Let’s say your company executed a promissory note with a client company that borrowed $100,000. The parties execute a valid promissory note on October 24, 2024, that indicates the amount borrowed and the date of repayment, October 15, 2025. Then around the date the note becomes due, the client states they need six additional months (April 15, 2026). Both parties agree to “reaffirm” the original note and the client company prepares a second note. This note states: “For value received, (client company) agrees to pay (your company) in six months.” Both parties then sign the note and write “reaffirming note dated October 15, 2024.”
On April 15, 2026, the “re-affirmed” note becomes due and the client fails to pay. You send the default notice and the client fails to cure the default. Is the note enforceable? Unfortunately, in this case, it is not.
Past Consideration and Unpaid Promissory Notes
The note is unenforceable because it is based on what is known as “past consideration.” In this case, past consideration is due to the fact that the company lent the money before the note was signed. Under New York law, “past consideration” is normally deemed “no consideration.” It cannot support a promissory note because the services have already been incurred. In other words, the services would not have been deemed bargained for in exchange for the promise to pay.
However, there is an exception when executing a promissory note based on past consideration. For a note to be enforceable, the past consideration must be expressed in writing. Additionally, outside evidence cannot be used to assist in understanding what the past consideration was. This means that the note can’t refer to separate documentation to clarify or define the past consideration.
Under New York General Business Law, the description of the past consideration must not be vague or imprecise. In the example above, the only reference to the past consideration are the words “for value received,” which is vague and gives no clarity as to the services provided. The line “reaffirming note dated October 15, 2024” is also vague and provides no clarity as to the basis of the note dated October 15, 2024.
The ideal language for the re-affirmed note would state:
On October 15, 2024, (your company) and (client) executed a promissory note (the October 15, 2024 note), wherein (your company) agreed to loan $100,000 to (client) and (client) agreed to pay (your company) $100,000 by October 15, 2025, which amount (client) acknowledges as having been loaned and received. This promissory note dated October 25, 2025, re-affirms the October 15, 2024 note.
This text would satisfy the requirement of expressing and clarifying the past consideration. Following this, the re-affirmed note should state the note’s payment terms and notice provisions. Both parties should sign the note.
The more that the past consideration is expressed and clarified in the note, the more likely the note would be deemed enforceable in a court of law. The goal is to satisfy the requirements of the New York General Obligations Law. You want to leave nothing to interpretation.
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