Lending money to a family member

[R0b]

Re: Lending money to a family member

Can I ask what is your purpose for using a promissory note as they are rarely ever used these days. Why not just create a simple loan agreement that sets out repayment terms?

Contracts can be made retrospective, for example confidentiality agreements is a prime example and conditional fee agreements is another where solicitors start work before it is signed by there is a clause allowing to recover work done retrospectively or from the date the work began. There is nothing illegal about this and the courts have acknowledged there is nothing to prevent retrospective agreements. You can have a variation of a contract to to allow rights and obligations to apply from the beginning of the contract rather than the date of variation.

However, I wouldn't recommend using a promissory note, there may be some requirements that must be complied with under the Bills of Exchnage Act but I owuldn't know as nobody uses them these days.. unless in financing perhaps such as banks. I've never dealt with promissory notes before (except those trying to be clever and avoid payment) so I can't see why you would want to use it over a simple loan agreement. A simple loan agreement would suffice with sufficient terms set out and the effective date being the day you handed the money over. The grandmother can only be liable if she is party to the contract and as suggested again, putting her down as guarantor so you can recover the money if the son in law fails. If she's not in the contract she can't be liable.

It's up to you though as its your money but if you do want to go down the promissory note route, make sure you know what you are doing because if you don't and you get something wrong, that could potentially invalidate your claim to recover the money and you will have lost out.

[Openlaw15]

Re: Lending money to a family member

Can I ask what is your purpose for using a promissory note as they are rarely ever used these days. Why not just create a simple loan agreement that sets out repayment terms?

Contracts can be made retrospective, for example confidentiality agreements is a prime example and conditional fee agreements is another where solicitors start work before it is signed by there is a clause allowing to recover work done retrospectively or from the date the work began. There is nothing illegal about this and the courts have acknowledged there is nothing to prevent retrospective agreements. You can have a variation of a contract to to allow rights and obligations to apply from the beginning of the contract rather than the date of variation.

However, I wouldn't recommend using a promissory note, there may be some requirements that must be complied with under the Bills of Exchnage Act but I owuldn't know as nobody uses them these days.. unless in financing perhaps such as banks. I've never dealt with promissory notes before (except those trying to be clever and avoid payment) so I can't see why you would want to use it over a simple loan agreement. A simple loan agreement would suffice with sufficient terms set out and the effective date being the day you handed the money over. The grandmother can only be liable if she is party to the contract and as suggested again, putting her down as guarantor so you can recover the money if the son in law fails. If she's not in the contract she can't be liable.

It's up to you though as its your money but if you do want to go down the promissory note route, make sure you know what you are doing because if you don't and you get something wrong, that could potentially invalidate your claim to recover the money and you will have lost out.

The form of a contract requires consideration. A promissory note requires consideration: White v Bluett (1853) 23 LJ Ex 36 (Court of Exchequer), but consideration cannot be from a past event: Re McArdle [1951, CA] Ch 669. There could be an exception to the past consideration rule but it only applies where there were arrangements prior to promissory note, ie at best, there were discussions that the promissory note would be a future feature. A variation of an existing contract requires extra consideration furthermore: Stilk v. Myrick (1809) 2 Camp 317, and in Williams v Roffey Brothers & Nicholls (Contractors) Ltd [1991, CA] 1 QB 1.

Facts: Phoenix likely has a verbal contract (as I stated), but the problem is the consideration aspect, ie money lent for property's deposit is from a past event so normally wouldn't be permitted legally: Re McArdle. However, if there was a discussion of a promissory note at the time when the verbal contract was made there just may be a legal avenue to use a promissory note after the event. The problem is an existing contract for any variation requires extra consideration: Stilk v. Myrick. The 'battle of the forms' is another exception to the past consideration rule but again this is for commercial entities to negotiate contract terms with definite deadlines, to be formalised in writing.

Where's the consideration in a 'confidentiality agreement', or in a conditional fee arrangement. In any event with a CFA this is not an entirely past event as an AFG would be discussed with the client initially as a way to fund costs. This would fit within the law. It's likely the same with confidentiality agreements.

[R0b]

Re: Lending money to a family member

[MENTION=77627]Openlaw15[/MENTION], you've acknowledged that there is a verbal agreement for the borrowing of the money. There is already an agreement in place and the effect of a written loan agreement would be a variation to the original agreement. Yes a variation requires some form of consideration but does not necessarily mean of monetary value as you should know. Two ways you can get around the consideration of the variation: Reference the consideration as being acknowledged and having already been received, or the alternative is to vary the contract by deed and thus get by the need for consideration. The terms of the variation can be written so as to be made retrospective and effective from the date of original agreement being made. It could also include the grandmother if agreed as a party to the contract.

As for your question on confidentiality, the consideration would be a number of things: trade secrets, business practices, databases, customer lists etc. I have yet to see any monetary consideration happen under a confidentiality agreement, it just never happens. A lot of occasions you find that there have already been discussions on confidential information before the agreement is signed and in order to protect that information the agreement is worded retrospectively to cover discussions prior to the signing of the agreement.


