If an oral loan meets all the requirements in SI 01120.220C but, by its terms, is not repayable within one (1) year, it still may be a valid
oral loan based on full performance by the lender to the oral loan agreement (i.e.,
lender has paid all funds).
In Illinois, Indiana, Minnesota, Ohio, and Wisconsin, if an oral loan agreement is
not repayable within one (1) year, the oral loan agreement is enforceable under state
law if the lender has fully performed under the agreement within one (1) year of the
date the agreement was made.
Example:
Amy and Bob orally agree that Amy will loan Bob $1,000 and Indiana law governs the
agreement. The terms of the oral loan do not permit Bob to repay the loan within one
year. Amy gives Bob the $1,000 within one year of making the oral loan agreement.
One side of the agreement has been fully performed within one year by one party to
the oral loan agreement and the agreement is enforceable under Indiana state law.
In Illinois, Indiana, Minnesota, Ohio, and Wisconsin, if one party to the agreement
has fully performed, but not within one year of the date, the agreement was made,
the case should be submitted to ARC-MOS CRSI/SSI for review and possible referral
to the Office of General Counsel, per SI CHI01120.220C.
Example:
Amy and Bob orally agree that Amy will loan Bob $1,000. The terms of the oral loan
do not permit Bob to repay the loan within one year.
Amy gives Bob the $1,000 more than one year after making the oral loan agreement.
Neither side of the agreement was fully performed by either party to the oral loan
agreement within one year. Therefore, the agreement may not be enforceable under state
law.
In Michigan, if an oral loan agreement is not repayable within one (1) year of the
date of the agreement, full performance by the lender does not make the oral loan
agreement enforceable under state law, even if the lender fully performs within one
year. In Michigan, cases involving full or partial performance by one party should
be submitted to ARC-MOS CRSI/SSI for review and possible referral to the Office of
General Counsel per SI CHI01120.220C.
Example:
Amy and Bob orally agree that Amy will loan Bob $1,000. The terms of the loan do not
permit Bob to repay the loan within one year. Once Amy gives Bob the $1,000, one side
of the agreement has been fully performed by one party to the oral loan agreement.
However, under Michigan state law, the oral loan agreement still is not enforceable.