The Supreme Court has clarified the issue regarding loan agreements.
According to information provided by the Court to “Elchi”, it has been clarified what should be paid attention to when entering into debt relations:
“In daily life, people often lend money to each other. These relationships are often built on mutual trust and, in most cases, are not formalized in writing. However, when disputes arise between parties later, the improper documentation of debt relations significantly complicates the protection of the parties’ rights. In practice, a significant portion of court disputes related to debt relations arises precisely due to the failure to conclude the agreement in writing or the absence of written evidence regarding the giving and repayment of the debt.”
It was stated that, according to legislation, when the amount of the debt exceeds 3000 manats, and also when one of the contracting parties is a legal entity, regardless of the debt amount, the loan agreement must be concluded in written form: “A written agreement allows for a clear expression of the parties’ will. In this case, the amount of the debt, the repayment period, the repayment method (one-time or in installments), as well as other conditions are precisely determined. This helps prevent future disputes and also protects the parties from a heavy burden of proof during potential disputes.
If the agreement is not concluded in written form when required by law, the relationship between the parties may be evaluated not as a debt relationship, but within the framework of unjust enrichment rules. This can lead to more unfavorable legal consequences for the parties. For example, the statute of limitations for claims related to unjust enrichment is two years, whereas a three-year statute of limitations applies to claims arising from a loan agreement.”
It was stated that, in addition to the loan agreement, it is also important to document the performance of the parties’ obligations arising from the agreement in a certain form: “That is, the actions related to the lender providing funds and the borrower repaying the debt should also be confirmed in writing as much as possible. For example, through bank transfers, receipts, correspondence between the parties, and other means.
Otherwise, that is, in cases where the debt relationship is established orally and funds are given and repaid hand-to-hand without any written confirmation, it becomes difficult for the parties to prove these facts, and their claims are rejected by the courts or their objections are not accepted because they cannot confirm the alleged circumstances with sufficiently reliable evidence.”
The Court recommends paying attention to the following points to prevent potential legal risks when entering into debt relations:
conclude a written agreement if the debt amount exceeds 3000 manats;
clearly state the debt amount, repayment period, and payment method in the agreement;
transfer funds via bank transfer whenever possible;
obtain a receipt or written confirmation when giving and repaying the debt;
keep messages and other correspondence exchanged between the parties;
seek professional legal advice for drafting the agreement in necessary cases.
“The proper drafting of a loan agreement and the transparent formalization of relations serve to protect the rights of the parties, prevent future disputes, and ensure legal certainty in civil circulation,” the statement says.