Can I make a legally binding contract?

Question

I am just a very simple person. I do not know much about law. If I make a "contract" that states simply:
"(Person's name) borrowed money on this date, 10-03-08, and has promised to repay entire amount by 11-3-08"

My name, his name and a witnesses name will be signed on the contract.

Can this be a legally binding contract or not? Can only lawyers/attorneys create legally binding contracts?
What can I do to make it as legal as possible?

Answer 1

A legally binding contract can be written or verbal. There is no need for an attourney to get involved. If it is written then that's better because there is a record of what was agreed.

I must ask though, why lend money? It's not going to matter if you have a legal contract if the person you are lending it to is broke. You can't make someone pay if they don't have any money.

There is a saying amonst lawers - in litigation, nobody wins except the lawyers.

My advice, hold on to your cash. Having a legally binding contract doesn't guarantee you a thing.

Answer 2

That's basically all you need except to put in your name as lender. However, what happens if the first person doesn't pay the money back?

Do you lose the money? Is there interest accummulated? Where do you file the small claims (or higher) court action? (jurisdiction)

Add to your above contract something to this effect.

If (person's name) does not repay the entire amount on the agreed-to date (as stipulated in this instrument), lender retains the right to begin charging simple interest at the rate of 10% per annum from the date the loan is due (10-03-08) until such time as either the full amount is repaid as per this instrument or a resolution of legal proceedings has occurred and full recovery is affected.

Choice of venue shall remain in lender's county for all matters not resolved under this agreement.

TO ADD:

JP made a very good point and one I forgot. Also, the reason I included the choice of venue is so you are not required to go chasing the borrower wherever they live.

Your county, regardless of where the contract is perfected, remains where any lawsuit will be heard based on the plain language of the contract itself.

NEVER give the other party personal or subject matter jurisdiction.

Answer 3

The answers below are good. I recommend to just prepare a simple promissory note, with your info and borrower's info, including payments amounts (or a one lump sum) dates, and make sure you include atty fees sentence, in case it goes to court (I hope not). No need to mention interest, as the promissory note automatically allows you the legal rate of 10% in court. If you are lendign money to a close friend or family member, it will be hard to add all the wording necessary that is why a promisore note is simple and better. If it's not someone close to you, you can make more like a contract.

Answer 4

I just love reading some of the responses. A little knowledge can be a dangerous thing.

The best way to make this contract is to write, "For value received, I promose to pay $X to (Lender) on or before November 3, 2008.

Then he signs it.

You can have it witnessed or notarized, which will make it easier to prove this promissory note was actually signed by the borrower, but those are not needed.

If you sue, be sure to sue in the borrower's county. The note automatically bears interest at the "legal" rate, which may be more or less than 10%. The reason why a lay person should not specify a rate is that you don't have the skills to know if the rate you'e charging is usurious, and usury results in the loan being forfeited.

Answer 5

Some good answers here. I would add that in general, you cannot recover attorney fees unless the contract provides for it. So, I would add the following:

In the event that litigation is necessary to enforce the terms of this agreement, the prevailing party shall be entitled to recover costs, including reasonable attorney fees.

That way, if you need to hire a lawyer to help you down the road, you have at least a shot at recovering the legal fees.

Answer 6

If I were you, I wouldn't loan money to anyone. There is a big chance you won't see it again.
But if you insist, also put in the amount borrowed, any interest, what payments are expected.
No, it is not true that only lawyers can create contracts.
But don't loan the money; it will just be a frustrating headache if it goes south.

Answer 7

no a handshake doesnt mean anything(even if people witnessed the handshake and a verbal agreement)-a true judgement involves paperwork (which must be notorized)and both parties plus a witness signing then-plus all parties must be over 18 to make it a legally binding contract

Answer 8

It will serve as a legal contract and will be recognized when you have to take this person to court. And you will have to take them to court down the line. I gaurentee it.