In the current market, where interest rates are high and the costs of living are even higher, it is becoming increasingly common for parents to offer their children financial support. The media often refer to this arrangement as the bank of Mum and Dad.
As is common in a family arrangement, the parties seldom enter into a written loan agreement; the contract is formed through verbal discussions.
However, what if you are a parent, that lends your child a significant sum of money and your child refuses to pay you back?
The above was an issue the litigation team at CDS Mayfair had to address when acting for the claimants/parents in the case of Barry & Anor -v- Barry [2024] EWHC 1661 (KB) https://www.bailii.org/ew/cases/EWHC/KB/2024/1661.html
In Barry & Anor -v- Barry [2024] EWHC 1661 (KB) the court referred to this area of law and stated:
“In such cases, given that our experience of the world that matters within a family are often sorted out without an intention of strict enforcement through the courts, the legal presumption operates in the opposite direction: it is presumed that there is no intention to create legal relations (Jones v Padavatton (1969) 1 WLR 328 , 331, per Salmon LJ). However, that presumption can be rebutted by evidence of contrary intention (ibid. at 332-33)”
The effect of the legal presumption would mean a parent could not successfully sue their child for the return of a loan. However, the presumption can be rebutted.
The trial Judge in Barry & Anor -v- Barry [2024] EHHC 1661 (KB) held that the doctrine was:
“of great antiquity, succinctly put while the Napoleonic Wars were raging as contracts not being “mere matters of pleasantry and badinage” (Dalrymple v Dalrymple (1811) 161 ER 66f)”.
The court accepted the claimants’ approach that the court should consider a multifactorial analysis as set out in in Blue v Ashley [2017] EWHC 1928.
In Barry & Anor -v- Barry [2024] EHHC 1661 (KB), the court rebutted the presumption in family arrangements that the parties did not intend to create legal relationships and held that the loans were repayable by the defendant/son.
Sadly, bringing proceedings against a family member can be distressing. It should be the last resort especially where it involves family members, who were once a close-knit family.
If you need advice on recovering monies lent to a family member, contact the litigation team at CDS Mayfair.
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