This week’s case illustrates one of the problems of lending money to co-workers.
Enter: Tracy and Jonathan.
Tracy and Jonathan worked together up in Newburgh, New York. Jonathan had hit some hard financial times and wanted some extra pocket money to spend on an upcoming vacation. So he asked Tracy if he could borrow $300, which he was going to pay back upon his return. Jonathan returned from his vacation and eventually paid Tracy only $150. And upon the passage of six months, $150 was all that Jonathan paid back. And then he ignored Tracy.
Tracy sued in small claims court seeking to recover $150 from Jonathan. On the evening of trial, Tracy showed the court a cleared check in the sum of $300, payable to Jonathan. After that, things went sideways for Tracy. The small claims court noted that there was no written agreement between Tracy and Jonathan or other writing confirming the loan.
Tragically, the City Court dismissed the action based on the lack of a written agreement between the parties.
Wisely, Tracy appealed. And won! Here is why:
There is no requirement that an agreement to repay a personal loan be in writing if, as here, the agreement can be performed within one year from the making of the agreement. Put differently, if A borrows $300 from B on January 1, 2019, since the $300 can be paid back in one year, the oral agreement to pay the money back does not have to be in writing. [Here is the statute: General Obligations Law § 5-701(a)(1) -- https://www.nysenate.gov/legislation/laws/ GOB/5-701]. Sometimes that law is just referred to as the “statute of frauds.”
In order for Jonathan to argue that the oral agreement to repay Tracy was not enforceable, he would have had to produce evidence demonstrating that the loans had absolutely no possibility in fact and law of being repaid within a year. Of course, Jonathan could not do that.
Judgment for Tracy: $150, plus interest, plus the cost for filing the claim.
Here is the case: http://www.courts.state.ny.us/reporter/3dseries/2019/2019_50062.htm
If you are interested in reading a similar case where Virendra lent Mohammed $3500, and lost at trial but won on appeal, here is the link: http://www.courts.state. ny.us/reporter/3dseries/2018/ 2018_50511.htm