Parties have signed an agreement under the title “Loan Agreement" for the purchase of real estate. After the passing of time, the lender demanded the borrower to repay the loan with interest.
The Court held that, although the title of the agreement was "Loan Agreement", and despite the fact that the parties used in the agreement terms such as "borrower" and "lender", the agreement was not a loan agreement but an agreement to purchase real estate. The title of a document is not the essence and the essence derives from its content and purpose. In order to find the essence the Court will examine the elements of the transaction, its economic substance and the circumstances surrounding its execution. In that case the essence of the transaction was investment in real property and not a loan and the return of the investment was to be from the proceeds of the investment, and therefore the agreement is a joint investment agreement, including the risks involved, and not a loan agreement.