In this article I will provide some thoughts on promissory notes. This is is written from the perspective of someone who has not only drafted promissory notes, but have enforced promissory notes through litigation. The reason why I mention that is because the act of enforcing a promissory note goes hand in hand with drafting one. Like any other agreement, you want to hope for the best, but ultimately be prepared for the worst.
Before I get too far into this, I need to mention that I am a business and civil litigation attorney located in Venice, and I serve all of Sarasota County, Manatee County, and Charlotte County. This article is being written for educational purposes only. It is not legal advice. If you have a question about preparing or enforcing a promissory note, you will want to talk with a real live lawyer.
Consider the Parties
One aspect of a promissory note to consider is whether a corporation or an individual will be borrowing the money. If it’s a corporation, you want to be especially careful because a borrower can try to use that to escape personal liability. I would consider including a personal guarantee or including both the business and individual as named borrowers on the note. If you are an individual about to sign a guarantee, you want to understand the limits of the guarantee, if any, and the host of other issues that come with signing contracts and guarantees.
Include Terms for Default
It is important to spell out clear terms in the promissory note defining what a default under the note is. What if the borrower dies? What if the borrower initiates filings for bankruptcy? What if the borrower doesn’t timely pay? These situations all need to be considered (among many others) when preparing the agreement, along with the remedies in the event of default. Continue reading
