Mother-In-Law Cannot Collect All of $75k Loan

Divorce is rarely pleasant. Complicated financial arrangements between in-laws can make a divorce into something more like a nightmare. In any serious agreement spanning more than a year, having an attorney draft a written contract could be the best option. A recent case out of Jefferson Country, Alabama, Gerstenecker v. Gerstenecker, illustrates the important of a written contract.

First, it is important to address a commonly held misconception about contracts. A contract does not necessarily have to be in writing to be enforceable. However, in Alabama, a contract that is not performed within one year, as well as most loan contracts, must be in writing to be enforceable in many cases. Even if it does not necessarily have to be in writing, putting the contract in writing is often a good idea.

In the Gerstenecker case, the daughter-in-law, Julie, had a significant amount of student loan debt. In fact, she had over $78,000 in debt. To help ease the burden, the mother-in-law offered to pay off the loans. Julie would pay the mother-in-law the money back, interest free. The parties allegedly agreed that Julie would pay $700 per month until her child turned one year old, and $1,000 per month thereafter.

According to the mother-in-law, she received four payments on the loan from Julie. Soon thereafter, Julie’s husband filed for divorce. Julie did not make any additional payments, and the mother-in-law filed suit almost a year later to recover the loaned money.

Julie claimed throughout the process that she did not borrow money from her mother-in-law. The day before trial, she added the defense that because the agreement, if there was one, was not in writing, it was not enforceable. However, the trial court did not look kindly on Julie adding that defense at the last minute.

The trial court decided that, first, Julie had waived the defense that the contract was not in writing because she waited until the end to use it. The court also decided that it did not matter whether the contract was in writing or not because based on the testimony and evidence the mother-in-law had fully fulfilled her part of the bargain by paying off the student loans. The trial court awarded the mother-in-law the full amount of her loan as damages. Julie then appealed.

The appeals court did not agree with Julie’s argument that the trial court made a mistake in barring her adding that defense at the last minute. However, Julie also argued that the trial court should not have awarded the mother-in-law the entire loan balance as damages. Since there was no evidence that the parties agreed on such a provision, she argued, the trial court should not have created one out of thin air. The appeals court agreed, and said instead that Julie should have to pay at once only the loan payments she had missed, and pay the remainder monthly.

Even though Julie did not get out of the contract entirely because it was not in writing, she did escape having to pay it all at once. If you are in the mother-in-law’s position, you probably are wishing you had hired an attorney and put the whole contract into writing. Similarly, Julie probably wishes that her attorney had not presented that defense at the last minute. Having a knowledgeable attorney to draft contracts and resolve contract and debt disputes is very important.

If you are in a contract dispute, contact Joseph Ingram with Ingram Law LLC at (205) 236-3997. I can help you get the relief you deserve.

Categories: