act The parties don’t all have to sign at the same time or place, but each one must sign before a notary and two witnesses. A party who cannot sign affixes a mark instead.
The payoff is access to executory process. When the promissory note and any mortgage or security agreement are both authentic acts importing a confession of judgment, the lender can petition the court to seize and sell the collateral without first obtaining a judgment at trial. The lender files the petition with the authenticated documents, and the court can authorize seizure.6Justia. Louisiana Code of Civil Procedure Article 2631 – Use of Executory Proceedings An executory proceeding can move from petition to sale in weeks. Without that formality, the lender must use ordinary process, which looks like standard civil litigation and can take months or years.
A note that is not notarized is still valid and enforceable. The lender just loses access to executory process and may face more hurdles proving the document’s authenticity in court. For real estate deals, notarization and recordation are effectively essential, because an unnotarized mortgage cannot be recorded in the parish mortgage records and so provides no protection against third-party claims.
Securing the Note With Collateral
An unsecured lender has to sue, win a judgment, and then chase the borrower with tools like wage garnishment. A secured lender has a direct claim on specific property.
For personal property (vehicles, equipment, inventory), the lender needs a written security agreement signed by the borrower that describes the collateral. The lender must give value (the loan counts), and the borrower must have rights in the collateral.7Justia. Louisiana Code 10:9-203 – Attachment and Enforceability of Security Interest; Proceeds; Supporting Obligations; Formal Requisites To establish priority against other creditors, file a UCC-1 financing statement with the Louisiana Secretary of State. Without that filing, a later creditor who does file could claim the same collateral first.
For real estate, a recorded mortgage replaces the UCC filing. An unrecorded mortgage may be valid between the borrower and lender but won’t hold up against third parties who had no notice of it. Expect to require the borrower to maintain the property and carry insurance; if coverage lapses, the lender can buy it and add the cost to the debt.
Repossession Rules Are Not Uniform
Louisiana’s rule on self-help repossession depends on who is lending. Licensed financial institutions and regulated lenders can repossess collateral without going to court, as long as they do so without a breach of the peace.8Louisiana Office of Financial Institutions. Repossession Statutes A private individual lending money and holding a security interest typically does not have that self-help option and generally needs a court order. Louisiana separately prohibits self-help repossession by lessors in lease transactions, which is a different rule that sometimes gets confused with the lending context.
For real estate, the foreclosure path depends on how the mortgage was executed. An authentic-act mortgage importing a confession of judgment unlocks executory process; otherwise, foreclosure runs through ordinary process.6Justia. Louisiana Code of Civil Procedure Article 2631 – Use of Executory Proceedings
Default, Acceleration, and Cure
Define exactly what counts as a default. A missed payment is the obvious trigger, but notes commonly include others: the borrower filing for bankruptcy, failing to pay property taxes on pledged collateral, or letting required insurance lapse. Louisiana gives the parties broad freedom to define these events, within statutory protections.
Acceleration clauses allow the lender to declare the entire remaining balance due immediately when a default occurs. Louisiana courts regularly enforce them, but if the note requires the lender to give notice before accelerating, skipping that step can invalidate the acceleration. Some notes include a cure period, often 10 to 30 days, giving the borrower time to fix the default before enforcement begins. A cure period isn’t required, but it reduces litigation risk and is common in commercial transactions.
The Five-Year Prescriptive Period
Louisiana uses “prescription” where other states say “statute of limitations.” For promissory notes, that period is five years. On a note with a specific due date, the clock starts on that due date. If the lender accelerates, five years runs from the accelerated due date. On a demand note, the five years starts when the lender actually demands payment; if no demand is ever made, the note becomes unenforceable after five continuous years with no payment of principal or interest.9Justia. Louisiana Code RS 10:3-118 – Prescription
Lenders lose this deadline more often than you’d expect, especially on demand notes that sat quietly for years. A partial payment or written acknowledgment of the debt interrupts prescription and restarts the clock, but the lender has to be able to prove the interruption.
Transferring the Note
Promissory notes can be sold or assigned. A negotiable note payable “to order” transfers through endorsement and physical delivery. A note payable “to bearer” transfers by delivery alone.10Justia. Louisiana Code 10:3-201 – Negotiation A transferee who paid value, took in good faith, and had no reason to know of problems like forgery, alteration, or existing borrower defenses becomes a holder in due course and takes the note largely free of defenses the borrower could have raised against the original lender.11Justia. Louisiana Code 10:3-302 – Holder in Due Course A note that carries conditions beyond paying money loses negotiability, and the transferee takes it subject to all existing claims and defenses.
When a note secured by a borrower’s home or other real property changes hands, federal law requires the new owner to notify the borrower within 30 calendar days of the transfer, identifying the new creditor and giving contact information. The rule applies to any entity that acquires more than one mortgage loan in a twelve-month period, and a servicer holding title purely for administrative convenience is not treated as the owner for this purpose.12Consumer Financial Protection Bureau. Section 1026.39 Mortgage Transfer Disclosures
Federal Disclosures for Consumer Loans
When the note involves a consumer loan, the federal Truth in Lending Act and Regulation Z require disclosures before signing: the annual percentage rate, the finance charge in dollars, the amount financed, the total of payments, and the payment schedule.13FDIC. V-1 Truth in Lending Act (TILA) The APR captures fees and charges beyond the stated interest rate, giving a more accurate picture of the loan’s true cost. TILA generally does not cover business, commercial, or agricultural credit. A loan between two individuals for personal purposes can still trigger TILA if the lender regularly extends credit. Missing disclosures can expose the lender to statutory damages and, on certain real-estate-secured loans, give the borrower a right to rescind.
Tax Rules for Family and Private Notes
Private notes between family or friends have tax consequences people often miss. The IRS requires loans to charge at least the Applicable Federal Rate. A loan below the AFR, or at zero interest, gets treated as if the forgone interest were actually paid, creating phantom income for the lender and potentially a gift from lender to borrower.14Office of the Law Revision Counsel. 26 USC 7872 – Treatment of Loans with Below-Market Interest Rates
The AFR changes monthly and varies by term. As of April 2026, annual rates are 3.59% for short-term loans (three years or less), 3.82% for mid-term loans (over three years up to nine years), and 4.62% for long-term loans (over nine years). A ten-year family loan at 0% means the IRS imputes interest at the long-term AFR, and the lender owes income tax on interest never received. Interest actually received is reportable income.
If a lender forgives $600 or more of debt, the lender must file Form 1099-C, and the borrower generally includes the canceled amount in taxable income. Exceptions apply for debt discharged in bankruptcy, when the borrower is insolvent, and for certain forgiven mortgage debt on a primary residence; borrowers claim an exclusion using Form 982.