Lending Money to Friends? Don't Act Without Professional Advice

The emotional element involved in lending money to friends and loved ones makes it all the more necessary to first seek independent professional advice. A case on point concerned a businessman who lent a small fortune to a close friend but had to launch High Court proceedings to get part of his money back.

Over some years, the businessman lent substantial sums to his friend, who had encountered financial difficulties. A loan agreement was eventually signed by which the friend agreed that a consolidated debt of £705,000 should be secured by way of a second charge against a residential property he owned.

The debt was repayable on demand and subject to interest at a rate of 1.5 per cent a month. The property was later sold and, after a mortgage debt to a bank was repaid, the net proceeds, which came to £426,608, were paid into court. The businessman claimed entitlement to that sum, plus accrued interest.

In resisting the claim, the friend asserted, amongst other things, that he had been tricked into signing the agreement. He claimed that he had only been given the final page of the agreement to sign and that he had been massively naïve in executing a commercial document without first carefully checking its contents.

Rejecting those contentions, however, the Court found that he had the opportunity to view the agreement and other documents before signing them in the presence of a solicitor. Copies of the documents were later emailed to him and they accurately represented the accord that the two men had reached. The friend was thus bound by the agreement and the charge over his property.

The Court was not in a position to calculate the precise sum owed by the friend but was satisfied that it exceeded the amount of the net proceeds of sale and accrued interest. It therefore ordered the money in court to be paid out to the businessman.