Posted by Shan Langston on December 13 2019 in News

Every day family members and friends loan each other money. The form of the agreement is typically casual. Sometimes the agreement (whether oral or in writing) will not mention when repayment is to occur or will simply say ‘repayable on demand’. 

Does this matter? Not if the loan is repaid or enforcement action taken within six years of the funds being lent. However, once a loan is outstanding for more than six years, the term for repayment becomes critical. 

This is because a party’s right to take enforcement action to recover monies lent (whether by way of formal Court proceedings or other debt collection methods) is limited to six years from when the ‘cause of action’ arose. Where no time for repayment is stated or where the loan agreement is simply expressed as ‘repayable on demand’ a party’s ‘cause of action’ to recover monies lent generally arises when the funds are given. 

The mere words ‘repayable on demand’ is insufficient to stop time running. In the case of a loan repayable on demand, the liability to repay arises without demand. The debt is due and payable immediately and thus the cause of action therefore arises immediately upon the loan of the money. Why is the word ‘repayable on demand’ not enough? Sometimes it is – depending on other circumstances. However, generally the law treats the word ‘on demand’ as adding nothing to the implied promise that the funds are immediately due and owing. This is so unless the parties have expressly or by clear implication made it apparent that they intended the loan to be repayable only once a demand is made. 

The position only changes if the agreement states that the loan is repayable upon the happening of a certain event or upon compliance with a condition to liability. The debt is not immediately due and payable, and the cause of action does not arise until the happening of the event or compliance with the condition.  

There are exceptions to his general rule. For example, it is now regarded as settled law that, subject to any express term in the agreement, it is an implied term of a contract between a banker and its customer that moneys owed by a banker on a current account do not become due and payable until a demand is made for the money.

What should you do? Always ensure that a loan agreement (whether oral or in writing) has a term for repayment. For example, repayable three days after demand is made for repayment. Review past loan agreements to ensure that a time for repayment is specified. If there is no term or it is specified as being ‘repayable on demand’ – come and see us!

Author: Shan Langston

This paper gives a general overview of the topics covered and is not intended to be relied upon as legal advice.