Legal Definitions - IOU

An IOU, which stands for "I owe you," is a simple acknowledgment of a debt. It is typically an informal document or statement confirming that one party owes something, usually money, to another. While an IOU clearly establishes the existence of a debt, it generally lacks the detailed terms and conditions found in more formal legal agreements like promissory notes. The term can refer both to the written memorandum itself and to the debt that is acknowledged.

• Example 1: Personal Loan Between Friends

  After a fun dinner out, Liam realized he had forgotten his wallet. His friend Chloe offered to cover his $45 share of the bill. Liam quickly wrote on a napkin, "IOU Chloe $45 for dinner," signed it, and handed it to her, promising to pay her back the next day.

  Explanation: The napkin serves as an IOU because it is a simple, written memorandum acknowledging Liam's debt of $45 to Chloe. It clearly states the amount owed and to whom, without needing a formal contract.

• Example 2: Small Business Transaction

  A small art supply store was expecting a delivery of new paints, but the shipment was delayed. A regular customer urgently needed a specific set of brushes for a commission. The store owner, knowing the customer well, let them take the brushes, which cost $75, and wrote "IOU $75 - [Customer Name] for brushes" on a small ledger card, to be paid when the customer next visited.

  Explanation: In this scenario, the ledger card entry functions as an IOU. It's an internal record acknowledging the customer's debt of $75 to the store for goods received, serving as a simple reminder of the outstanding payment.

• Example 3: Informal Service Payment

  A homeowner hired a local gardener for a one-time yard cleanup. At the end of the day, the gardener quoted a price of $120. The homeowner only had $100 cash on hand but wrote a note stating, "I owe you $20 for the remaining balance of the gardening service," signed it, and gave it to the gardener, promising to drop off the rest the following week.

  Explanation: This written note acts as an IOU, as it is a clear, informal acknowledgment of the homeowner's remaining debt of $20 to the gardener for services rendered. It confirms the existence of the outstanding amount.