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Pros/Cons of signing Note vs. Contract

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asterisks

Junior Member
What is the name of your state? CA

I'm going to sell my boat to a neighbor and was wondering what the advantages/disadvantages are to having him sign a note for $4200, as opposed to just a sales contract for $4200.
 


tranquility

Senior Member
A promissory note is unsecured but specific. This means if the deal goes bad, you can sue for a specific amount, but you can't necessarily collect againt the boat. Winning the suit would be easier as the underlying deal is not important to the note, but collecting would be harder.

A contract is less specific but can be secured. This means if the deal goes bed, you may not get a specific amount as he could claim more defenses, but you may be able to repossess the boat. Winning the suit could be much harder, including the possibility of you getting less than you hoped, but collecting would be easier.

Notes for large things tend to combine a note and a contract to make sure the person has the best of both worlds.
 

BoredAtty

Member
A promissory note is unsecured but specific. This means if the deal goes bad, you can sue for a specific amount, but you can't necessarily collect againt the boat. Winning the suit would be easier as the underlying deal is not important to the note, but collecting would be harder.

A contract is less specific but can be secured. This means if the deal goes bed, you may not get a specific amount as he could claim more defenses, but you may be able to repossess the boat. Winning the suit could be much harder, including the possibility of you getting less than you hoped, but collecting would be easier.

Notes for large things tend to combine a note and a contract to make sure the person has the best of both worlds.
Good points. I'll add that the note is more valuable if the OP were to sell his right to the money since a holder of a note in due course would actually have more power to enforce the note than the OP would himself. On the other hand, the assignee of a contract would merely have equal power to enforce the contract as would the OP, and thus, the assignee would be subject to all kinds of defenses (i.e. breach of contract, breach of warranty, etc.).

To clarify, though, I don't think it's really a matter of "contract or note." Rather, it's a matter of "contract alone" or "contract plus note." What I mean is, if the OP trades his boat in exchange for a note, then a sales contract exists by default. If the OP wants to secure the contract with the boat, however, then a separate security agreement should be signed and perfected.

Ideally, the OP should have the buyer sign a sales contract that is secured by both the boat and the note.
 

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