1. What Is the Statute of Limitations in California?
2. What Are the Exceptions to the Limitation Period?
3. When Is a Six-Year Statute of Limitations Provided?

The statute of limitations promissory note California is a certain time frame where a creditor needs to file a lawsuit that enforces debt by getting a court judgment. Any creditors who don't act within this limitation period might be stopped from enforcing their debt in court. In the state of California, the debt is concentrated around a promissory note. This is governed by the statute of limitations, which differs based on various circumstances regarding how the note is made.

What Is the Statute of Limitations in California?

In the state of California, a written promise that states someone will repay a loan depending on specific conditions is called a promissory note. This depends on factors such as the interest rate and a payment schedule. According to California Civil Code Section 337, every lawsuit is based on an instrument in writing. This needs to be filed within a four year period. The limitation starts from the date that a payment was due from the promissory note and didn't get paid.

What Are the Exceptions to the Limitation Period?

According to Civil Code Section 337, there is an exception to this four-year limitation for promissory notes. They're secured by a deed of trust or mortgage that has the power of sale for the property. In this situation, the creditor has the choice to enforce the debt with a private foreclosure sale versus filing a lawsuit.

Depending on the economics of the situation, a foreclosure sale might end up in the creditor being owed less money than what was originally owed for the promissory note. In the case that the creditor wants to sue the debtor for this balance after the foreclosure sale happens, the lawsuit needs to be filed within a three month period after the sale.

Even if the statute of limitations expires on a promissory note, the creditor won't be prevented from filing a lawsuit to get their debt. This is a defense that needs to be declared in court. If the debtor doesn't respond to the lawsuit about a debt that's controlled by the statute of limitations, this waives the right of the debtor to state the defense. A judgment can also be made against them.

Promissory notes obtained by real property tend to be the object of a short sale. That means selling a real property doesn't fully pay off the balance that's due on this note. However, the lender will release the property to complete the sale. This situation doesn't have an effect on the balance of the note for the statute of limitations.

If the debtor doesn't pay the lender the full balance, there will be four years for the lender to file the lawsuit. For this situation to not occur, the debtor needs to get a complete release of the promissory note, not just the deed of trust or the mortgage, as part of the short sale agreement from the lender.

When Is a Six-Year Statute of Limitations Provided?

While the statute of limitations on an action in an obligation, liability, or contract is four years, Commercial Code Section 3118(a) gives a statute of limitations of six years for an action to be enforced on the party to pay their promissory note. This time period starts from the due date that's listed on the note. A note is defined as a negotiable instrument or an instrument according to Commercial Code Section 3104. The instrument is defined as a note if it's a promise.

A negotiable instrument is defined as an order or unconditional promise that a certain amount of money will be paid, regardless of interest or other possible charges, if it is any of the following:

  • Payable to order or bearer.
  • Payable at a specific time or on demand.
  • Doesn't state any other instruction or undertaking from the promiser to do additional actions besides paying the money.

If the note passes as a negotiable instrument, six years will be the statute of limitations. If the choice is between two statutes that are conflicting, you can choose between the statute that's more specific or the statute that's newer. Section 337 was originally written in 1872 and was amended last in 1961.

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