Legal Question in Business Law in Pennsylvania

Pierre loaned his sister Patti 2,500 so that she could start a gymnastics coaching business. Pierre told Patti to pay him back whenever she could, with no interest. Patti wrote out an "IOU" to Pierre evidencing the loan. Does Pierre own a security in this instance? Why or why not?

Asked on 10/17/13, 5:50 pm

1 Answer from Attorneys

Another law school quiz. Or else its your homework assignment and you are asking lawyers to do the work for you..

This is not a secured debt. A secured debt is secured by property of some kind. Think of a mortgage on a house - the borrower, to get funds to buy the house, grants a mortgage to the lender. The lender loans the funds which the borrower repays. If the borrower defaults, the lender then forecloses and takes back possession of the house. Same with a car loan - if the borrower does not pay, the car lender repo's the car.

In your example, you have a promissory note. There is nothing in your facts to suggest that at the time the note was signed that Pierre took any collateral as security for the loan - for example, Patti could have given title to her car, or a stock certificate.

Since there is nothing in your facts to suggest this, I would conclude that the promissory note is an unsecured debt meaning that Pierre has to sue Patti to recover for the money loaned. With a judgment he can go after property owned by Patti. However, he has no right to any pre-judgment possession of any particular item of property owned by Patti.

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Answered on 10/17/13, 6:00 pm

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