For many people being party to an informal loan arrangement will be a regular occurrence, whether this is lending money to someone else or receiving money as a loan from a family member or another close relation. These loans will vary in enormity from smaller loans to those of a more significant value, which if not repaid can cause significant stress and disruption to your life. It is quite common for the terms of a loan arrangement to be oral and informal and not in writing, and on the basis of a “handshake” and mutual trust. This is fine while the relationship is good, but this informal arrangement could have implications for repayment if the relationship breaks down.
It is not uncommon for the nature of the arrangement to be challenged on the grounds that it was a gift, and therefore there is no obligation to repay the outstanding sum. It is also common for the terms/ validity of a loan to be challenged on the grounds that it was granted in breach of consumer credit law.
If you have loaned money to someone who now disputes the validity of the loan, then you should look to gather any evidence you have at the time when the loan was granted. This could be in the form of text messages or e-mails; any such electronic/ hard copy evidence will be of benefit to you from an evidential perspective. If you instruct a lawyer, they will be reviewing your case to establish a legally binding agreement between the two parties, which will need to incorporate an offer, acceptance and an intention to create legal relations. It is this last ingredient to the contract which can often be the most arduous to prove when no written terms have passed between the parties.
If no hard evidence exists to support your claim that it was a loan, but it was clearly expressed and stipulated at the time of the money passing hands that repayment was expected, all is not lost, as you may have a valid oral legally binding contract. However, an intention to create legal relations will still need to be present and if pursued in Court this can become a matter of ‘he said’ ‘she said’.
The threshold for you to surpass at Court to show that the money was a loan and not a gift is a test on a balance of probabilities. You will need to be able to demonstrate to the Court that on the balance of probabilities the money given was not a gift. This test undoubtedly shares a direct correlation with the amount of money in question, as it will be substantially more difficult for a defendant to show a large amount of sum was given to them as a gift.
It is always advisable to try and settle commercial litigation disputes out of Court, legal costs can amount quickly and with claims under the value of £10,000 you will generally remain liable for your own legal costs. If you choose to settle, then you may wish to have the settlement terms included in a legally binding document such as a settlement deed. This document can stipulate the terms of repayment and will be legally enforceable should the defendant be in breach of its terms.
If you decide that you have no alternative but to pursue the matter in Court, then you should instruct a commercial litigation dispute solicitor. However, if you wish to avoid proceedings then it would be prudent to have a loan agreement drafted by a commercial solicitor prior to granting the loan.
Summerfield Browne Solicitors have offices in London, Birmingham, Oxford, Cambridge, Leicester and Northampton.
