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Drafting of Promissory Notes: Tips & Pitfalls

Posted by Arnold A. Arpino | Oct 23, 2016 | 0 Comments

We recently consulted with an individual who was seeking the return of a portion of unpaid principle on a promissory note in excess of $75,000.00.

The individual admitted that the promissory note was not drafted by an attorney.  That ended up being a costly mistake.

This particular promissory note had two separate clauses regarding the interest rate.  The first clause stated, in effect,  that the interest rate shall be [greater than 16 per centum per annum].

A couple of clauses later, there was a paragraph which stated in effect, that the default rate of interest shall be [7]% "above the rate stated herein."

The issue before us, was is the interest rate in this promissory note usurious, and if so, what are the consequences?

The answer to both of these questions is yes.  The rate of civil usury is set by General Obligations Law § 5-501 and section 14-a of the banking law: “[T]he maximum rate of interest provided for in section 5-501 of the general obligations law shall be sixteen per centum per annum. See Banking Law § 14-a [McKinney].

“Since the loan was usurious, the loan transaction and the associated note . . . are void, the plaintiff is precluded from recovering the unpaid principal . . . and all outstanding interest, and all the documents and collateral must be cancelled and surrendered” (see General Obligations Law § 5–511[2]; Seidel v. 18 E. 17th St. Owners, 79 N.Y.2d 735 (1992); Szerdahelyi v. Harris, 67 N.Y.2d 42 (1986),

As a result of the poor draftsmanship of the promissory note by a non-attorney, this individual will not be able to successfully recover the unpaid balance of the loan. A small investment in an attorney in the beginning of this process would have saved a major headache years later.

If you are in the need of a promissory note, especially where a significant amount of money will be exchanged, it is highly recommended that you consult an attorney for the purposes of drafting the document.  Arnold A. Arpino & Assoc. P.C. will be happy to assist you in such a matter.

About the Author

Arnold A. Arpino

Managing Shareholder focusing on Creditor's Rights, Real Estate, & Non-Taxable Estate Planning.


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Arnold A. Arpino & Associates, P.C., is a full service law firm that represents individuals and businesses in a variety of different practice areas. Our firm regularly appears in the Courts throughout Long Island, New York City, and the Hudson Valley.