In relation to CFAs a lot of the time work begins before the CFA is signed and therefore you could argue that the work cannot be reclaimed during that period but the CFA is worded sufficiently to cover any work conducted prior to the signing of the CFA so that forms can recover those costs, works the same way as the confidentiality agreement.

[phoenixfly]

Re: Lending money to a family member

Can I ask what is your purpose for using a promissory note as they are rarely ever used these days. Why not just create a simple loan agreement that sets out repayment terms?

Contracts can be made retrospective, for example confidentiality agreements is a prime example and conditional fee agreements is another where solicitors start work before it is signed by there is a clause allowing to recover work done retrospectively or from the date the work began. There is nothing illegal about this and the courts have acknowledged there is nothing to prevent retrospective agreements. You can have a variation of a contract to to allow rights and obligations to apply from the beginning of the contract rather than the date of variation.

However, I wouldn't recommend using a promissory note, there may be some requirements that must be complied with under the Bills of Exchnage Act but I owuldn't know as nobody uses them these days.. unless in financing perhaps such as banks. I've never dealt with promissory notes before (except those trying to be clever and avoid payment) so I can't see why you would want to use it over a simple loan agreement. A simple loan agreement would suffice with sufficient terms set out and the effective date being the day you handed the money over. The grandmother can only be liable if she is party to the contract and as suggested again, putting her down as guarantor so you can recover the money if the son in law fails. If she's not in the contract she can't be liable.

It's up to you though as its your money but if you do want to go down the promissory note route, make sure you know what you are doing because if you don't and you get something wrong, that could potentially invalidate your claim to recover the money and you will have lost out.

Thanks Rob,

The reason I thought of a promissory note was that it seamed simpler and more secure, but maybe I was wrong.
When I was asked if they could borrow the money, it was verbally agreed that the loan was until his mothers house was sold, because she told him that she was going to give him ex amount from the sale, she also told me the same thing and he said at the time that he would sign an agreement.
I guess as time is going on I am becoming worried about what would happen if the house didn't sell or if she changed her mind about giving them the money, either way when she dies he and his brother get the house anyway. I just feel if I have something in writing I would be less concerned,,maybe just me panicking. I thought I was right about being able to do a retrospective agreement

Oh and how would I word the agreement with it being after the event.

[Openlaw15]

Re: Lending money to a family member

@Openlaw15, you've acknowledged that there is a verbal agreement for the borrowing of the money. There is already an agreement in place and the effect of a written loan agreement would be a variation to the original agreement. Yes a variation requires some form of consideration but does not necessarily mean of monetary value as you should know. Two ways you can get around the consideration of the variation: Reference the consideration as being acknowledged and having already been received, or the alternative is to vary the contract by deed and thus get by the need for consideration. The terms of the variation can be written so as to be made retrospective and effective from the date of original agreement being made. It could also include the grandmother if agreed as a party to the contract."

I personally don't think a promissory note is required when in my view, and most likely yours, there's already a verbal contract in place. If the couple are willing to sign a variation of an existing contract there shouldn't be a problem with a contract. Let's face it, it's only when the parties to the contract challenge the issues that there could be a problem anyway.

The other thing in family type contracts there is a presumption that there is no legal intention unless the presumption can be rebutted. To challenge this presumption there should at least be evidence that Phoenix/ the parties intended to be legally bound. Evidence would be express words or statements to this effect and signatures. Preferably, a loan type agreement drawn up with monetary terms and possibly interest added too.
Yep, any type of extra consideration would do, that is to say any type of benefit if an extra consideration were required. . However, there is also a consideration case to support the view any past consideration if it were substantial originally may be sufficient. Paying for the entire deposit of the property may be adequate consideration that goes beyond the normal given the couple who purchased the property didn't really offer any consideration except when the Op receives the money back.

As for your question on confidentiality, the consideration would be a number of things: trade secrets, business practices, databases, customer lists etc. I have yet to see any monetary consideration happen under a confidentiality agreement, it just never happens. A lot of occasions you find that there have already been discussions on confidential information before the agreement is signed and in order to protect that information the agreement is worded retrospectively to cover discussions prior to the signing of the agreement.

In relation to CFAs a lot of the time work begins before the CFA is signed and therefore you could argue that the work cannot be reclaimed during that period but the CFA is worded sufficiently to cover any work conducted prior to the signing of the CFA so that forms can recover those costs, works the same way as the confidentiality agreement.

Yep, consideration can take many forms and, as we both know can be as trivial as a chocolate wrapper, or computer software, ie access to databases...or another favourable term in a contract. Well yes retrospective CFA are likely normal events owing to case management and shifts/ changes in the law, but there would likely also have been initial discussions before the getting to preliminaries stages or case management etc.