Promissory Note (Nigeria)

A Promissory Note in Nigeria records a borrower's unconditional promise to repay a stated sum to the lender on agreed terms.

A Promissory Note in Nigeria differs from a cheque (which is drawn on a bank and payable on demand) and from a Bill of Exchange (which involves three parties — drawer, drawee, and payee). A Promissory Note involves only two parties: the maker who promises to pay and the payee who is entitled to receive payment. Once issued, a Promissory Note may be transferred by endorsement and delivery to a third party (the holder in due course), who takes the instrument free of most defects in title under the Bills of Exchange Act.

Under Nigerian law, a Promissory Note must be duly stamped under the Stamp Duties Act (Cap S8, LFN 2004). The Stamp Duties Act requires promissory notes to be stamped at the applicable ad valorem rate based on the face value of the note. An unstamped Promissory Note is not void but is inadmissible as evidence in legal proceedings in Nigeria until properly stamped and the stamp duty penalty paid. Following the Finance Act 2020, the FIRS has responsibility for administering stamp duties on instruments executed between companies.

Promissory Notes are widely used in Nigeria for: personal loans between individuals (secured by the note itself); business-to-business trade credit where a buyer acknowledges a debt and promises to pay by a specified date; microfinance bank lending, where the Central Bank of Nigeria (CBN)-regulated microfinance institutions use promissory notes as security for small business loans; and real estate purchase financing, where a developer may accept a promissory note from a buyer in respect of instalment payments for property. The Collateral Registry established under the Secured Transactions in Movable Assets Act 2017 (formerly the Collateral Registry Act) allows promissory notes to be registered as security interests in movable assets.

For enforcement of a Promissory Note in Nigeria, the payee (or endorsee) may sue the maker for the face value of the note in the relevant court — Magistrates' Court for lower amounts, State High Court or Federal High Court for larger sums. Nigerian courts have consistently held that a duly executed and stamped Promissory Note constitutes prima facie evidence of the debt obligation, and the maker bears the burden of proving payment or any other valid defence.

A Promissory Note is required in Nigeria across a wide range of personal, business, and financial lending contexts.

A Promissory Note is needed when an individual lends money to a friend, family member, or colleague in Nigeria and wishes to document the loan obligation in a legally enforceable instrument. The Promissory Note evidences the debt and can be used to enforce repayment in the Magistrates' Court or High Court if the borrower defaults.

A Promissory Note is required when a Nigerian business extends trade credit to a customer — for example, a manufacturer supplies goods to a distributor on 60 or 90 days credit — and the customer signs a Promissory Note acknowledging the debt and committing to payment by a specified date. This is common in Nigeria's FMCG, construction materials, and agricultural sectors.

A Promissory Note is needed when a microfinance bank licensed by the Central Bank of Nigeria (CBN) under the CBN Microfinance Policy issues a small business loan and requires the borrower to sign a Promissory Note (sometimes called a Demand Promissory Note) as part of the loan documentation — alongside the loan agreement and any collateral documents.

A Promissory Note is required when a Nigerian real estate developer offers instalment payment plans for property purchases and the buyer acknowledges the outstanding purchase price balance in a Promissory Note, giving the developer a negotiable instrument that can be discounted with a commercial bank if needed.

A Promissory Note is needed when a company director or shareholder makes a personal loan to a Nigerian company and the company issues a Promissory Note to the director/shareholder as evidence of the loan and a commitment to repay by a specified date — documented for transparency under CAMA 2020 related-party transaction disclosure requirements.

A Promissory Note is required when settling a commercial dispute in Nigeria — where the debtor acknowledges the disputed amount and signs a Promissory Note as part of a settlement agreement, giving the creditor a separate negotiable instrument enforceable without needing to relitigate the underlying dispute.

Parties in Nigeria should prepare a Promissory Note (Nigeria) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A valid Promissory Note in Nigeria under the Bills of Exchange Act (Cap B8, LFN 2004) must contain the following essential elements.

Unconditional Promise to Pay: The note must contain an unconditional written promise by the maker to pay a sum certain in money. A conditional promise — for example, "I promise to pay provided the goods are delivered" — does not qualify as a Promissory Note under Section 83 of the Bills of Exchange Act and will not have the legal status of a negotiable instrument.

Sum Certain in Money: The amount promised must be a fixed, certain sum of money expressed in Nigerian Naira (NGN) or an agreed foreign currency. Interest provisions are permitted — the note may specify that interest accrues at a stated rate (e.g., 10% per annum) on the principal sum from the date of the note or from the due date if unpaid.

Maker's Identity and Signature: The full name and address of the maker (the party making the promise), and the maker's original wet-ink signature. For a company maker, the note should be signed by an authorised signatory of the company under seal (or with the company stamp) and must reference the company's CAC RC number.

