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SLF Lawyers recently acted for a couple in their 70’s, Mr and Mrs Berghan , who loaned over $286,000 to their son Murray. On 13 separate occasions between 2009 and 2013, Mr and Mrs Berghan advanced monies to Murray following assurances by him that he would repay the money in full and would look after them in retirement. Despite these promises, Murray refused to repay any of the money when Mr and Mrs Berghan demanded repayment in 2015. The relationship broke down and legal proceedings were commenced.
Murray defended the proceedings by claiming that the payments were gifts and were intended for Murray’s company Make Communications. Legal proceedings ensued for two years and culminated in a three day trial at the Brisbane District Court in February 2017. In March 2017, the trial judge dismissed Mr and Mrs Berghan’s claim and ordered that they pay their son’s legal costs.
The trial judge found that Murray was not a credible witness and had cynically abused his parents’ generosity and shamelessly sponged off them. Despite this, he held there was only a moral obligation to repay the monies and not a legal obligation because there was no intention by the parties to create a legally enforceable contract.
The judge gave the following reasons for dismissing Mr and Mrs Berghan’s claim:
“I accept the evidence of [Mr and Mrs Berghan] that it was the intention of the parties that the monies advances by them to [Murray] were to be repaid by him. However, I do not accept that [Mr and Mrs Berghan] have discharged the onus of proving that there was an intention to create legally binding loan contract with the defendant. Even if, extraordinarily, the defendant used the same mantra of “I’ll pay you back in full and more and look after you in old age” practically every time the plaintiffs provided him with money, this is a general statement consistent with him being morally obliged to repay his parents rather than one which bears the indicia of entering into a binding loan agreement. In circumstances where no ledgers were kept and no demand was made until 2015, the transfers of money did not indicate an intention to create legal relations.”
Mr and Mrs Berghan appealed the decision. The Court of Appeal overruled the trial judge’s findings and ordered that Murray pay his parents $286,471.09 plus costs and interest. The Court of Appeal Judges said in the reasons for their decision:
“Once [the trial judge] had found that the money had been paid on the condition that it would be repaid, the result should have been judgment for [Mr and Mrs Berghan]… once one accepts that the money was paid upon the express condition that it should be repaid, as the Judge found, the inescapable conclusion had to be that the resulting transaction was a contract of loan. In our respectful opinion his Honour’s conclusion that the parties had no intention to create legal relations was an error. The finding has to be set aside.”
Although the Court of Appeal’s decision is a great result for Mr and Mrs Berghan, this case serves as a reminder of the importance of a formal written contract when loaning money to friends or family. A written agreement provides certainty as to the identity of the contracting parties as well as their respective intentions. Informal agreements can be difficult to enforce and can result in lengthy court battles.
SLF Lawyers are experts in drafting formal documentation such as loan and security agreements so that you are protected if your relationship with the borrower breaks down. However, if it is too late and you find yourself in a precarious situation like Mr and Mrs Berghan, please contact our office/s for a confidential discussion.
Link to the court of appeal’s decision in Berghan v Berghan [2017] QCA 236
