“How sharper than a serpent’s tooth it is to have a thankless child!” (Shakespeare)
“Family helps family in times of need” – that’s been part of human culture since long before the dawn of history but be sure to observe all legal formalities. A recent High Court decision provides an excellent example of the risks of not doing so.
Parents lose R540,000
- A daughter in the middle of a divorce borrowed R540,000 from her parents so that she could buy out her spouse’s 50% share in her house.
- As far as her parents were concerned it was a repayable loan, but when they had to sue their daughter for repayment they were in for a rude shock.
- Although their daughter had admitted asking to “borrow” the money, the Court held that the parents had failed to prove (the onus being on them to do so) “the existence of a loan agreement, its terms and consequent breach thereof on a balance of probabilities”. Nor had they proved “the material terms and conditions agreed upon including the amount of the loan and the date of repayment”. Another nail in their coffin – they had failed to prove animus contrahendi (lawyer speak for “a serious intention to contract”).
- Their claim was dismissed with costs, so it’s goodbye to their R540k.
5 reasons why you need a contract, no matter how strong your family
One wonders how many families have rued their attitude of “We have a very close and strong family, and we trust each other with everything. No way do we need a contract. Forget it.”
But it’s not just a matter of trust. Consider these scenarios –
- Without a written contract, who is to say for certain that you are all on the same page as to whether it is a gift or a loan, and if so when and how it is repayable? You could in all innocence have two totally different visions of what you have agreed on. It’s only fair to everyone to put everything on record.
- Even the strongest families go through rough patches – it may be highly unlikely, but it happens, and our law reports are full of unforeseen and bitter family fights.
- What if (horrible thought, but we must all be realistic) one of you dies before the debt is repaid? Now you are dealing not with a parent, a grandparent, or a child, but with the executor of their estate, an executor who will need proof of the loan and its terms.
- If a divorce should intervene, a family loan is as much an asset (or liability) as any other, and solid proof of it will be essential.
- The same applies to an attack by a third party such as the taxman or a creditor.
Bottom line: Have a clear, written contract recording at the very least the amount of the loan and the agreed date and terms of repayment. For significant amounts of money, professional advice is essential.
A final thought – ask about the National Credit Act
It may seem strange in the context of a family, but your loan agreement will be unenforceable if you didn’t register as a “credit provider” in terms of the National Credit Act (NCA) in circumstances where you should have registered. In many cases it won’t be necessary, in that it doesn’t apply where family members are dependent on each other. Plus, only “arm’s length” transactions will as a general rule fall under the NCA. But there are grey areas here, so specific advice is again essential.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
© LawDotNews
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