Legal Question in Business Law in California

Re: Unsecured promissory note

So long as there are no other provisions of the note providing for a grace period for the payers, you probably have the option of suing for the entire amount right now.

I specialize in business collection matters such as this. Please feel free to contact me if you would like to discuss this further.

Re: Unsecured promissory note

The contract is probably allowable as is. However, you have to determine if the owners have any collectable assets outside the business. You may have to demand return of the business in settlement negotiations in order to have anychance of collecting any tangible asset.

Regards,

JDH, Esq.

For more questions please call, 619.298.1969

Re: Unsecured promissory note

My opinion is that you probably cannot invoke the acceleration clause for nine days' lateness in payment unless the agreement contains an effective and applicable "time is of the essence" clause. The "immediately due" wording might suffice, but I'm doubtful.

The reason is that being nine days late may not be considered a sufficiently material breach of the agreement to warrant the non-breaching party's taking an action that results in a forfeiture of the breaching party's benefits and rights. It is said that in every contract there is an implied covenant of good faith and fair dealing, and slamming the door on a slight pretext is not considered good faith.

This concept is codified in the Civil Code at section 3275: "Whenever, by the terms of an obligation a party thereto incurs a forfeiture, or a loss in the nature of a forfeiture, by reason of his failure to comply with its provisions, he may be relieved therefrom, upon making full compensation to the other party, except in the case of a grossly negligent, willful or fraudulent breach of duty."

"Full compensation" would be payment of the overdue instalment plus legal interest for the period of delinquency, and any other costs reasonably incurred by the creditor in seeking payment.

Also, there may be formal requirements before a promissory note can be treated as defaulted; these include "presentment" - I do not express an opinion on whether they apply; it may depend upon whether these requirements are waived by the language of the note itself, which is commonly the case with attorney-drawn notes, or whether the note is negotiable, and so on.

I suggest contacting the debtor, determining when they will pay, and advising them in writing that a few weeks' forbearance this time is not a waiver of your rights to future timely payments. If the debtor is not cooperative or if you get a whiff of serious financial problems, promptly have a business attorney review your deal and advise you on how best to protect yourself, within the law.