Payee's Identity: The full name and address of the payee — the person or entity to whom the payment is promised. The note may be made payable to a specific person, to order (which permits transfer by endorsement), or to bearer (which permits transfer by delivery). For most Nigerian loan transactions, a specific named payee is preferable for clarity and fraud prevention.

Date and Place of Issue: The date on which the Promissory Note is executed and the place of issue (city and state in Nigeria). The date is critical for calculating the maturity date of a time-based note and for stamp duty assessment.

Maturity Date or Payment Terms: The note must specify when payment is due — either on demand (payable immediately upon the payee presenting the note to the maker) or at a fixed future date (e.g., 31 December 2025) or a determinable future date (e.g., 90 days after date). For instalment Promissory Notes, each instalment amount and due date should be specified.

Interest Rate (if applicable): The annual interest rate (stated as a percentage per annum) if the parties agree that interest is to be charged on the principal sum. For personal loans between individuals, the Moneylenders Law of the relevant state may regulate the maximum interest rate.

Stamp Duty: The Promissory Note must be duly stamped under the Stamp Duties Act (Cap S8, LFN 2004) to be admissible in evidence. The stamp duty is calculated on the face value of the note at the applicable FIRS rate.

Witness: While not strictly required by the Bills of Exchange Act for validity, witnesses to the maker's signature provide additional evidentiary protection in the event of a dispute about execution.

Moneylenders and Interest Rate Regulation: Personal loans between individuals may be subject to the Moneylenders Law of the relevant state — for example, the Moneylenders Law (Cap M9, Lagos State Laws 2015) — which caps interest rates and requires moneylenders to be licensed by the State Government. The Central Bank of Nigeria (CBN) regulates consumer credit through the Consumer Credit Act 2023 and the CBN Consumer Protection Framework. Microfinance banks issuing promissory notes as loan security must comply with the CBN Microfinance Policy, Regulatory and Supervisory Framework.

Security and Collateral: A Promissory Note may be registered as a security interest in movable assets at the Collateral Registry established under the Secured Transactions in Movable Assets Act 2017 (STMA 2017), administered by the Corporate Affairs Commission (CAC) through the National Collateral Registry. Registration under the STMA 2017 perfects the security interest and gives the holder priority over subsequent creditors. For company makers, a debenture over the company's assets may be created and registered with the CAC under Section 218 of CAMA 2020.

Governing Law and Enforcement: The Promissory Note is governed by the Bills of Exchange Act (Cap B8, LFN 2004) and Nigerian contract law. Enforcement actions are brought before the Magistrates' Court (within its jurisdictional monetary limit), the State High Court, or the Federal High Court. The limitation period is 6 years under the applicable State Limitation Law — for example, Section 8 of the Limitation Law of Lagos State 2015. The Economic and Financial Crimes Commission (EFCC) under the EFCC (Establishment) Act 2004 may investigate dishonoured notes involving fraud. The Companies and Allied Matters Act 2020 (CAMA 2020) governs corporate note issuers through the Corporate Affairs Commission (CAC). Statutory Compliance Reference: The Promissory Note (Nigeria) is governed by Section 83 of the Bills of Exchange Act No. 3 of 1964 (Cap No. 35, LFN 2004), which defines a promissory note as an unconditional promise in writing to pay a sum certain. Section 84 of the Bills of Exchange Act No. 3 of 1964 sets out the rules for delivery and issue of a promissory note. Section 88 of the Bills of Exchange Act No. 3 of 1964 applies the provisions on bills of exchange to promissory notes with necessary modifications. Section 22 of the Stamp Duties Act No. 41 of 1939 (Cap No. 411, LFN 2004) renders an unstamped promissory note inadmissible in evidence in Nigerian courts. Section 8 of the Limitation Law of Lagos State No. 16 of 2015 sets a six-year limitation period for actions to enforce a promissory note. Section 218 of the Companies Act No. 1 of 2020 (CAMA 2020) provides for registration of a charge over a company's assets at the Corporate Affairs Commission as security for a promissory note. Section 4 of the Secured Transactions in Movable Assets Act No. 33 of 2017 establishes the National Collateral Registry for registration of security interests in movable assets. Section 24 of the Nigeria Data Protection Act No. 14 of 2023 requires a lawful basis for processing personal data of the maker and payee. Section 81 of the Companies Income Tax Act No. 21 of 2004 imposes withholding tax on interest payments under promissory notes. Section 240 of the Constitution of the Federal Republic of Nigeria 1999 confers appellate jurisdiction on the Court of Appeal, and Section 233 vests final appellate authority in the Supreme Court of Nigeria. Forms-legal.com provides this template as a starting point for Nigeria-compliant debt instrument documentation.