Is a promissory note legally binding?

Simply put, a promissory note is a written agreement to pay someone. If you borrow or lend money, a promissory note sets the terms and conditions  of the loan. It is a legal document effectuating a promise to repay money. Promissory notes can be used for a mortgage, student loan, car loan, business loans and even lending money to family members and friends.

A promissory note can be a simple agreement regarding the terms of a loan from one person to another. However, unlike an informal or more “casual” oral agreement to repay a debt, a promissory note is in writing and a legal contract that is legally binding whether secured by collateral or based solely on the promise of repayment.

Common types of promissory notes include:

  • Commercial
  • Investment
  • Personal
  • Real estate

In order for a promissory note to be valid and legally binding, it needs to include the following minimum information:

  • Date created
  • Amount borrowed and amount to be repaid
  • Loan terms
  • Payment information
  • Interest rate information
  • Whether any collateral or property secures the loan
  • Whether there are any rights of transferring or assigning the loan
  • Lender and borrower information

To be enforceable, both parties must sign and date the note. This is proof that there was an offer to enter an agreement on the part of the lender and an acceptance of agreement on part of the borrower. It’s also a good idea to have the promissory note notarized.

How to enforce a promissory note

If you have lent money to another individual using a promissory note, they signed an agreement to repay you according to the terms outlined in the note. While notes are repaid in the majority of cases, what happens if the borrower doesn’t meet the terms of the legal contract they signed? How do you enforce a promissory note?

Each promissory note is a unique legal document; many promissory notes provide specific requirements confirming default procedures, acceleration of the loan and enforcement. But, in general, the first step in enforcing the note is to send a  demand letter to the borrower. If you don’t receive a response, you may want to consult a lawyer who can help you file a complaint with the court.

Hire an attorney

When a significant amount of money is at stake, hiring an attorney to enforce a promissory note is recommended.

Have questions about a promissory note?  Reach out to us for a consultation.