Suing on a Promissory Note or Business Loan Default in California

Last updated: October 2026

A promissory note is the simplest contract to sue on in California: the note says who owes what and when, and the defenses are limited. An action on a note payable at a definite time must be filed within six years after the stated due date, or six years after an accelerated due date. (Com. Code, § 3118, subd. (a).) Kolmogorov Law, P.C. represents lenders, sellers who financed a sale, and investors who loaned money to a business, in Orange County, Los Angeles, and across California, and defends borrowers and guarantors who have real defenses.

Call (909) 235-6116 or contact us online if a note you hold has gone unpaid.

Where business notes come from

Few of my clients think of themselves as lenders. The note came from a seller-financed sale of a business, or a loan from one partner to the company. Or a bridge loan to a startup from a friend. Or a payment plan papered after a customer fell behind, or a buyout where the departing owner took a note for her interest. Then the payments stop, the borrower goes quiet, and the holder has to decide whether the paper is worth enforcing.

Usually it is. A signed note with a payment history is strong evidence, and the case moves faster than a typical contract dispute.

What the note has to say

Three provisions decide the case. The payment terms: amount, interest rate, installment schedule, and maturity. The default and acceleration clause, which says whether a missed payment lets the holder declare the whole balance due, and whether notice is required first. And the attorney fee clause: whether the borrower agreed to pay the holder's fees to collect, which California makes reciprocal under Civil Code section 1717. A note with all three is a case the holder can afford to bring. A handwritten note with an amount and a signature can still be enforced, but every missing term becomes an argument.

If the note is secured by a security agreement or a deed of trust, the enforcement path changes, and California's rules on secured debt have to be followed in order.

The limitations period

For a negotiable note payable at a definite time, the action must be commenced within six years after the due date stated in the note, or within six years after an accelerated due date. (Com. Code, § 3118, subd. (a).) For a demand note on which demand has been made, the period is six years after the demand. (Com. Code, § 3118, subd. (b).) If no demand is ever made, the action is barred once neither principal nor interest has been paid for a continuous period of ten years. (Com. Code, § 3118, subd. (b).)

Not every note is negotiable. One that fails the technical requirements, such as a note payable only out of a particular fund or with extra undertakings, falls back on the four-year period for written contracts. Because the two periods differ, we read the instrument before telling a client how much time is left.

The lawsuit

The complaint pleads the note, the default, the amount due with interest, and the fee clause. The note is attached. If the borrower does not respond, the holder can take a clerk's default judgment because the claim is on a contract for a sum certain; see our page on default judgments. If the borrower answers, the case is a candidate for summary judgment, because the defenses to a signed note are few: payment, a written modification, forgery, lack of consideration, usury, or a release.

Where the borrower is a company that may dissipate assets, a prejudgment writ of attachment is available on a claim for a fixed or readily ascertainable amount based on a contract, which describes most notes. Securing the funds early is often the difference between a judgment and a collection.

Guarantors and the people behind the company

A business note frequently comes with a personal guaranty from the owner. The guaranty is a separate contract and is sued on with the note, which gives the holder a second source of recovery. Where there is no guaranty and the borrower is a thinly capitalized entity, the holder may have an alter ego claim against the owner, though that requires evidence of commingling and injustice, not merely an unpaid debt.

Interest and usury

A business note may charge the interest rate the parties agreed, subject to California's usury limits, which have exceptions for licensed lenders and certain transactions. A note that charges too much risks losing the interest entirely, so we check the rate against the exemptions before pleading it. Where the note is silent on the default rate, California's statutory rate applies from the breach.

Defending a note claim

Borrowers call too. The legitimate defenses are payment that was not credited, a modification the lender agreed to in writing, a note signed under duress or fraud in the inducement, usury, and the limitations period. A borrower who simply cannot pay does not have a legal defense, but often has a practical one: a negotiated payment plan with a stipulated judgment is cheaper for everyone than a contested case.

Where these cases are heard

Note cases are filed in the Superior Court for the county where the borrower resides or where the note was to be paid: the Central Justice Center in Santa Ana for Orange County, the Stanley Mosk Courthouse for Los Angeles. Claims of $35,000 or less are limited civil cases with a streamlined track. After judgment, our judgment enforcement tools apply.

What to bring to the first meeting

Bring the original note, any security agreement or guaranty, a payment ledger showing every payment received, the demand letters sent, and the borrower's responses. If the note was modified by email, bring the emails. The original signed note matters; keep it in a safe place.

Frequently asked questions

How long do I have to sue on a promissory note in California?

For a negotiable note payable at a definite time, six years after the due date or the accelerated due date. (Com. Code, § 3118, subd. (a).) For a demand note, six years after demand, and in no event after ten years without any payment. (Com. Code, § 3118, subd. (b).) Non-negotiable notes generally follow the four-year written contract period.

Can I collect attorney fees when I sue on a note?

If the note has an attorney fee clause, yes, and the clause is reciprocal under Civil Code section 1717. Without a clause, each side pays its own fees unless a statute provides otherwise.

What if the borrower never responds to the lawsuit?

The holder can request entry of default and, because the claim is on a contract for a fixed sum, a clerk's judgment for the principal, interest, and costs. See our default judgment page.

Is a handwritten or informal promissory note enforceable?

Generally yes, if it shows a promise to pay a stated amount and is signed by the borrower. Missing terms, such as the interest rate or due date, are filled in by law, but they invite disputes.

Can I sue the owner personally for a company's note?

If the owner signed a personal guaranty, yes. Without one, the owner is liable only on an alter ego theory, which requires proof that the entity was a sham and that honoring the corporate form would produce an unjust result.

Talk to a California breach of contract attorney

If a note or business loan has gone into default, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. is at 327 Magnet, Irvine, CA 92618, and represents lenders and borrowers in Orange County, Los Angeles, and throughout California. See also our breach of contract page and our guide to collecting unpaid invoices.

This page provides general information about California law and is not legal advice. Outcomes depend on the note's terms, the payment history, and the court.