When is a loan repayable on demand?
A loan is repayable on demand when:
- There is no time for repayment specified (and so the obligation to repay on demand is implied at law); or
- The parties actually express the obligation to repay on demand or request (I.e. It is an express term).
Unless the parties expressly (or, less often impliedly) agree to another arrangement, a loan with no repayment terms, or loan agreement with no repayment date, is a loan that is repayable on demand and becomes an “immediate debt” or a loan repayable on demand.
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Loan Repayable on Demand
In Young v Queensland Trustees Ltd (1956) 99 CLR 560 the High Court held that in Australia:
A loan of money payable on request creates an immediate debt
This comes from a long line of precedents in relation to a loan repayable on demand, going back hundreds of years.
In Collins v Benning (1701) 12 Mod Rep 444 the Court decided that:
If the promise were for a collateral thing, which would create no debt till demand, it might be so; but here it is an indebitatus assumpsit, which shews a debt at the time of the promise, therefore the plea is good.
In Norton v. Ellam [1837] EngR 183 Parke B said:
Where money is lent, simply, it is not denied that the statute begins to run from the time of lending.
Re Brown’s Estate [1893] 2 Ch 300 where Chitty J said:
The law is quite settled that, with regard to a promissory note payable on demand, no demand is necessary before bringing an action… [W]here there is a present debt and a promise to pay on demand, the demand is not considered to be a condition precedent to the bringing of the action.
Note – It is well worth reading these cases on a loan repayable on demand, and the evolution of the law of indebitatus assumpsit, the Statute of Frauds, and how this influenced the common law in Australia – if you’re into that kind of thing!
The main issue with a loan repayable on demand, which gives right to an immediate debt, is that the statute of limitations begins to run from the date that the borrower receives the money.
In Ogilvie v Adams [1981] VR 1041 the Court said:
The common law has always regarded the fact of indebtedness as a continuing detention by the debtor of the creditor’s money, and this whether the creditor brought an action of debt or an action in indebitatis assumpsit. Therefore if A lends money to B, then instantly B is detaining A’s money. In order to prevent a cause of action for recovery arising in A instantaneously on paying the money, the parties must expressly contract out of that situation by words clearly inconsistent with that situation.
This case was cited in the Victorian case of VL Finance Pty Ltd v Legudi [2003] VSC 57 where loans were made to directors by a creditor company by book entry without any written instrument, and was ruled that is was a loan repayable on demand.
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Example of a Loan Repayable on Demand
If a friend lends a friend an amount of $10,000.00 with no written contract or repayment terms, as it is simply a “gentleman’s agreement” between best friends; then the cause of action accrues from the time that the loan is made, being that it instantly becomes a loan repayable on demand.
If the debtor does not make any payments toward the debt; or the debtor does not acknowledge the debt in any way; then the Limitation of Actions Act 1974 (QLD) says that the debt is statute barred, or unable to be legally recovered, after six (6) years.
Limitation of Actions Act 1974 (QLD)
Section 10 of the Limitation of Actions Act 1974 (QLD) says that:
(1)The following actions shall not be brought after the expiration of 6 years from the date on which the cause of action arose:
(a) … an action founded on simple contract or quasi-contract …
This cause of action should also be read with section 35(3) of the Limitation of Actions Act 1974 (QLD) which says that:
Where a right of action has accrued to recover a debt or other liquidated pecuniary claim … or to a share or interest therein and the person liable or accountable therefor acknowledges the claim or makes a payment in respect thereof, the right shall be deemed to have accrued on and not before the date of the acknowledgment or the last payment.
Section 36 of the Limitation of Actions Act 1974 (QLD) says:
(1) Every acknowledgment referred to in section 35 shall be in writing and signed by the person making the acknowledgment.
(2) Any acknowledgment or payment may be made by the agent of the person by whom it is required to be made under section 35 and shall be made to the person or to an agent of the person whose title or claim is being acknowledged or, as the case may be, in respect of whose claim the payment is being made.
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What does this mean for a Loan Payable on Demand?
A cause of action for a debt which is payable on demand begins to accrue from the date the money was advanced or loaned.
The limitation of action on a debt under a contract or quasi-contract is six (6) years from when the cause of action arose.
However, if the creditor can get written acknowledgement of the debt, signed by the debtor, or a payment made as against the debt, then the six (6) year limitation period begins to accrue again.
What is an Acknowledgement of the Debt?
In Stage Club Ltd v Millers Hotels Pty Ltd [1981] HCA 71 the High Court of Australia said:
Where the claim is for payment of a debt, an acknowledgment, to be sufficient, must recognize the present existence of the debt.
Gibbs CJ then respectfully agreed with the statement of Kerr J in Surrendra Overseas Ltd v Government of Sri Lanka [1977] 1 WLR 565 who said that:
To acknowledge a claim, as a matter of ordinary English, signifies an admission that it is due. There is no acknowledgment of a debt unless there is an admission that there is a debt . . . outstanding and unpaid.
So, a payment made; or a written signed acknowledgement that there is at the time of the acknowledgement, an existing debt, which remains outstanding and unpaid; is an acknowledgement of the debt.
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A Cause of Action for Restitution
A cause of action for restitution will also accrue from the date of the advance of the loan because if there is to be a point at which unjust enrichment arises it will almost invariably be when the money was advanced.
This is because restitution will only be relevant if there is no contract covering the advance (quasi-contract) but, for example, money was paid out under circumstances where there is a failure of consideration, or some other category that traditionally supports the “unjust” element of the restitution claim.
In Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 the High Court said:
Indebitatus assumpsit and debt were both actions founded on the debt; in the cases where the debt arose out of a contract, the actions were not founded on the contract. The debt, though arising from the contract, was itself a cause of action.
The High Court then went on to say:
An action to recover money due on an executed contract may be distinguished from an action to enforce a promise to pay contained in the contract – the point of distinction being the debt to which the contract gives rise – but the debt is nevertheless a cause of action arising out of the contract.
It can’t be the case that the restitution claims arises because a valid law prevents the courts from enforcing the underlying contract. The “injustice” in that case would be the policy behind the limitations period, which the Courts will not find to be a relevant category of injustice.
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What does this mean for Debt Recovery in Queensland?
Firstly, never lend anyone money without a written agreement!
However, if you already have, then ensure that they agree to your repayment terms.
If there is no obligation for a time for repayment, “pay me back when you get back on your feet” for example, then the time for making a claim in Court starts running from the time to make the loan or advance to the debtor.
Therefore, you will only have six (6) years from when you lent the money to the debtor to make a claim in the Court.
If the six (6) year limitation period is getting close, you should do one of the following:
- Attempt to get the debtor to acknowledge the existence of the debt in writing, stating that the debt remains outstanding and remains unpaid; or
- If you cannot get the debtor to agree to acknowledge the debt, then attempt to get a repayment from the debtor as against the debt.
If you can do either of these things then the six (6) year limitation period may recommence.
However, if you do not do these things, and six (6) years have passed since the day you made the loan, then you may be statute barred from commencing legal action to recover the debt.
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