Business Law Promissory Notes Discussion

Discussion 12 ResponseFirst Post by Student
Woemmel by Disc 12
Promissory notes are a form of negotiable instrument. These instruments can either be secured or
unsecured, and both can be transferred to third parties. In Acme’s case, we would be the third party.
Debtors who sign a promissory note must pay the note, or they are in default. In scenarios where the
note is secured by collateral—such as consumer goods and vehicle purchases, we can repossess the
collateral and either keep it or sell it or dispose of it in some other way. Repossession can either
satisfy the debt in full or act as partial satisfaction, in which there will be a deficiency.
Two methods of Repossession:
Self-help: We repossess the collateral ourselves, or hire a contractor to do it for us. In this case, we
must not breach the peace. “Breach of peace” is not strictly construed by all jurisdictions and what is
considered to be a breach of peace in one jurisdiction may not be in another—in general, one must
not break the law, for instance… go into a locked home to retrieve the collateral, cause a disturbance
while collecting the collateral, or commit assault/battery.
Judicial: Go to court and have a judgment entered against the debtor. This will place a lien on the
property, in which case it is non-transferable and the party would need to give it up to settle the
debt.
Perfection, perfection, perfection…
In all PMSI and non-PMSI promissory notes, a standard UCC financing statement should be filed with
the keeper of records for the state—in general, the Secretary of State for the state in question. This
alerts others that we have a security interest in the collateral—this is first in time, first in right.
Whoever files first gets priority, others are considered junior lienholders and therefore subordinate
to the first lienholder.
Similar rules apply for mortgages, however, a foreclosure proceeding must take place before the
collateral can be sold (usually at auction)
All are subject to a “commercially reasonable” standard, whereby the selling price must closely
correlate with the actual worth of the collateral, the sale can be private or public (except for real
estate, which is sold at auction on the court house steps).
Notice must be given to parties before collateral is sold or otherwise disposed of. Collateral cannot
be kept if more than 60 percent of the price has been paid, or debt satisfied in case of non -PMSI
interests.
References:
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Second Post by Student
Discussion 12 by Bechtol
Boss,
A few weeks ago you brought me a handful of promissory notes to
process. These included several notes from retail stores, real estate
and vehicle sales. None of the note makers are paying. There are
several options we should look into for recouping the bad debt.
Looking into the promissory notes, they have all been validated by
promisor signature which are legally binding negotiable
instruments. From this perspective, we have options to pursue these
notes. I have kept records of each of the payment transactions for
each note. Keep in mind that statutes of limitations will start from
either the moment the last payment on the individual promissory note
was made, or if no payments were made, then the date when the note
was signed.
For the retail debts, should they fall within the prescribed limitations,
we should first employ a non-payment notice to the promisors. This is
something the courts will ask us to do before we proceed
further. Reasonable expectations for payment after the notice is 15-30
days. (Sehgal 2020) Should this not work for recouping our payments,
we could consider engaging the services of a collection
agency. Collection agencies are good for understanding borrower’s
rights, while making persistent attempts to collect debt. They are paid
based upon the amount of debt they collect. If this method is not
successful we can proceed to civil court to recoup the debt owed. The
borrower’s credit report will be effected and could even lead to wage
garnishment through their employer. If the retail items are larger
appliances or expensive furniture, the court could rule in favor of
repossession.
For the real property and vehicles, the same general principles apply,
only the courts would typically rule in favor of repossession for vehicles
and foreclosure for property.
Before we proceed legally, we should engage each promisor and
possibly take a different approach for payments that would suit both
parties. If we can seek middle ground on restructuring payment
amounts and intervals it could work to our benefit in a couple of
ways. First, it’s not uncommon for promisors to run into financial
problems. We could work out an agreement that could encourage
consistent payments if they make business sense. Secondly, should
taking this approach work, we would save time, effort and money by
not taking these to collections, or pursuing legal action.
There are risks associated with promissory notes. “Problems with
promissory notes fall into three main categories: fraud and deception
of investors, unregistered securities and unregistered sellers.”
(Promissory Notes 2020) Fraudulent promissory notes are made by
those deceiving someone with ridiculous returns. If these promissory
note has not been registered with the SEC or the state they are sold in,
the investor could be at risk because they did not gather the necessary
terms to ensure the debt could be repaid.
Sehgal, D. R. (2020, August 9). Procedure for filing of civil cases in
promissory note. iPleaders. Retrieved March 3, 2022,
from https://blog.ipleaders.in/procedure-filing-civil-cases-promissorynote/
Promissory Notes Can Be Less Than Promised | FINRA.org. (2014, July
14). FINRA.ORG. Retrieved March 3, 2022,
from https://www.finra.org/investors/alerts/promissory-notes-can-beless-promised