What Is an IOU?


What Is an IOU?

What is an IOU?

An IOU, a phonetic acronym of the words "I owe you," is a document that acknowledges the existence of a debt.

An IOU is often viewed as an informal written agreement rather than a legally binding commitment. Dating as far back as the 18th century, at least, IOUs are still very much in use. An IOU between two people conducting business may be followed up with a more formal written agreement.

Is the IOU enforceable?

If the IOU has no due date or other payment terms, so that a court can determine the rights and responsibilities of the parties under the agreement, the agreement may not be an enforceable contract for lack of certainty. Sometimes courts will supply essential missing terms by a reasonableness standard, what would reasonably have been expected to be the term of the loan, or allow parties to testify as to the pre-negotiation discussions to supply the missing terms under what’s called the parole evidence rule. Courts look to the written agreement to interpret and enforce it, not outside the oral intentions of the parties. When a written contract fails, however, meaning it is missing the essential elements of a contract, then the missing elements may be supplied by parole evidence or oral testimony of the parties as to what was meant by the contract terms and obligations. In any event, if the IOU is not an enforceable written contract, it may still be evidence of an oral agreement.

Was the obligation to pay waived or excused by the lender?

One party to a contract may give up their legal right to enforce a contract or a breach of contract if they excused the other party’s performance, payment in this case, by rejecting payments of the borrower and allowing the nonpayment of the debt to continue without making a demand for it. In other words, a lender may waive their rights to collect on the loan by not expecting performance under the loan nor suing for breach of the contract.


Moreover, every contract contains an implied term of good faith and fair dealing that neither party will prevent the other from performing under the contract. So, if the lender grandmother interfered with the borrower's granddaughter’s obligation to pay by not accepting payments or leading the borrower to believe that a debt was not owed, a court may rule the borrower’s performance was excused by the lender’s failure to cooperate with the paying party’s performance.

Did the debt survive the lender’s death?

Generally, contract obligations survive death, meaning the parties should be able to receive the benefit of their bargain, as a deal is a deal, except for personal services contracts because one cannot expect anyone to step into the shoes of the contracting party who is to perform personal services. The parties, at the time of entering the agreement, expected to deal with one another in a contractual relationship, not a substituted party. Much turns on whether the contract is considered impersonal—one merely to pay money—or personal, like services. But even promises to pay a loan in installments have been considered personal.

A contract lawyer can discuss the facts of your case with you to advise you what to do.

Disclaimer: Every effort has been made to ensure the accuracy of this publication at the time it was written. The information provided on attorneyyellowpages.com is not intended to provide legal advice or suggest a guaranteed outcome as individual situations will differ and the law may have changed since publication. Readers considering legal action should consult with an experienced lawyer to understand current laws and. how they may affect a case.

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