What’s the necessary clauses when making a promissory note in China? In this article, Lawyer Wang Jingzhan will give you some tips on how to make an effective promissory note according to China legal practice.

Defining the parties involved

The first to do when borrowing money to someone is that you need to know this person or company. Without really knowing the lender, you may risk losing money. Learning about his past performance is a good way to assess the possibility of a normal repayment. When making a promissory note, you need to check his identity card or business license, in order to place his name and identity number on promissory note.

Introducing the background of making this promissory note

People usually ignore the importance of having the background introduced into the promissory note. As a lawyer handling many cases before, I remind the lender or borrower to not bother to have the background written down. Even though the background won’t affect each other’s right and obligation in most circumstances, there are some lawsuit case of lend and loan in which the background becomes critically importance in determining the promissory note to be valid or not.

Making clear the currency and amount of borrowing

The currency and amount of borrowing is not easy to be ignored, however, in case you make something wrong on it, it’s very hard for you to make a remedy on it. In China legal practice, people usually not only use the Arabic numbers to express the amount but also having traditional Chinese characters written in the promissory note.

The expected day to get repaid

Specify a date when the debt is due, at least you need to provide how the date to be calculated. The debt expiry date may affect that when you should raise a complaint to a law court to start a legal procedure. As per the laws of China, the plaintiff should file his complaint to the court within three years upon the debt due.  If you fail to file your claim in the limited time, a possibility is that you lose the right to seek for legal remedy.

Liquidated damage

In a promissory note, liquidated damage usually is the damage you expected if the borrower doesn’t repay your money in due time. You’d better provide the liquidated damage when making the promissory note or the method how to calculate your damage if the lender fails to return your money on time. Without a liquidated damage in advance, it’s hard to claim compensation to cover your loss when a dispute was raised to a law court.

A collateral or surety on the loan

In order to secure the repayment, you could agree with the lender or borrower to have a collateral or surety on the loan. If you have a mortgage or alike, you need to get it registered to a due authority as per the laws of China.  If you produce a suretyship, don’t mind to define what kind of surety the guarantor would like to undertake. Is it an ordinary guarantee or a guarantee of joint and several liabilities? there is different legal liabilities in legal practice of China.

Additionally, you could also agree on the burden of lawyer fees and etc. in case a lawsuit have to be filed to seek recovery of your money.