Principal Attorney
When a promissory note is breached, it can lead to significant financial consequences and legal disputes. Whether you are the lender seeking repayment or the borrower facing allegations of non-payment, understanding your options is critical to resolving the matter efficiently and effectively.
At Sul Lee Law Firm, we help clients throughout Texas navigate breach of contract disputes, including issues involving promissory notes. Below, we explain what a breached promissory note means and the steps you can take to resolve it.
What Is a Promissory Note?
A promissory note is a legally binding agreement where one party (the borrower) promises to pay a specific sum of money to another party (the lender) either on demand or at a future date. Promissory notes are commonly used in personal loans, real estate transactions, and business financing.
Key elements of a promissory note typically include:
- The amount borrowed
- Interest rates (if applicable)
- Payment schedule and due dates
- Consequences of default
Because promissory notes are enforceable contracts under Texas law, a breach, such as missed payments or complete non-payment, can lead to legal action.
Common Causes of Promissory Note Breaches
Breaches of promissory notes can occur for several reasons, including:
- Financial hardship or insolvency
- Disputes over the terms of the agreement
- Misunderstandings regarding payment schedules
- Changes in business operations or partnerships
- Fraud or misrepresentation at the time of signing
Regardless of the cause, both parties have legal rights and options to address a breach.
Steps to Resolve a Breached Promissory Note
If a promissory note has been breached, here are the key steps to follow:
Review the Terms Carefully
Start by carefully reviewing the promissory note itself. Look for:
- Payment terms and deadlines
- Any grace periods
- Penalties or late fees
- Remedies for breach are outlined in the agreement
Understanding the specific contractual language will inform you of your next steps and potential remedies.
Communicate with the Other Party
In many cases, an open and honest discussion can help resolve issues without escalating to litigation. Some possible approaches include:
- Negotiating a new payment plan
- Offering a partial settlement
- Agreeing to modify the terms of the promissory note
Resolving matters amicably can save both sides time, money, and stress.
Send a Demand Letter
If informal negotiations fail, the next step is typically sending a formal demand letter. This letter should:
- Summarize the breach
- Cite the relevant terms of the promissory note
- Demand payment or performance within a specific timeframe
- Warn of legal action if the breach is not cured
A demand letter often prompts resolution without the need for a lawsuit.
Consider Mediation or Arbitration
Depending on the terms of the promissory note, you may be required—or prefer—to pursue mediation or arbitration before filing a lawsuit. Alternative dispute resolution (ADR) can be faster, less expensive, and more flexible than court litigation.
In Texas, courts often encourage ADR in commercial disputes, and many promissory notes include clauses mandating mediation or arbitration.
File a Lawsuit for Breach of Contract
If all else fails, filing a lawsuit may be necessary to enforce your rights. In a breach of promissory note lawsuit, the lender (plaintiff) must prove:
- The existence of a valid promissory note
- The defendant’s failure to comply with its terms
- Damages suffered as a result
In Texas, successful plaintiffs in breach of contract cases can often recover:
- The unpaid principal and interest
- Attorney’s fees and court costs
- Sometimes, pre-judgment and post-judgment interest
It’s essential to act promptly because Texas has a four-year statute of limitations for breach of contract claims.
Defenses to Breach of Promissory Note Claims
If you are accused of breaching a promissory note, several defenses might apply, such as:
- The note is invalid due to fraud, duress, or lack of consideration.
- You already fulfilled your obligations.
- The creditor modified or forgave the debt.
- The creditor breached the agreement first.
An experienced Texas contract attorney can help you determine the strongest defense strategy based on the facts of your case.
How Sul Lee Law Firm Can Help
Resolving a breached promissory note requires a strategic approach tailored to your unique situation. At Sul Lee Law Firm, we assist both lenders and borrowers across Texas in:
- Analyzing promissory notes
- Negotiating resolutions
- Drafting and sending demand letters
- Representing clients in mediation, arbitration, and litigation
Whether you are seeking to enforce a promissory note or defend against a breach claim, we are ready to protect your rights and your financial interests.
Contact Sul Lee Law Firm Today
If you are dealing with a breached promissory note in Texas, don’t navigate the process alone. Contact Sul Lee Law Firm today to schedule a consultation with an experienced Texas business attorney.