What Makes a Promissory Note Invalid & How to Prove Validity


When you take out a loan from a friend or family member, it is possible that they’ll ask you to sign a promissory note. This document spells out the loan agreement terms and helps protect both the lender and the borrower. But what happens if something goes wrong and the promissory note becomes invalid?

In this article, we’ll first present a valid promissory note example, and then explore what makes a promissory note invalid and what happens as a result.

Promissory Note Definition

A promissory note is a document that outlines the terms of a loan agreement between a borrower and lender. In simple words, a promissory note is a written promise to pay a debt. This document clarifies the due dates and payments by putting all essential information in writing. Some of the information it contains includes:

  • the loan amount
  • interest rate
  • repayment schedule
  • any other relevant clauses

Every promissory note is legally binding, and it acts as a contract between the borrower and lender.

The promissory note is by definition often used in situations where one party promises to repay a loan to another party. Promissory notes are used for a wide range of purposes, from informal loans between friends to substantially larger business loans. The most common uses of this type of contract include:

  • business loans
  • secured loans
  • unsecured loans
  • mortgages
  • personal loans
  • private student loans

What Does a Valid Promissory Note Look Like?

As with any other contract, a promissory note should contain all the necessary terms and conditions that are part of the agreement between the two parties involved in order to be legally binding. Since each state has its own rules regarding when is a promissory note valid or invalid, you should check your state’s legislation when writing one.

Generally speaking, every promissory note should contain the following details:

  • Payor or borrower: The name of the person or institution that offers to pay off the stated debt.
  • Payee or lender: The lender’s name – an individual or business lending the money.
  • Date: The date when the promissory note was created, as well as the date of the expected repayment.
  • Amount of principal: The exact amount of money borrowed.
  • Interest rate: If there is interest on the loan, the promissory note should state it. The interest rate may be of two types: simple or compounded.
  • Details of each payment: The rules state that in order to avoid a failure to pay off a promissory note in the case when multiple payments are required, the note should detail how often payments will be made as well as the amount of each payment.
  • Date the promissory note ends: In the case of an amortized loan (one that is paid off in a series of even and equal payments on a certain date), the last payment will be the final installment. A balloon payment may also be specified in an agreement, indicating when the entire unpaid balance will be due.
  • Signatures: Make sure the promissory note includes the signatures of both the borrower and lender. The document must include each party’s signature because what happens if you don’t sign a promissory note is – it becomes invalid.
DID YOU KNOW: You may also personalize a promissory note to match a particular lending agreement. However, when you’re drafting your note, it’s a good idea to use a verified template. You’ll avoid any unpleasant surprises by using the proper wording when generating your document, ruling out any breaches of contract.

What Makes a Promissory Note Invalid?

As we’ve already mentioned, a legal note must meet certain requirements to be valid.

Here’s what can make your promissory note invalid:

  • Incomplete Signatures

Both lender and borrower must sign the original document (plus any amended versions). This way it’s clear that parties agree to the loan’s conditions. What happens if you don’t sign a promissory note is that the contract wouldn’t be considered legally binding.

  • Unfair Terms

The terms of a promissory note must be fair to both parties involved. If there are any clauses that are unfair or one-sided, it could make the entire document invalid. The majority of the states, for example, set limits on the amount of interest that may legally be charged on various sorts of loans. This means that if the interest rate is too high or if repayment is due too soon, these could be considered unfair terms.

  • Unclear Clauses

If there are any clauses in the promissory note that are unclear or difficult to understand, this could question the promissory note’s validity. All terms and conditions should be clearly stated in plain language in order to avoid any ambiguities.

  • Lost Original Copy

If the original promissory note is lost or destroyed, this could make the agreement invalid. The lender should keep the original written loan agreement.

  • Missing Payment Amount

A promissory note can become invalid if it omits the total amount of money owed by the borrower to the lender or the number of payments due. If there are multiple payments, the date each installment is due should be included.

