Legal Question in Administrative Law in California

is a notarized IOU as valid as a promissory note?

I want to make sure I have documentation that will hold up in court for a loan I have given to a friend. Will a notarized IOU (writen by me in my wording) suffice, or do I need a promissory note?

Asked on 11/17/07, 4:11 pm

3 Answers from Attorneys

Clayton Lee Russakow, Ryan & Johnson

Re: is a notarized IOU as valid as a promissory note?

How good a friend? Do yourself a favor, spend a few bucks at and run a background check on your friend looking for other creditors, judgments, arrests, etc. You can have the best promissory note there is, if your friend is judgment proof, your note is worth the paper it's written on.

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Answered on 11/18/07, 11:20 am

Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: is a notarized IOU as valid as a promissory note?

The law covering promissory notes has been simplified over the years, and many of the technical drafting rules of the 19th Century are now ancient history. Still, it's not possible to cover everything essential to drafting them in a LawGuru response. Here, however, are some considerations:

1. The note can be either negotiable or non-negotiable.

2. "IOU" is not a legal term with a fixed and definite meaning. I would think a promissory note would always be an IOU, but not all IOUs are necessarily promissory notes.

3. Having a promissory note notarized is not usual nor, for any reason I know, necessary. Nevertheless, it is a way to make the debtor feel that the debt and the duty to repay will be taken seriously by the lender, so I guess it has a useful psychological effect.

4. The note or IOU should specify the interest rate, but be darn sure it is does not exceed the usury ceiling, currently 10% I think.

5. The date of maturity, principal amount due, place for payment, and the identity of the Maker and the Lender should be clearly specified.

6. The words "promise(s) to pay" should appear in the text at the appropriate point.

7. Promissory notes also fall into two categories based upon whether they are secured or unsecured.

8. As the other lawyers have pointed out, having specified collateral as security is a darn good idea, and with some borrowers a necessity, and even then lending on personal IOUs is risky.

9. Writing a valid secured promissory note is somewhere between slightly and a lot more complex than writing an unsecured note.

10. The easiest way to secure a note is to take physical possession of the collateral, but then you have to care for it and maybe insure it.

11. Obtaining a valid (perfected) security interest in collateral when you don't have possession is beyond the possible scope of this response, but may require a security agreement separate from the note and a UCC-1 filing with the Secretary of State.

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Answered on 11/18/07, 2:04 pm
Tina Nia The Law Offices of Tina A. Nia, APLC

Re: is a notarized IOU as valid as a promissory note?

You're better off with a notarized promissory note; even better if there is some collateral on the note.

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Answered on 11/17/07, 9:49 pm

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