Promissory Notes

By definition, a Promissory Note is an “unconditional promise to pay money.” Since the promise is unconditional there are very few legal defenses to non-payment of a promissory note. However, a promissory note is also a contract, therefore any defense to a contract, the most common of these being fraud or duress, could stand as a defense to a promissory note.

The first question you must ask is whether or not the document you signed is technically a promissory note in the eyes of the law. The “promissory note,” at first glance, may not appear to be a note at all, but rather a hefty document containing a multitude of provisions. It is likely that the document may not meet the parameters for the legal definition of a promissory note at all; further, it may, in fact, fit the legal definition for a routine contract, containing provisions unrelated to a promise to pay money, such as restrictive covenants and trademark policies. This is an important distinction to note because the creditor, or owner, of a Promissory Note has the advantage of issuing expedited court action against the debtor, a defense which does not apply to regular contracts.

Next, you must consider whether you’ve been subjected to fraudulent inducement. Perhaps you were promised certain benefits that strongly influenced your decision to sign the promissory note. Some of these frequently promised benefits may include:

  • A specific loan amount that was listed in the promissory note as a lower amount than that which was promised at your time of hire.
  • A licensed sales assistant, paid for by the firm, or Bloomberg terminal that was never provided
  • A higher payout or a larger backend bonus, the amount of which appeared to be reduced when you signed your promissory note.

In any of these scenarios, a strong case can be made that you were fraudulently induced to sign the promissory note. In these conditions, you may argue that you were under duress at the time of signing. What does duress look like for the employed debtor of a promissory note?

Generally, after the employed broker resigns from his or her previous firm, he or she would first file their ACATS with the new firm. Once the broker has traded their accounts to the new firm, he or she will likely be asked to sign a stack of standard documents. The newly employed may notice that the amount of the signing bonus is less than that which he or she was promised; additionally, the the offer summary may exclude other previously promised provisionary implications, such as a paid registered sales assistant or Bloomberg terminal. At that point, the newly employed broker just resigned. Nearly cornered into doing so, the broker signs the promissory note, fearful of facing unemployment.

It is this fear of unemployment and the imminent threat of what may happen if you don’t sign the document that summarizes duress on the part of your new firm. Since the crash of 2008, FINRA arbitration panels have been more receptive to promissory note defenses. These arbitration panels do no longer maintain power in eliminating or reducing your promissory note debt if effective legal defense is presented, The skilled arbitration attorneys at Lubiner, Schmidt & Palumbo are ready to assist in defending you against fraudulent inducement or duress.

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