---
title: "IOUs, Loan Notes, and Receipts: How Much Do You Know About Their Legal Effect?"
description: "This article explains the legal meanings, facts proven, and legal relationships reflected by IOUs, loan notes, and receipts. It highlights the differences between loan notes and IOUs, provides precautions for issuing these documents, and offers remedies for defective documents."
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publisher: "New Distribution"
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published: "2015-04-13"
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# IOUs, Loan Notes, and Receipts: How Much Do You Know About Their Legal Effect?

> This article explains the legal meanings, facts proven, and legal relationships reflected by IOUs, loan notes, and receipts. It highlights the differences between loan notes and IOUs, provides precautions for issuing these documents, and offers remedies for defective documents.

## **I. Legal Meanings, Facts Proven, and Legal Relationships of IOUs, Loan Notes, and Receipts**
IOUs, loan notes, and receipts are common documents in daily life and work. Although they differ by only one character, their legal meanings are vastly different. An IOU is a certificate issued by a debtor to a creditor indicating that something or a sum of money is still owed, generally used to prove a creditor-debtor relationship. A loan note is a certificate issued by a lender to a borrower indicating that something or a sum of money has been lent, generally used to prove a borrowing or loan relationship. A receipt is a certificate issued by a recipient to a giver indicating that something or a sum of money has been received, used to reflect or prove the fact of "receipt."

## **II. Differences Between a Loan Note and an IOU**
Many people cannot accurately grasp when to write a loan note and when to write an IOU. In fact, distinguishing between the two is not difficult. There are at least two differences between an IOU and a loan note:

First, behind a loan note, there is generally a flow of funds or physical items, but an IOU does not have this. When writing a loan note, the lender has "just," "is currently," or "is about to" deliver the item or funds to the borrower. To confirm this "flow" fact, a loan note is used to fix it. An IOU is generally for settlement or to prove the opposite state of property ownership and possession, that is, the owner's property is possessed and used by the possessor. This state already existed before the IOU was written; the purpose of writing an IOU is to confirm the existence of this state.

Second, a loan note generally has a loan period and interest. The starting point for calculating the loan period and interest is generally the date of lending. Although an IOU can also agree on a repayment date and the legal consequences of overdue non-repayment, this date is generally a point in time after the IOU is issued.

In practice, there are many cases where a loan note is written as an IOU or vice versa, resulting in a mismatch between the title and content. This often brings unnecessary trouble to the verification of facts, the determination of legal relationships, and the realization of the rights of the interested party.

**Let's take a simple example.** If A and B have a very good relationship, B borrows 30,000 yuan from A for emergency use, and B writes an IOU to A without agreeing on a repayment date, then after two years, if there is no interruption, suspension, or extension of the statute of limitations, when A sues B in court for repayment, it is easy for the court to determine that the statute of limitations has expired and A loses the right to win the case. The fundamental reason is that from the date the debtor issues the IOU, the creditor has the right to claim repayment, and the statute of limitations begins to run. The general limitation period is two years. If the claim is made after two years, the limitation period is naturally exceeded. If B had written a loan note to A, also without agreeing on a loan period, according to Article 206 of the Contract Law, "The borrower shall repay the loan within the agreed period. If the loan period is not agreed or the agreement is unclear, and cannot be determined according to the provisions of Article 61 of this Law, the borrower may repay at any time; the lender may demand the borrower to repay within a reasonable period." If lender A claims repayment from borrower B after two years, the statute of limitations begins to run from the time of the claim. At this point, if A sues B, the court can naturally support it. So although the difference is only one character, the difference is significant, and the results are completely opposite.

## III. Precautions for Issuing IOUs, Loan Notes, and Receipts
**1. The content should be relatively complete.** An IOU should clearly state the amount and currency of the debt, or the quantity, name, quality, specification, or model of the items, the reason for the debt, the repayment date, the legal consequences of overdue non-repayment, and the accurate names of the creditor and debtor. Finally, it should be signed or sealed by the debtor and the date of issue should be clearly written. In addition to the above, a loan note should also clearly state the loan period, interest (or rent), and penalty interest (or liquidated damages) for overdue non-repayment. In addition to the above related matters, a receipt should particularly state the legal consequences, such as "Hereby, the debts between the parties are settled" or "Hereby, the entrustment agency contract between the parties is terminated."

**2. Wording should be accurate.** Avoid vague terms such as "approximately," "estimated," "possibly," "almost," "sort of," "maybe," etc. The meaning should be clear and unambiguous. The author has encountered many people who write a loan note like this: "A borrows B 10,000 yuan." Literally, it is confusing whether A borrowed money from B or B borrowed money from A. In fact, it is not difficult to write clearly. For example, you can write "A lends 10,000 yuan to B" or "A borrows 10,000 yuan from B" to avoid ambiguity.

