What are my rights if I loaned money to someone but they failed to fully disclose their finances to me?
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What are my rights if I loaned money to someone but they failed to fully disclose their finances to me?
I loaned a friend 50K interest free to start a new business to be paid back in 3 years and 10% of the net profit in perpetuity. However, I recently discovered she had 100K that she did not disclose to me when she asked for the loan. I would not have loaned her money if I knew that. Is this illegal? I could have used that money for a different investment.
Asked on May 15, 2015 under Business Law, New Jersey
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 8 years ago | Contributor
It would only be illegal if either she affirmatively lied to you about her finances (e.g. she came out, without prompting, and said, "I don't have any money") or if you asked her and she lied in her response. In those case, IF you could show that the information about her finances was material (important) in making the investment decision, you may be able to rescind the agreement due to fraud--that would undue the agreement from the start, and she'd have to return the money (and you'd return any interest or profit you'd received from her). But again, there has to have been an actual lie or misrepresentation--she is under no legal duty to voluntarily disclose all her finances to you, so only in the event of a lie (not merely a failure to disclose her finances) might this be fraud. And even if that were the case, you'd have to show that the lie was critical to your investment decision, which may be very difficult to do if you did not ask her about whether she had money (since how important could the information have been, if you did not ask about it?). And you'd have to sue her and go through the cost of a lawsuit to rescind the transaction as well (assuming she did voluntarily return the money).
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