Lending money to a loved one or extending a payment term is often based on trust. But over time, memories fade and relationships change. A disagreement may arise over the very existence of a debt. How do you prove that a sum has been lent? How do you guarantee repayment of a debt? The IOU addresses these issues by establishing solid legal proof between the lender and the borrower.
This written document formalises a person's commitment to repay a sum of money. Far from being a mere formality, it provides genuine legal protection for both parties. Whether you are awaiting repayment or have made a commitment to pay, it is essential to understand how an IOU works. This article explains its definition, its evidential value, the formal requirements to be met, the mistakes to avoid and the steps to take in the event of non-payment.
What exactly is an IOU?
In legal terms, an IOU is an act by which the debtor acknowledges owing a specific sum of money to the creditor. It is not the contract that creates the debt (such as a loan contract, which is bilateral), but rather the document that acknowledges the debt and establishes proof of it.
It is a unilateral legal act, requiring only the debtor's signature to express his or her commitment. The debt may have various origins: a loan between individuals, the balance of a sale price, the consideration for a service not immediately paid, or the regularisation of an account overdraft. The essential point is that the deed formalises the obligation to pay a specific sum of money on a specific date.
Why is an IOU so important? Its value as evidence
French law lays down a clear principle: the burden of proof lies with the creditor. As article 1353 of the Civil Code states: "He who claims performance of an obligation must prove it". Without written proof, it becomes difficult to prove the existence of the debt.
For legal transactions involving sums in excess of €1,500, the law requires a specific form of proof: writing. Article 1359 of the Civil Code stipulates that a legal act whose value exceeds this threshold cannot, in principle, be proven by witnesses or presumptions.
This is where the IOU takes on its full legal value. It is precisely this written document that is required by law. For the creditor, holding an IOU in good form considerably simplifies the administration of evidence. They have a document signed by the debtor himself, certifying the existence of the debt and its amount. This reduces the risk of disputes and prevents many potential disputes.
How to draw up a valid IOU: the forms to follow
The validity of an IOU depends on precise formal requirements, particularly when it is drawn up "sous seing privé", i.e. directly between the parties without the involvement of a notary. A notarised deed, drawn up by a notary, offers greater security but is more expensive.
Article 1376 of the Civil Code states that the private deed must include:
- The signature of the debtor making the commitment.
- The debtor's own written statement of the amount loaned in words AND figures.
This double handwritten statement is a fundamental requirement. Its purpose is to ensure that the borrower is fully aware of the amount of the debt. If there is a difference between the amount written in words and the amount written in figures, the Court of Cassation generally considers that the amount written in words is the authentic amount. The absence of this handwritten note means that the deed loses its evidential value as a perfect acknowledgement. It may then be considered as a mere "beginning of written proof", requiring other elements to fully establish the debt.
In addition to these strict requirements, it is recommended to include :
- The date on which the deed was drawn up, which is essential for determining the starting point of the limitation period
- The full identity (surname, first name, address) of the lender and borrower
- The scheduled repayment date, from which the debt becomes payable
- The purpose of the loan or the cause of the debt
- The interest rate, if any, in accordance with banking regulations
A free IOU template can be used as a basis, but be careful to adapt it to your situation. Online services offer downloadable forms, but careful drafting limits the risk of disputes.
Pitfalls to avoid when drafting
The apparent simplicity of IOUs conceals a number of pitfalls. Here are the mistakes not to be made:
- Omit the handwritten note in figures and letters, or have it written by someone other than the debtor.
- Omit the debtor's signature.
- Lack of clarity about the identity of the parties or the total amount owed.
- Insert contradictory information (different due dates or inconsistent amounts).
- Failure to date the deed, which complicates determining the starting point of the limitation period.
- Ignoring issues of consent. If the debtor was not capable of signing (health problem, etc.) or if his consent was vitiated, the deed can be annulled by a judge.
It is also a common mistake to forge an acknowledgement by backdating it, which can have criminal consequences. It is best to keep the original document in a safe place and give a copy to the borrower.
The acknowledgement is signed: what happens next? Recovery and prescription
Once the deed has been validly signed, the creditor must keep the original. If the debtor fails to repay the loan on the agreed due date, the creditor may take steps to obtain payment.
The first stage is amicable debt collection. This begins with reminders, followed by a letter of formal notice sent by recorded delivery. This letter reminds the debtor of the amount of the debt and the basis on which it is owed, and sets a specific deadline for payment, before legal collection proceedings are initiated.
If the formal notice has no effect, the creditor must take legal action to recover the debt. The acknowledgement of debt will facilitate this stage. The creditor must apply to the competent court to obtain a court order condemning the debtor. Once the judgment has become final, it can be enforced (bank account seizure, wage garnishment) by a court-appointed debt collector.
Beware, however, of the limitation period. Under article 2224 of the French Civil Code, an action for payment is time-barred after five years. This period begins to run from the date on which the debt becomes due and payable. Acting after this period exposes the creditor to the risk of having his claim dismissed as time-barred, even if the debt was initially well-founded. It is therefore essential to act quickly.
In the event of the debtor's death, the debt will be passed on to the heirs as part of the estate. The IOU will then be used as proof to claim the amount owed.
Notarised acknowledgement of debt: additional security
For maximum security, particularly for large sums, the IOU can be drawn up in the form of a notarial deed by a notary. This has several advantages:
- It gives the deed a certain date and greater probative value.
- It avoids disputes over the authenticity of the signature
- It constitutes a writ of execution, enabling enforcement to be carried out directly without the need for a court order.
- It offers tax protection in the event of an audit by the tax authorities
An authenticated deed has a limitation period of 10 years, compared with 5 years for a private deed, which leaves more time to take action to recover debts.
Why and when should I seek legal advice?
The services of a lawyer specialising in the law of obligations can prove invaluable in a number of situations:
For the creditor:
- When drawing up the deed: A lawyer can advise you on the best way to formalise the commitment, ensure that all the compulsory clauses are included, and adapt the deed to your specific situation (loan with interest, associated guarantees).
- In the event of non-payment: The lawyer assists you in the recovery process, from drafting a formal notice to conducting legal proceedings and monitoring enforcement.
For the debtor:
- In the event of disagreement: If you believe that the letter of acknowledgement of debt presented to you is invalid (formal defect, debt already paid, statute of limitations), a lawyer can analyse your situation and identify possible defences.
- To negotiate: If you recognise the debt but are experiencing financial difficulties, the lawyer can help you negotiate an amicable repayment schedule.
A lawyer provides an objective legal analysis, knowledge of procedures and the ability to negotiate, whether to secure an upstream commitment or to manage a subsequent dispute.
If you are a creditor and wish to secure a debt or initiate collection proceedings, or if you are a debtor faced with a claim based on an IOU, a legal analysis of your case is often necessary. Our firm is at your disposal to assess your situation and point you in the most appropriate direction. Contact us to discuss your options.
Sources
- Civil Code, in particular articles 1353, 1359, 1376, 2224
- Cour de cassation, case law on the validity of IOUs
- Public service, information on debt collection
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