Promissory Note
A written instrument by which one party (the maker) unconditionally promises to pay a sum of money to another party at a specified time or on demand. A note that meets the negotiability requirements of UCC Article 3 is a negotiable instrument.
A promissory note is a written instrument by which one party (the "maker") unconditionally promises to pay a sum of money to another party (the "payee" or to the holder of the note) at a specified time or on demand. A note that meets Tex. Bus. & Com. Code § 3.104(a) is a negotiable instrument under UCC Article 3, codified in Texas at Chapter 3. A note that conspicuously states it is not negotiable is not an instrument under that chapter (§ 3.104(d)) and is enforced as a contract.
Required elements for negotiability (§ 3.104)
(1) Unconditional promise to pay; (2) a fixed amount of money; (3) payable to bearer or to order; (4) payable on demand or at a definite time; (5) does not state any other undertaking by the maker except as authorized by Article 3 (e.g., promise to provide collateral, confession of judgment, waiver of laws benefiting the obligor). A confession-of-judgment clause does not defeat negotiability, but in Texas a person may not confess a judgment in an instrument executed before suit is brought (Tex. Civ. Prac. & Rem. Code § 30.001).
Holder in due course (§ 3.302)
A holder who takes a negotiable instrument (1) for value; (2) in good faith; (3) without notice of overdue status, dishonor, an unauthorized signature or alteration, a claim to the instrument, or a defense, when the instrument bears no apparent evidence of forgery or alteration (§ 3.302(a)), takes free of most defenses available against the original payee. This doctrine is the principal commercial value of negotiability, a holder in due course can enforce the note even if the maker has defenses (failure of consideration, fraud in the inducement) against the original payee.
Statute of frauds
A loan agreement over $50,000 in which a financial institution, as Tex. Bus. & Com. Code § 26.02(a)(1) defines it, lends money or extends credit is not enforceable unless it is in writing and signed by the party to be bound or that party's authorized representative (§ 26.02(b)). Credit cards and consumer open-end accounts are excluded. Promissory notes evidencing such loans satisfy the requirement.
Promissory notes are foundational to commercial lending and often paired with security agreements, guaranty agreements, and UCC-1 filings to create a complete secured-transaction structure. Note drafting involves precise specification of principal, interest rate, payment schedule, default, and acceleration terms. Defects affecting negotiability eliminate the holder-in-due-course protection and reduce the note to ordinary contract status.