Evidence of debt

     Consensual debt between friends or relatives is sometimes reflected only in an oral agreement.  ("Bill, can you pay for my lunch until I get some cash from the automatic teller machine?")  Sometimes even significant amounts of debt are reflected in an oral agreement. For example, in the early 1970's, a jury in a Los Angeles federal district court returned a verdict finding that the defendants, owners of the Boston Celtics, had orally agreed to sell the team to the plaintiffs for several million dollars.

     In some cases debt is unenforceable unless reflected in a writing, because of an applicable Statute of Frauds. But whether or not required, most individuals or businesses which regularly extend credit, whether through loan or sale, are likely either to memorialize debt in writing, such as through a statement or invoice, or insist on the debtor's execution of one or more documents in which the debtor (whether borrower or buyer) agrees to repay.

     Written agreements to repay take many forms. We draw your attention to two common forms, examples of which are reproduced in our sample documents: a promissory note and a retail installment contract. Both a promissory note and a retail installment contract are types of contracts and as such are subject to general principles of general contract law. In addition, some additional special legal rules apply to each. Promissory notes are a form of negotiable instrument, governed by Article 3 of the Uniform Commercial Code. As explained more fully in Commentary.Assertion of claims and defenses against assignees, a negotiable instrument confers some special advantages on some of those who are "holders" of the instrument. Retail installment contracts are subject to special federal and state legislation requiring certain disclosures or regulating certain practices in connection with the provision of goods or services to consumers.