**3. It is best to make two copies of the document, one for each party.** As a quick and convenient confirmation method, documents are generally handwritten, and the issuer is specific, that is, written and signed by the debtor, borrower, or recipient. However, in reality, there are cases where the creditor, lender, or giver writes the document and then the debtor, borrower, or recipient signs it. In such cases, if the debtor, borrower, or recipient does not have a copy of the same document, and the writer has tampered with the only copy, such as adding to the borrowed amount, how can the signer defend? Conversely, if there are two identical copies (one for each party), tampering is not only futile but also may hurt feelings.

**4. Confirm the identity of the subject.** If it is a company, check whether the company has been deregistered and whether the company name is accurate (a one-character difference in the company name means a different company, for example, "Beijing Zhicheng Technology Company" and "Beijing Shizhicheng Technology Company" are two different companies). For natural persons, check whether they are adults (to determine if they have full civil capacity) and whether their names match their ID cards (especially note that homophones can cause trouble). In addition, basic identity information should be left, such as the natural person's age, address, ethnicity, occupation, and contact information, and the company's address, legal representative's name, position, and contact information. The best is for both parties to exchange copies of ID cards or business license copies.

**5. Numbers must be written in uppercase Chinese numerals.** You can write only the uppercase amount, but it is best to have both uppercase and lowercase corresponding, so it is not easy to alter. If you only write Arabic numerals 1234567890, it is easy to add to or modify. Another technical note: for example, "130,000 yuan" should not be written as "拾叁万元人民币" but as "壹拾叁万元人民币" to prevent it from being modified to "X拾叁万元人民币."

The above items are beneficial precautions to avoid legal risks. Of course, "benefit" is directional and oppositional; what is beneficial to one party may be harmful or disadvantageous to the other. But benefit and harm are relative. A complete document is fair and equal to both parties, achieving a balance of advantages and disadvantages, thereby maximizing the safety of transactions, avoiding unnecessary legal risks, and protecting the legitimate rights and interests of "bona fide traders." As the saying goes, "One should not have the heart to harm others, but one must have the heart to guard against others." Facts have proven that it is precisely because of "loopholes" and "gaps" that some people's "evil thoughts" are bred and encouraged. Therefore, in every sense, we should write documents properly, not giving evil people an opportunity, and also protect ourselves.

## IV. Prevention and Remedy for Defective Documents
Have you ever encountered situations like these: sometimes an IOU does not indicate the date of issue, or does not indicate who the money is owed to, or although a repayment date is agreed, it is not reflected on the IOU; sometimes the IOU is issued not because of a creditor-debtor relationship but because of a marital or family dispute; sometimes an IOU is written due to coercion, deception, or inducement; and so on. What should you do in these situations?

**1. Remedy for deficiencies in content and form:**
One method is to correct it in writing afterwards. Ask the issuer to issue a "Explanation," "Correction," or "Certification" to supplement the erroneous, deficient, or omitted items, or reissue a complete document and invalidate the original defective one. Another method is for the right holder to take the initiative to remedy. If the issuer is unwilling to issue such written materials, the right holder should collect other evidence to perfect these deficiencies, such as recording conversations between the parties, and collecting and preserving other evidence that can reflect the substantive relationship, to guard against unexpected events.

**2. Remedy for documents with other underlying reasons:**
Such documents are often issued at the request of the "right holder" or with the consensus of both parties. Afterwards, the issuer may feel it is unfair, or circumstances may change, or they may regret it because it was done in jest. Remedy for such documents is more difficult, mainly because the other party generally does not agree to correction and is already on guard. However, it is not hopeless. The occurrence of events always leaves traces; true facts will have more evidence that can be obtained and verified, while false facts are difficult to establish. Therefore, in such situations, you should be confident, collect as much evidence favorable to you as possible to prove the true situation, the true facts, and the true legal relationship, find the flaws and loopholes in the false facts, find the logical gaps between the other party's true evidence and the false facts to be proven, break the chain of proof, and fight to the end. In this way, the result of "a sudden turn of events" is not far away.

**3. Remedy for documents issued under the influence of illegal or criminal acts**
In addition to the methods in item 2, you can also report to public security, procuratorial, and other judicial organs. If it is a public security case, file a public security case; if it is a criminal case, file a criminal case. Of course, regarding whether such cases are truly illegal or criminal, the standards applied by judicial organs vary greatly from place to place. Even within the same judicial organ, different case handlers often argue endlessly. This is mainly due to the vague provisions of laws or judicial interpretations, poor operability, and several internal regulations unfavorable to filing cases: the "Reply of the Supreme People's Procuratorate on How to Apply the Law to Acts of Obtaining Civil Judgments from Courts by Forging Evidence to Occupy Others' Property" (October 24, 2002), the "Notice of the Ministry of Public Security on Public Security Organs Not Illegally Overstepping Their Authority to Intervene in Economic Dispute Cases," and the "Provisions on Handling Economic Crime Cases by Public Security Organs (2006)" etc. These cause judicial organs to be timid in investigating such economic crimes, fearing they will be deeply involved and unable to extricate themselves. To completely change this situation, it is necessary to start from the legislative root.

Source: Youshang Software
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