What is a Promissory Note?
Oct 24 2019 0

What is a Promissory Note?

Simply stated, a promissory note is a written commitment to pay a fixed amount of money on a predetermined date or when asked. The main goal of a promissory note is to serve as evidence of a loan amount, interest rate, as well as any other terms on which a loan is being given. 

Based on the kind of transaction being carried out, a promissory note might or might not go with a deed of trust, security agreement, or other contractual paperwork.

Reasons to Have a Promissory Note Drafted

What is a Promissory Note?

Reason #1: Statute of Frauds. Each state has its own statute of frauds demanding that specific contracts be put into writing before any court will be able to support them. This means that oral contracts are not enforceable in these situations. In the state of California, the Statute of Frauds can be read in its entirety at California Civil Code §1624. Among other forms of contracts, it includes contracts that are unable to be completed inside of a year, an understanding by a buyer of real property that they are expected to repay their obligation secured by a deed of trust or mortgage upon the purchased property, or the sale of assets totaling more than $500.00. 

Reason #2: Avoid Disputes. In the event that a written contract is not needed according to state laws, having the document reduced to writing anyway will clearly outline the terms under which the money was borrowed and is to be repaid. This usually limits disputes and lawsuits when it is finally time to pay back the loan. As we have discussed before on this site, certain oral contracts are legally enforceable. Neglecting to put a contract in writing, however, leaves you vulnerable to a situation that is just begging for litigation, and that is something no one wants to go through.


Our business attorneys routinely hear from individuals and business owners who didn’t want to spend the money and, therefore, did not receive an appropriately drafted promissory note. Now they might be compelled to spend thousands and thousands of dollars in litigation expenses. Some contracts, such as promissory notes, do not have to be exorbitantly long to merit the force of the law behind them. 

When borrowing or lending money, never gloss over the formalities. Always get it in writing. 

To bypass the chance that your verbal business agreement will not be upheld because of a lack of proof or non-compliance with California laws, it is smart to make sure all necessary contracts are put into writing and upheld by both parties.

If you are drawing up a business contract, are interested in having a contract drawn up to memorialize your deal with another person, or need an experienced business contract attorney to examine a previously drafted document, please reach out to the trusted and qualified business law and contract law attorneys at Leiva Law Firm by calling our law offices at 818-519-4465. Our attorneys speak both English and Spanish.


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