  • Missing Interest Rate

People often ask, are promissory notes legally binding if they’re missing the interest rate? And the answer is that very rarely can such a document lack interest rate information, even in the case of P2P lending. Putting it in writing helps to protect both parties involved in the agreement and makes sure that they both fulfill their obligations.

  • Past the Statute of Limitations

If too much time has passed since the date of repayment specified in the promissory note, it may be past the statute of limitations for debt collection in your state. Depending on the state you live in, the promissory note may expire 3-15 years after it’s been created.

  • Changes Made without a New Agreement

Another way how to void a promissory note is to make changes regarding its terms after it has been signed. If any changes must occur, both parties must sign a new agreement, known as an amended version. Otherwise, the document will no longer be valid. This concerns changes to the repayment date, interest rate, or amount of money borrowed.

What Happens When a Promissory Note Becomes Invalid?

If a promissory note becomes invalid, it can have serious consequences for both the lender and the borrower. The lender may not be able to take legal action against the borrower if they default on the repayment. The borrower may consider such circumstances as a solution to how to get out of a promissory note.

This doesn’t mean that the debt is canceled completely. The lender can still try to collect the debt through other means, such as contacting the borrower directly or hiring a collection agency. If you are unsure about the validity of your promissory note, consult an attorney.

Key Takeaways

A promissory note is a document that outlines the terms of a loan agreement between a borrower and a lender.
Are promissory notes legally binding? Yes, as long as they meet certain requirements.
Things that can make a promissory note invalid include:

  • unfair terms
  • missing signatures
  • missing payment amount
  • changes made without a new agreement
If a promissory note becomes invalid, the lender may not be able to take legal action against the borrower, while the latter may experience damage to their credit score if the lender turns to a collection agency.

How Can You Prove Promissory Note Validity?

In the process of checking the validity of your note, the court will check the following things:

  • The Form of the Promissory Note

A written contract is required for a promissory note to be enforceable and valid; a verbal promise will not be considered a promissory note in court. As a result, lenders often employ standard forms as promissory notes that have been worded according to state law.

  • The Monetary Aspect

How long and under what circumstances is a promissory note valid? For as long as it takes to repay the borrowed amount. The sum should be expressed in a legitimate currency, according to the law. Apart from the principle of the loan, it should include:

  • a statement of the interest rate (if any)
  • the frequency with which scheduled payments will be made
  • the date on which the loan will mature (also known as the promissory note maximum duration)

If the note does not include this vital information relating to the loan’s repayment, it cannot be legally enforced.

  • The Signature

Even if a promissory note states the sum in the proper currency and has the most comprehensive of terms, if it’s not signed, that’s one of the cases when a promissory note is invalid.

After all, a promissory note is a kind of contract, therefore it will only be binding if the borrower signs the document. The signatures of both parties are important to indicate that they have accepted the terms of the agreement.

DID YOU KNOW: Getting your promissory note notarized is another way to make sure that it’s enforceable. This way, you’ll have a record of the agreement and will avoid any difficulties in the future. Although signatures are sufficient proof that your note is genuine, you may benefit from having a notary witness in certain situations.


From incomplete signatures to exceeded time frames according to the statute of limitations, an invalid promissory note can cause serious consequences for both the lender and the borrower. To protect both parties, use a promissory note template and pay close attention to the promissory note’s content.


What is not essential for a valid promissory note?

Apart from all the other information that must be included in a promissory note (payment amount, loan term, etc.), excluding an interest rate is not what makes a promissory note invalid. This is because in some instances the borrower does not require an interest to be paid.

What is required for a promissory note to be a valid instrument?

A promissory note must include the payment amount, loan term, repayment schedule, and signatures from both parties. Additionally, any changes made to the agreement must be agreed upon by both parties and documented in a new agreement. Without this information, the promissory note may be considered invalid.


As challenging as she looks, Kristina loves to question things. Her analytical skills give us a fresh look at markets, products and services and her experience as a real estate agent keeps our related topics up to par.

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