Borrowing money for certain needs is a common thing that requires legal confirmation to ensure guarantees of money return. Concluding a loan agreement is a common thing, but at the same time it is full of nuances that can significantly affect the security and predictability of agreements between the parties. Is a written form always necessary? What role does a receipt play and what risks does failure to meet the repayment deadlines entail? The answers to these questions are below.
Loan agreement and nuances of its execution
A loan agreement is a transaction under which one party (lender) transfers to the other party (borrower) money or other things defined by generic characteristics, and the borrower undertakes to return to the lender the same amount of money (loan amount) or the same number of things of the same kind and quality.
A loan agreement is concluded from the moment of transfer of money or other things determined by generic characteristics (Article 1046 of the Civil Code of Ukraine (hereinafter - the Civil Code)).
A loan agreement is concluded in writing if its amount is at least 10 times higher than the amount of the non-taxable minimum income of citizens established by law, and in cases where the lender is a legal entity, regardless of the amount (Part 1 of Article 1047 of the Civil Code).
A transaction is considered to be concluded in writing if its content is recorded in one or more documents (including electronic ones), in letters, telegrams. A contract is considered to be concluded in writing if it is signed by its party (parties). A transaction concluded by a legal entity is signed by persons authorized to do so by its constituent documents, power of attorney, law or other acts of civil law.
If an individual cannot sign in person due to illness or physical disability, another person shall sign the text of the transaction in his or her presence on their behalf (Article 207 of Civil Code).
The law does not require a loan agreement to be notarized. However, if the parties so desire, the transaction can be notarized.
Money back guarantee – receipt
In accordance with Part 2 of Article 1047 of the Civil Code of Ukraine, a borrower's receipt or other document certifying the transfer of a certain amount of money or a certain number of things by the lender may be presented to confirm the conclusion of a loan agreement and its terms.
The resolution of the Civil Court of Cassation of the Supreme Court dated April 27, 2023 in case No. 161/11436/21 states that “by its legal characteristics, a loan agreement is a real, unilateral, pecuniary or gratuitous agreement, in confirmation of which a borrower’s receipt may be provided, which is evidence not only of the conclusion of the agreement, but also certifies the fact of the transfer of the amount of money to the borrower. The loan agreement is concluded from the moment of the transfer of money or other things, and may not coincide with the date of drawing up the receipt certifying this fact, but in any case, the drawing up of the receipt must be preceded by the fact of the transfer of funds in debt. In essence, a receipt for the receipt of funds in debt is a document issued by the debtor to the creditor under a loan agreement after receiving the funds, confirming both the fact of the conclusion of the agreement and the content of the terms of the agreement, and the fact of the debtor’s receipt of a certain amount of money from the creditor. The fact of receiving funds on loan is confirmed not by any receipt, but by a receipt of funds, from the content of which it is possible to establish that a certain amount of funds was transferred from the lender to the borrower”.
The current legislation does not establish a form for the receipt. However, to prevent future risks, it should indicate:
- date and place of compilation;
- surname, first name, patronymic, passport details, addresses of the borrower and lender;
- subject of the loan (if it is money, it is necessary to indicate in numbers and words the amount and currency of the loan. If it is things, it is necessary to indicate the name, number, weight, measure, etc.);
- amount of debt;
- term and form of debt repayment;
- conditions for transferring the loan (confirm the fact of its receipt when issuing the receipt);
- possible sanctions for violation of the deadline
The parties must sign.
Obligation to repay the loan
The borrower is obliged to return the loan to the lender (cash in the same amount or things determined by generic characteristics, in the same quantity, of the same kind and of the same quality that were transferred by the lender) within the time limit and in the manner established by the agreement.
If the contract does not establish a loan repayment period or this period is determined by the moment of presentation of the demand, the loan must be returned by the borrower within thirty days from the date of presentation of the demand by the lender, unless otherwise established by the contract.
A loan granted under an interest-free loan agreement may be repaid by the borrower ahead of schedule, unless otherwise provided by the agreement.
The loan is considered repaid at the moment of transfer to the lender of the things determined by generic characteristics, or the amount of money borrowed is credited to his bank account ( Article 1049 of the Civil Code).
Consequences of non-compliance with contractual terms
If the borrower fails to repay the loan amount on time, they shall be obliged to pay the amount of money in accordance with Article 625 of this Code.
If the borrower fails to return the items specified by generic features in a timely manner, they shall be obliged to pay a penalty in accordance with Articles 549-552 of this Code, which shall be calculated from the day the items were to be returned until the day they are actually returned to the lender, regardless of the payment of interest due to him in accordance with Article 1048 of this Code.
If the contract establishes the borrower's obligation to repay the loan in installments, then in the event of a delay in the repayment of the next installment, the lender has the right to demand early repayment of the remaining part of the loan and payment of interest due to in accordance with Article 1048 of this Code ( Article 1050 of the Civil Code).
In the event of the borrower's failure to fulfill the obligations established by the loan agreement regarding the loan repayment, as well as in the event of the loss of the security for the performance of the obligation or the deterioration of its terms under circumstances for which the lender is not responsible, the lender has the right to demand from the borrower early repayment of the loan and payment of interest due to in accordance with Article 1048 of this Code, unless otherwise established by the agreement (Article 1052 of the Civil Code).
