IHTM19110 - Legal background: waiver of loans by deed

A release may take the form of a deed or a parol agreement made for valuable consideration, however, the parol release unsupported by consideration is treated as an expression of intention not to insist upon the right of action and is no bar either at law or in equity.

(The term ‘parol agreement’ is sometimes applied to simple contracts, both oral and written to distinguish them from contracts by deed; and sometimes to oral contracts only to distinguish them from written contracts).

Letters and circumstantial evidence clearly indicating an intention to absolve the beneficiary of the loan from any liability to repay will be insufficient.

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 maker
• sealed and
• delivered

From 31 July 1990, Section1 of the Law of Property Act (Miscellaneous Provisions) Act 1989 (that applies in England and Wales only) had 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 his behalf to be given by the deed.

So a deed must make clear on its face that it is intended to be a deed by the parties to it, whether describing itself as a deed or otherwise, and it must 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, then the waiver must be effected by deed. See Pinnell(1602) 5 Co Rep 117a and Edwards v Walters (1896)2 Ch D 157, CA.

Letters and circumstantial evidence clearly indicating an intention to absolve the beneficiary of the loan from any liability to repay, will be insufficient. Therefore a unilateral release of a debt not founded on, nor accompanied by consideration, if not made by deed is void at law and in equity.

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, as release of a debt does not require to be effected by deed.