Lending Money to Family or Friends

25 OCTOBER 2022 16:30

If you’ve lent money to a family member or friend, and they are refusing to pay the money back, you can take legal action to recover this. However, you will need to prove to the Court that the money was loaned and not gifted, and that there was an agreement/contract between you in place that this money would be repaid.

A contract can either be written or verbal. If it was just a verbal agreement there still needs to be something for the Court to see, such as:

• E-mails, text messages etc discussing the loan or debt.
• Bank statements of you transferring the money to their account or online payment transfer with reference to it being a 'loan'.
• Evidence of repayments being made into your bank account (which then stopped).
• If someone else was present when you agreed the terms of the loan could be a witness and provide a statement.

In determining whether a contract has been formed, the Court will look at four key elements which create an enforceable contract:

1. Offer
2. Acceptance
3. Intention to create legal relations
4. Consideration

The first two elements of the contract would be satisfied; the money has been offered by you and accepted by the other party. It is the intention to create legal relations, which is difficult to prove in agreements between family members.

In family and social arrangements, there is a presumption in law that the parties to the agreement did not intend to create legal relations. This is because the law recognises that these situations are analogous with gifts.

However, this presumption can be rebutted by evidence to the contrary. For example, if you and your family member drew up a written agreement in relation to how and when the money should be paid back, then this would be evidence that you intended to create a legally binding contract.  Other examples include where the parties have separated or where there is a third party involved in the agreement. Without either of these, it will be difficult to prove to the Court that the money was loaned and not gifted.

Therefore, before lending money to family or friends, you should consider putting the agreement in writing as this will protect you should you need to seek legal recourse to get the money back.

If you need advice on recovering money owed to you or putting in place an agreement before lending money, please do not hesitate to contact Gomer Williams & Co on 01554 755101 or by email on contactus@gomerwilliams.co.uk.

Share this article