The recent contractual case of Barry and another v Barry is an example that family loans even if verbally entered to repay become legally binding. PW-LA advises families in disputes and recommends written agreements setting out clearly what the parties understood when large amounts of money passes hands. In the case of Barry a written agreement would likely have avoided the extent of the litigation which was required for the court to establish if a legally binding agreement existed. Read on..........
The facts - In the case of Barry and another v Barry heard in the Kings Bench Division allowed two elderly parents' (the claimants') contractual claim against their son (the defendant) for the recovery of money allegedly loaned to him, which remained outstanding, and which they alleged he still owed for property transactions he had made for his own benefit. The defendant had contended that the transfer of the relevant funds had been an internal family affair, without any intention to create legal relations. Although he had agreed that the claimants had loaned him money concerning three properties, he contended that, subsequently, they had agreed that he could write off the bulk of the money; that the loans personally made to him had been forgiven; and that, although a loan to a company (the company) he controlled with his wife remained outstanding, the company should have been sued, not the defendant.
The legal detail - For a contract to be legally binding, there had to be an intention to create legal relations. A commercial relationship created a strong presumption of an intention to be legally binding. It was presumed that, in domestic arrangements and family affairs, there was not an intention to create legal relations. That principle extended to arrangements between parents and children. However, that factual presumption was rebuttable. The intention of parties was judged objectively and in the light of the relevant factual background known to them (see [3], [40]-[43] of the judgment).
Applying settled law to the facts, the claimants had proved issue 1 on a balance of probabilities. Concretely, it was more likely than not that there had been an intention to create legal relations and that was precisely what an impartial and reasonable observer would have concluded had, objectively, been the position (see [39]-[44], [157] of the judgment).
There was a presumption of fact that operated in the present case, that presumption being against an intention for agreements within the Barry family to be legally binding and enforceable. Rather than the disputed loans having been 'motivated by love and affection', as the defendant contended, the true position was that it had been due to the undoubted love and affection the claimants had had for him that they had been prepared to trust him and rely on him to honour his debt to them, holding in reserve, and only in extreme circumstances, resort to courts of law (see [121]-[156] of the judgment).
The ruling - The court ruled, among other things, that:
(i) the claimants had loaned the defendant money to help him purchase the properties with the clear intention that he would repay the sums;
(ii) the parties had intended to create legal relations in that regard;
(iii) the expectation was that the defendant would repay the claimants as soon it was realistically feasible to do so and there had been no waiver of the relevant debt;
(iv) the defendant (not the company) had incurred the relevant debt; and
(v) judgment would be entered in the claimants' favour in the sum of £643,055.90, plus interest.
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