Do promissory notes hold up in court?

Do promissory notes hold up in court?

On Behalf of | Feb 13, 2023 | Collections

Promissory notes are legally binding contracts that can hold up in court if the terms of borrowing and repayment are signed and follow applicable laws.

Important details to include are:

  • The amount of money borrowed
  • Who borrowed the money
  • The date the sum was borrowed
  • The loan’s interest rate (if any, and make sure it is not usurious)
  • The recipient of the repayment
  • The method of repayment
  • The borrower’s signature

Once the borrower signs the note, the lender keeps the agreement as proof of the terms of the loan, but they should also share a copy of the original with the borrower. A valid note in California must include the borrower’s signature.  The better the evidence, the better the chances the promissory note will hold up in court. So think of adding details, having all parties and witnesses sign the note, keeping proof of funds exchanged (checks – fronts and backs, bank statements, etc.), potentially notarizing the signatures, and more.

4 Common examples

Promissory notes typically fulfill the same role, but there are different kinds. These are categorized by reason for the loan and type of loan. Four examples are:

  1. Real estate promissory note: This usually involves seizing real property until they repay the debt. The default of this loan can become a public record. These notes must be notarized by law.
  2. Commercial promissory note: This involves a commercial lender who can legally hold the borrower responsible for the total amount owed.
  3. Investment promissory note: This involves an investment in a business deal.
  4. Personal promissory note: This is an agreement between two individuals, who may be friends or family.

Is it time to collect?

Collections attorneys who understand the laws here in California can be a big help in securing the money owed to their clients. Creditors tired of the debtor dodging their obligations can contact an attorney who can enforce the contract and utilize other collection tools.