Facts about the promissory notes and the law
When you borrow an amount of money and agree to pay it back, you have created a verbal and binding legal obligation. In most cases, it is formalized in writing detailing the payment conditions. Such a legal document is generally known as a “Promissory Note” and is the subject of this article.
A promissory note is NOT the same as a personal, informal promissory note. An informal promissory note acknowledges that a debt exists, but specific payment details are not usually included. Banks and financial lending institutions often require the borrower(s) to carefully read, properly date and sign an itemized promissory note even before a loan is processed. The borrower(s) are also instructed to hold the promissory note until the loan amount is due and payable. This is because it contains essential information related to interest rates along with the amount of principal that needs to be repaid.
The execution of a promissory note duly drafted and duly dated and signed is sufficient in most cases to deal with any litigation initiated against a borrower. However, the law allows some exceptions as a rule.
For example:
If a borrower can prove that he or she signed the Note while under extreme duress (in other words, while under undue pressure from the lender), then a court-appointed judge may rule that the Note is legally unenforceable. Borrowers should carefully read and ONLY sign an entire promissory note, not simply place their signature at the bottom of a blank document.
Side point: A promissory note must not specify terms that would be construed as fraudulent and illegal in another county or state. Such as an extremely high interest rate or strict penalties that are not mentioned or detailed in the document itself.
The law requires certain legal requirements in the preparation of a promissory note. For example: The law requires the lack of ambiguity and competence to execute the Note.
Here are the main points of consideration:
1. Correct identification of all Parties.
2. The exact amount owed and the interest rate.
3. Date and schedule of payments.
4. The right to legally transfer the note and obligation to another party.
5. The place of celebration and execution of the Promissory Note.
6. The actual signature line.
THE STATE USURY LAW AND THE DEBTOR
Usury is illegal in some states. It is generally defined as charging too high an interest rate for a particular type of financial loan. But certain institutions are legally exempt from usury laws (that’s why credit cards are so expensive), plus real estate brokers can engage in financial loans involving real estate and, interestingly enough, be legally exempt. . However, most citizens are subject to usury law and penalties apply for violating those laws. This may include the loss of ALL interest receivable. However, in general, a person will only lose the interest that will be charged and not the principal amount.
In the state of California, for example, the figure of 10% is considered the normal limit of legal interest. This is of course subject to various exceptions as mentioned above. If you decide to charge more than 10% and/or if you are charged more than 10% interest, you should seek professional legal advice and counsel immediately.
Knowingly participating in predatory interest transactions can be charged as a felony.
If you are considering an “oral” Notice, you may also want to consult an attorney. But if you are thinking of using a paper promissory note… MAKE SURE IT IS PROPERLY DATED AND SIGNED BY THE BORROWER.
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