Published in de Vries Litigation | Blog
by Rebecca Studin on August 12th, 2024
Loans between family or friends is a common practice. These agreements are often free of the interest rates and nexus of paperwork attached to loans provided by financial institutions. While the prospect of helping out a loved one may seem like an attractive opportunity, the informal nature of these loans carries the risk of non-payment.
For many friends or friends advancing these loans, they rely on the goodwill of the borrower that they will be repaid. However, goodwill is not a guarantee. Relationships change and goodwill can disappear. When the goodwill is gone and the loan remains outstanding, lenders may have to turn to legal claims to recoup their funds.
Most legal claims are subject to the two-year limitation period outlined in the Limitations Act, 2002. This period begins on the day that the claim was “discoverable.” According to Section 5, a claim is discoverable on:
(a) the day on which the person with the claim first knew,
(i) that the injury, loss or damage had occurred,
(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,
(iii) that the act or omission was that of the person against whom the claim is made, and
(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and
(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause.
In the context of informal loans, what does that mean? Does the limitation period begin once the loan is advanced or afterwards? Does the breakdown of a relationship between the lender and the borrower impact the limitation period?
While it is best practice to have a formal written agreement when money is loaned to anyone – even close family and friends – the decision in T.O. Estate reiterates that there may be legal avenues when such agreements are absent. While the husband passed away before the appeal decision was reached, his estate was still entitled to collect payment on his behalf.
Rebecca Studin, Partner, de Vries Litigation LLP
