Legal background: waiver of loans by deed
A release may be made by deed or by a parol agreement made for valuable consideration. But, a parol release that is not made for consideration is treated only as an expression of intention not to insist that the loan is repaid. So, the debt can still be enforced by law or in equity.
The term ‘parol agreement’ is sometimes used to describe simple contracts (both oral and written) to distinguish them from contracts by deed; and sometimes oral contracts only to distinguish them from written contracts).
Letters and circumstantial evidence that clearly indicate an intention to absolve the beneficiary of the loan from any liability to repay will not be sufficient to discharge the debt.
Before 31 July 1990, the general common law rule was that for a deed to be effective it had to be:
- written on paper or parchment
- signed by the person making it
- sealed and
On 31 July 1990, Section1 of the Law of Property Act (Miscellaneous Provisions) Act 1989 (that applies in England and Wales only) abolished any rule of law that
- restricts the substance on which a deed may be written
- requires a seal for a valid execution of the instrument as a deed
- requires authority by one person to another to deliver an instrument as a deed on their behalf to be given by the deed.
So a deed must:
- make it clear that it is intended to be a deed by the parties to it, by describing itself as a deed or otherwise, and
- be validly executed (usually by signature) by those persons.
If any loan has been waived by the lender, so that the estate of the lender is reduced for Inheritance Tax purposes by the amount of the loan released, the waiver must be effected by deed. See Pinnel(1602) 5 Co Rep 117a and Edwards v Walters (1896)2 Ch D 157, CA. Letters and circumstantial evidence that clearly show an intention to absolve the beneficiary of the loan from any liability to repay, will be insufficient to release the debt. So a unilateral release of a debt not founded on, nor accompanied by consideration, is void at law and in equity if it is not made by deed.
IRC v Morris (1958) N Z LR 1126 provides further guidance.
At page 1128 - ‘even if the word ‘waive’ be construed as giving or including a power to release the obligation by voluntary oral statement, the court will not give effect to it. To hold otherwise would be to hold that a creditor could release a debt due by deed by a simple voluntary oral declaration. The law recognises certain dispositions only if made in a prescribed manner eg. testamentary dispositions. The making of a gift is a manner in which the law also requires certain formalities. The mere fact that donor and donee intend a complete gift and thought they had made one will not avail’
At page 1132 - ‘it was not disputed that it is a well established principle of law that the release of a debt amounts to a gift and that such a release is ineffective unless it is made under seal or unless some valuable consideration is given in return for the release.’
This does not apply in Scotland, where the release of a debt does not need to be made by deed.