Challenging the Enforceability of a Promissory Note: The Reach and Limits of the 'Sham' Exception
'Greenleaf' presents a clear framework for alleging, and demonstrating, a bona fide defense to the enforceability of a promissory note by establishing, through parole evidence, that the actual intent was to never enforce the note at all.
June 11, 2021 at 10:45 AM
8 minute read
Commercial real estate transactions, whether financed through traditional commercial lenders, or self-financed by the seller/lender, often involve the buyer's/borrower's execution of a promissory note. A promissory note, in its simplest terms, is a written statement evidencing that money is owed to the seller/lender (the Holder) by the author (the Maker) of the statement. The Holders often agree to make the promissory note because it facilitates the underlying transaction, may be transferred to other people who can then demand payment from the person or entity that originally owed money to them, and most significantly, because the Holder can, presumably, expeditiously enforce the promissory note in court without further evidence of the underlying reason why money was ever owed to the Holder. However, while the Holder may not have to concern itself with the debtor challenging the underlying transaction, courts are often left dealing with attempts to introduce parole evidence to show that the note was not a note at all.
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