Gen Y loan agreement

I have discovered what is probably an Australian first, if not a world first: a court case involving a dispute about a loan agreement that was ‘documented’ via SMS – in true Gen Y style.

By The Banker

Banker of Last Retort


The complete dearth of feedback leads your correspondent to the unhappy conclusion that it has been some time since anything he has written has been of interest to anyone else.

However, nothing appears to generate controversy on this site more than discussion about Gen Y, so your correspondent is very happy to report that he has discovered what is probably an Australian first, if not a world first: a court case involving a dispute about a loan agreement that was ‘documented’ via SMS – in true Gen Y style.

You can find the judgement in full here however your correspondent summarises it as follows.

A Gen Y property developer (probably an over-ambitious slacker – although the judgement is curiously quiet on that score) experienced what we bankers describe as “a touch of the shorts” and decided to tap his Aunt for a loan.

He initiated the process by an SMS to his uncle, which read:

“Can you please help me find out whether anyone would be in a position to lend me. As you have previously suggested that you might approach [your wife] on my behalf. I feel very embarrass (sic.) to ask her and I hate to trouble her however if there are no other options I might need to approach her as I am in a very sever (sic.) position right now. Please let me know. Thank you. Once again, sorry for any inconvenience caused,” followed by another SMS which read:

“If you can help me arrange for the loan I would provide the lender all the necessary loan documents as required; I will also get Dad to acknowledge the borrowing and reimburse any charges arising from the arrangement of the loan. Once again, thank you very much.”

That SMS led to a conversation in which the aunt said:

“ … I will lend you the money on the condition that your Father will be the guarantor on the loan as you mentioned to [my husband] in your SMS” to which the property developer apparently replied:

“Yes. Thankyou [aunt], the latest I will repay the money to you will be in three months if not earlier. I will get [my father] to acknowledge the guarantee.”

That was followed an email from the property developer’s father in which he told his sister:

“Dear [sister], It is so kind of you to lend to [my son] a loan of $150,000 to help him tie over his cash flow. I understand that he will repay you in 3 months’ time togerther (sic.) with all the incidental costs. This letter serves to confirm that I guarantee that the said loan will be repaid to you as promised failing which I shall repay you on his behalf. Looking forward to seeing you and [your husband] soon.”

The $150,000 wasn’t quite enough and so the developer arranged a loan for a further $100,000. Unfortunately he didn’t quite manage to repay the debt and the aunt’s company took legal action against her brother to collect under the guarantee.

The guarantor raised a host of objections to the enforcement of the guarantee, two of the most interesting ones were:

1. It was impossible to work out what the guarantee was actually meant to cover and in fact it was so vague that it was ‘void for uncertainty’

2. The 48% rate of interest was ‘unconscionable’ and therefore unenforceable.

At risk of over-summarising, the Court ruled that putting the SMS together with the conversations and the emails allowed it to work out what was meant by the guarantee – which it did. The Court agreed that 48% was high – but pointed out that it was the rate suggested by the borrower, and so the guarantor was completely unsuccessful.

Being a banker, your correspondent is happy that a guarantor was unable to wriggle out of a guarantee on a technicality, but he must also admit to being quite impressed by the Court’s ability to adapt to Gen Y communication techniques as easily as it did.


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