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Lending Money? It Pays to Invest in a Professionally Drafted Agreement

When lending money to friends, acquaintances or anyone else, the terms on which sums are advanced may be entirely clear to you in your own mind. However, as a High Court ruling showed, the absence of a professionally drafted loan agreement is a positive invitation to subsequent dispute.

The case concerned a couple who agreed to advance £50,000 in order to assist friends whose business was encountering financial difficulties. When the friends failed to repay the money, the couple issued a statutory demand against them. The friends, however, argued that the loan had not been made to them personally but to a company which was by then in administration.

The loan agreement, which was not the work of a professional, was in the form of a private letter and stated that the money was repayable when the company had the ability to do so or at a requested date. A number of emails were sent and received which the friends cited in support of their case. Following a hearing, however, a judge found that the friends, not the company, were the borrowers and refused to set aside the statutory demand.

Challenging that outcome, the friends pointed out that the money was paid into the company's account. They said that references to the company in the loan agreement indicated that the company was the borrower. In reliance on the email traffic, they contended that the loan agreement did not in any event reflect all sides' true intention that the company should have the benefit of the loan.

In dismissing the appeal, however, the Court found that the loan agreement was as clear as it possibly could be that the money was being advanced to the friends personally. There was nothing in the email correspondence to undermine the conclusion that the loan agreement was a self-contained and complete contract and that the money was repayable by the friends on demand.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.