Promissory Notes

A promissory note is written promise signed by a borrower to pay a specific sum of money to a specific person by a certain date or on demand. Under Florida’s codification of the Uniform Commercial Code, a promissory note is a negotiable instrument payable to its holder in due course. The elements to an action for breach of promissory note are:

• Defendant executed a Promissory Note &
• Plaintiff owns and holds the Note &
• Defendant either:
  • failed to pay the Note when due or
  • failed to pay the installment payment due on the note and Plaintiff elected to accelerate payment of the balance &
• Defendant owes the Plaintiff a specific amount on the Note that is due with interest since a specific date

Defenses to Breach of Promissory Note

There following are defenses to a cause of action for breach of promissory:

Accord and satisfaction: Florida law provides that an accord and satisfaction is a new agreement between two parties, a debtor and creditor, which results when the debtor tenders to the creditor and the creditor accepts and negotiates in full satisfaction and discharge of a prior disputed debt an amount owed to the creditor by the debtor.

Discharge in bankruptcy: The debt was discharged in bankruptcy and thus the plaintiff cannot recover.

Duress: Duress requires a showing that the act was involuntary and was caused by some improper or coercive conduct by the other party.

Estoppel: Collateral estoppel is a judicial doctrine which in general terms prevents identical parties from relitigating issues that have previously been decided between them.

Fraud: One who is guilty of fraud himself or herself by participating in the fraud may not recover for causes of action based upon fraud. Fraud must be plead with particularity as the circumstances permit.

Illegality: Florida courts indulge the presumption that all contracts are lawful and if illegality exists it must be alleged and proven. Illegality serves as a good defense if it can be shown that the claim arises out of an illegal contract. For example, if a contract is entered into for the sale of illegal drugs and the buyer takes the drugs but doesn’t pay for them, our courts will not enforce the contract by ordering that the buyer to return the drugs or pay for them.

Laches: The defense of laches is appropriate when the plaintiff’s undue delay causes the defendant undue prejudice.

Payment: The Florida Rules of Civil Procedure require payment to be asserted in the defendant’s answer to the plaintiff’s complaint when raised as a defense.

Release: A release or a waiver can result in the plaintiff’s relinquishment of the right to bring the claim against the defendant. The execution of a valid release results in the termination of all rights covered by the agreement. A release “conclusively resolves all claims” covered by the release. A “general release” encompasses all claims which have matured at time of its execution. In determining what rights are covered by a release, courts must look to the intent of the parties as expressed in the document itself.

Res judicata: Res judicata bars a claim if it was already litigated between the same parties in such a way that the first judgment was conclusive as to all matters that were or could have been decided in the first action.

Statute of frauds: Florida’s statute of frauds is codified at Fla. Stat. § 725.01 and requires the following agreements to be in writing in order to be enforceable: any agreement that is not to be performed within 1 year; transfers of real property; promises to pay another’s debt and prenuptial agreements.

Statute of limitations: There is a five-year statute of limitations period for actions to recover on a breach of contract like a promissory note.

Waiver: A waiver is an intentional relinquishment of a known right or privilege. In order to establish a valid waiver, the following elements must be satisfied: (1) the existence at the time of the waiver of a right, privilege, advantage, or benefit that may be waived; (2) the actual or constructive knowledge thereof; and (3) an intention to relinquish that right, privilege, advantage or benefit.

What is a Personal Guarantee?

In its simplest form, a personal guaranty is a promise to pay someone else’s debt if they default on their payments to the creditor. A personal guaranty to repay a debt is evidenced by a separate written agreement called a personal guaranty that corresponds to a promissory note. Most lenders and commercial landlords require that a person sign a personal guaranty at the time that his/her business enters into a commercial lease agreement or when their business borrowers money through a loan or a line of credit. This helps ensure that the creditor will be paid back because the guarantor has “skin” in the game and will be held personally liable for the third party’s debt should the guarantor fail to repay it upon default. Often times the owner of the business may feel like they have no choice but to sign a personal guaranty and hope for the best. A personal guaranty is a powerful tool for creditors and it should therefore be insisted on by creditors and in the same token avoided by borrowers whenever possible.

Breach of a Personal Guarantee

It is appropriate for a Plaintiff to file a claim for a breach of a personal guaranty agreement when the borrower defaults on his/her obligation to repay the debt and the guarantor subsequently also refuses to pay it. As in all lawsuits, the burden is on the Plaintiff to show the court that all conditions to the guarantor’s liability have taken place and been performed.

Successful defenses to breach of a guaranty agreement arise out of factual disputes concerning payment and fraud. For example, a guarantor may allege that he/she was fraudulently induced into signing the guaranty. If a guaranty agreement is unclear and outside evidence is therefore needed to properly determine what the parties intended, then a jury trial is necessary.

What do I if I’m Involved in a Claim for Breach of Promissory Note or Personal Guaranty?

There are numerous important steps a Plaintiff must take in court in order to prove up a claim for breach of promissory note and corresponding guaranty in order to be awarded a final judgment. These include producing the original executed note to the court, showing that the borrower committed a material breach under the note by failing to pay it back, giving notice to the guarantor of the default and demanding payment, and showing the court that the Plaintiff is the correct party to be sung on it. Often times, Plaintiff’s overlook the most crucial part of their case–damages. A Plaintiff must prove his/her damages to the court with certainty in order to be awarded a judgment against a Defendant. Similarly, Defendants should not leave the outcome of such lawsuits to chance. Often times there are factual scenarios that lend themselves to defenses or other legal options available that can help minimize the legal impact of being sued. I can help you navigate the formation, negotiation and any legal dispute pertaining to promissory notes and guarantees.