Informal loans: make up a contract and keep receipts of payments
In daily life people frequently lend money to family or friends. These loans are rarely subject to a written contract and the loans tend to be paid off in cash. It is also not common to give each other receipts of payments. But the lack of a contract or receipt can lead to evidentiary problems in later legal proceedings. This was the case in a judgment by the Court of Appeal in Den Bosch. Dutch Corporate Law lawyer Thomas van Vugt explains.
Informal loans: repayment and guarantee
In this case a woman had lend € 2,500.- to her brother. This loan agreement was laid down in a contract. The loan had to be repaid in monthly installments of € 250.-, starting 1 April 2007. The final payment was due on 1 February 2008 and would also include the amount of € 100.- regarding statutory interest. The parents acted as guarantors. The woman claims she has never received any payment. She decides to consult a lawyer in The Netherlands and to summon her brother as well as her parents in order to collect the loan. In the following proceedings she claims the entire loan plus interest and collection costs. The Dutch lawyer of her brother and parents alleges that the parents actually did pay back every installment of € 250,- in cash.
The burden of proof: whoever asserts a fact must prove it
How to deal with these opposite statements? In general, the burden of proof lies with the party who asserts a certain fact. It is therefore to the brother and parents to produce evidence that the cash payments have really been made to the sister. While they do not have receipts of payments or other written evidence, they had to rely on testimonies. Among others the parents, brother and sister took testimony under oath (similar to an affidavit).
Testimony of parties to the proceedings: value of evidence?
As to be expected, the brother and parents affirmed that monthly payments have been made. The woman, and for that matter also her husband, denied persistently. The question is now: how should the court value the given testimonies? Not that high, according to this judgment. As the witnesses are party to the proceedings, the value of the given testimonies is limited. The court decides finally that there is insufficient evidence of the cash payments. The woman’s claim to repayment of € 2,500.- is awarded.
Loan? Provide contract and keep receipts
This case shows that proving cash payments with testimonies is not that simple. A witness has to have witnessed the actual payment from one person to the other and even then the receiver can deny that the payment actually related to that specific loan. Prevent evidentiary problems and this kind of family dramas by writing down agreements (an email will often suffice) en make repayments, if possible, via bank transfer. When paying in cash, it is recommended to ask the receiver for a receipt of payment (stating the date, the amount and the name of the receiver). These formalities are often omitted when it comes to loans between friends or family but the consequences can be harsh and lead to (escalating) conflicts and, eventually, lawsuits.