You may be required to sign a promissory note whenever you want to borrow money from a friend, relative, or financial institution. The document outlines the contract terms and assures the lender that you will pay the debt faithfully.
However, like other contracts, a promissory note should contain vital elements, without which it will become invalid. What, then, can void a promissory note? Keep reading.
The Basics of a Promissory Note
A promissory note is a legal debt instrument outlining the contract terms between the borrower and the lender. It contains a written promise that the borrower will pay the debt within the timeframe. The contract further clarifies essential information, including;
- Principal amount (in US Dollars).
- Interest rate.
- Repayment schedule.
- Accompanying clauses.
Promissory notes are useful if you wish to borrow money but don’t have the collateral to secure the loan. It’s also vital if you’re borrowing money from someone you know, but you want a binding document to present in court when necessary. Therefore, it applies to student loans, business loans, mortgages, personal loans, and secured and unsecured loans.
What Can Void a Promissory Note?
A promissory note becomes void if it doesn’t meet valid legal conditions. For instance, if the borrower breaches their contractual agreement, the lender may ask the court to void it. Below are other pitfalls that may void the debt instrument:
1) Incomplete Signatures
The lender and the borrower should sign the document to make it enforceable. The signatures should appear on the original document and amended versions, affirming both parties agreed to enter a contract. Similarly, the contract should include the cosigner’s signature if the borrower has a cosigner.
2) Unclear Clauses
A valid promissory note should clearly state the terms and conditions without any ambiguity. If some clauses are unclear, difficult to understand, vague, or written in ambiguous language, either party can question the document’s validity.
3) Unfair Contractual Terms
Promissory notes should contain reasonable clauses that are fair to both parties. If any clause is unfair or one-sided, it may be a reasonable ground to void the agreement. A high-interest rate, for instance, is a major pitfall that invalidates a promissory note.
4) Misplaced or Modified Copy
The lender usually retains the original promissory note while the borrower keeps a signed copy of the original document. If a dispute arises, the lender must produce the original copy to sue for debt payment.
Without the original version, it may be hard to prove that the agreement existed in the first place. A promissory note may also be invalid if the borrower or lender alters the document without the other party’s consent.
5) Missing Information
A legally-binding note should state the due balance or number of outstanding payment installments. In addition, the note should specify the applicable interest rates to ensure consistency.
Draft a Valid Promissory Note Today
A promissory note safeguards a debt contract through well-illustrated terms. However, if it lacks essential elements, its validity may be questionable. If you wish to borrow money from a friend, you can secure your transaction by signing a valid promissory note. You don’t even need an attorney service to do this. Simply download a promissory note template from our website.