Do Not Kiss Loaned Money Goodbye: Breach of Contract for Loans Explained

Legally, if you have lent money that was not paid back, then you may have a claim against the borrower for breach of contract. We have all lent money to someone at one point or another and kissed that money goodbye. Sometimes, we are willing to forgive the debt, however, there are also instances where forgoing the money will puncture a big hole in the wallet, often needlessly, or add a possible tax consequence.

A loan is a form of a contract where you, as the lender, advance money to a borrower upon promise to be repaid by the borrower. The loan need not require the payment of interest in order for it to be a binding contract. In other words, a loan with a zero percent interest rate is still a loan in the eyes of the law. Also, the loan does not need to be in a specific form. What you need is some proof that you lent the money to the borrower. The proof can be written or not.

Generally, to make a claim for breach of contract, you must plead and prove the following: (a) there was an agreement between you and the other party (i.e. an exchange of promises); (b) you performed your end of the agreement (i.e. you kept your promise); (c) the other party failed to keep its end of the agreement; and (d) you were damaged and/or incurred a loss as a result of the party’s failure to perform its end of the agreement.

To make out a claim for breach of a loan agreement is simple; you need to plead and prove the following: (a) you lent money to the borrower; (b) the borrower promised to pay you back; and (c) the borrower did not repay you in full.

For purposes of drafting a complaint against the borrower for money lent, it is very simple: all that needs to be stated is that “the borrower owes you a sum of money that is still outstanding from the date of the loan”.

The above discussion is best illustrated by a way of an example: if you gave a $1,000.00 to your neighbor and he agreed to pay back the money, then you have a loan agreement. You still have a binding contract for a loan. If your neighbor paid you back $600 as opposed the complete amount, you do not have to kiss your money goodbye; you still have a claim for the balance of the money borrowed.

Legally you are entitled to your money, and if you lent money, which has not been repaid your best course may be to discuss taking action with an attorney. You may be surprised by the positive results and a heavier wallet in the near future.

Posted by Michael B Schulman, Managing Attorney