Legal Question in Business Law in California
Promissory Note
I loaned $20,000 to a friend of a friend who was starting a new venture a year and a half ago (terms= $20k plus 10% payable in one year). Knowing the risk of such a start-up, I had him sign a personal promissory note in addition to the business contract to ensure payment in case the business failed. Well, the business failed and he paid me $2000 procured from the sale of the business' assets. However, he is saying he doesn't legally have to pay me the remainder of the loan because he worded in the note that he would pay me ''with assets AS OF'' the due date on the note. He had no assets as of that date. I am wondering if he has a legal right not to pay me because of the wording? Thanks.
4 Answers from Attorneys
Re: Promissory Note
A condition in a promissory note or other obligation limiting the recourse of the lender to a cartain pot of assets is valid on its face and could be a defense to any suit to recover the unpaid balance. Your case is significantly weakened by the provision. However, you case is far from hopeless. There are at least four, maybe five, possibilities to assert a successful claim, including a couple based upon fraud.
A more complete analysis and opinion would require reviewing the loan documentation and the capitalization and operation of the business, and the circumstances surrounding its failure including whether it sought bankruptcy protection.
The moral of the story is that personal promissory notes, prepared without exprerienced legal assistance which would have obtained for you an absolute personal guaranty and a pledge of collateral, security agreement and UCC-1 filings, are not very useful when the borrower decides he won't honor his moral obligation to repay.
Re: Promissory Note
This case will depend on how the court views memorandum and writtings as well as the crediblity of witnesess. We would be happy to provide you with consultation and review your documentation. 714 363 0220
Re: Promissory Note
There is not enough information to tell. The entire note would have to be reviewed.
Joel Selik
www.SelikLaw.com
Re: Promissory Note
It appears from info received that interest may be owed, however, may be problem in rate unless you are a broker. Need more info.
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