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Recovering loans
27/02/2007 The Star ARTICLES OF LAW By BHAG SINGH
The act of loaning money can become a contentious issue when it comes to
trying to recover the money lent.
THE law doesn’t prevent a person who gives a loan on a casual basis to be
paid interest. Nor does such a person need to have a licence. However, if
this is done as a business, then the absence of a licence would not only
constitute an offence, but also make the loan irrecoverable.
A person may be approached by an acquaintance or a friend to lend him money.
The amount is not consequential. When the person agrees to lend money, such
transactions are seldom documented in a formal manner.
A loan made on a “friendly” basis often doesn’t require payment of interest.
However, the borrower may offer to pay some interest and the lender may
accept it. Yet, in many cases, the borrower may end up trying to get out of
his obligation to repay the loan.
Then, there are also cases where the lender may not ask to be paid back and
over time, the borrower becomes an influential person and money lent may now
appear to be insignificant and the lender may feel embarrassed to ask for
repayment.
However, the lender may want to get back his money. It is in this context
that a reader wants to know whether he can recover a loan in a court of law,
when a proper agreement had not been drawn up. And what if he had been paid
interest on the loan?
Proving the loan
Generally, any person licensed or not to lend money is entitled to recover
it so long as the loan was genuinely given to help and not meant to be a
business transaction.
The law does not require formal documents as a pre-condition to the recovery
of such a loan.
For the lender to succeed in court, he must be able to prove that the money
was lent. If the borrower denies that he received the loan, the lender will
then have to prove that the loan was given and has not been repaid.
If the amount was given using a cheque drawn from the lender’s account and
credited to the borrower’s account, this will prove that the borrower
received the money. If the borrower cashed the cheque, this would also be
evidence that he received the money. The burden will then shift to the
borrower to give a credible explanation to rebut the claim.
If the loan was handed over in cash, it would be the word of the lender
against the borrower. However, if it can be shown where the money came from
and where it went to, this will strengthen the lender’s claim.
If there is a witness to the transaction who is able to give evidence, this
would add weight to the evidence of the lender as to what actually
transpired.
In court, the judge will look at all the evidence – oral, written or
circumstantial – to decide whether the money was lent and whether it is
still owed. A borrower cannot escape paying just because the transaction
wasn’t documented in a formal manner.
Interest charged
The charging of interest will not make the transaction illegal. This is
because the law doesn’t absolutely prevent a person from charging interest
on money lent.
The business of lending money should be licensed under the Moneylenders
Ordinance 1951. Business so carried out without a licence would be illegal.
In such an event, the loan would not be recoverable.
A person who lends money and charges interest is prima facie and considered
to be a moneylender because by virtue of Section 2 which says that “any
person who lends a sum of money in consideration of a larger sum being
repaid shall be presumed until the contrary be proved to be a moneylender”.
But not everyone who charges interest is a moneylender.
Lending with interest only raises a presumption and it is then open to a
lender to rebut the presumption by showing that although the person has lent
money, he is not a moneylender.
If what is involved is a single transaction or more involving the same
person, the lender is deemed a lender in the sight of the law. However, this
is different from carrying on a money-lending business and being a
moneylender.
Time limitations
Under the law, there is a limitation period within which action must be
taken to enforce a right that a person has. It is governed by the
Limitations Act 1953.
In Peninsular Malaysia, the limitation period for such claims is generally
six years. It is three years in Sabah and Sarawak.
But in the case of a friendly loan, when does the six-year period commence?
In commercial transactions, the date when the entire loan is repayable will
be clearly stated in a contract document. But in a friendly loan, this
situation may not be provided for in clear terms. The lender may presume
that the borrower will return the money as soon as he can but this does not
constitute a contractually-effective term.
So when does the right to sue the borrower arise and when does the six-year
period expire? Some borrowers may think that since there is no date fixed
for payment, they may not have to pay at all. Others may feel that the right
to the money would be from the time when the demand for repayment is made.
This, however, is not the position in law. In the case of a repayment period
not being stipulated, the period of limitation begins to run as soon as the
money is loaned. Six years from that date, the right to recover the money
will be forever lost. |
