In daily life, people often lend money to each other. These relationships are often based on mutual trust and are mostly not formalized in writing. However, when a dispute arises between the parties later, the improper documentation of the loan relationships makes it considerably difficult to protect the parties' rights.
Medianews.az, citing Milli.Az, reports that in practice, a significant portion of court disputes related to loan relationships arise precisely because the contract is not concluded in writing or there is no written evidence regarding the issuance and repayment of the loan.
When should a loan agreement be concluded in writing?
According to the legislation, if the amount of the loan exceeds 3000 manats, or regardless of the loan amount if one of the contract parties is a legal entity, the loan agreement must be concluded in writing.
Why is the written form important?
A written contract allows the clear expression of the parties' will. At this time, the loan amount, the repayment period, the method of repayment (lump sum or in installments), as well as other conditions are precisely determined. This helps to prevent potential disputes in the future, and at the same time protects the parties from the heavy burden of proof in disputes that may arise later.
If the contract is not concluded in writing when required by law, the relationship between the parties may be considered not as a loan relationship, but under the rules of unjust enrichment. This can lead to legally less favorable outcomes for the parties. In particular, claims related to unjust enrichment are subject to a two-year limitation period, whereas claims arising from a loan agreement are subject to a three-year limitation period.
In addition to the loan agreement, it is also important to document in a certain form the execution of the parties' obligations arising from the contract. That is, the actions related to the lender giving the funds and the borrower repaying the loan should be confirmed in writing as much as possible. For example, through bank transfers, receipts, correspondence between the parties, and other means.
Otherwise, if the loan relationship is established verbally and the transfer and repayment of funds are made without any written confirmation, it becomes difficult for the parties to prove these facts, and since they cannot sufficiently confirm the circumstances they claim with reliable evidence, their claims are rejected by courts or the objections raised are not accepted.
Recommendations
When entering into loan relationships, to avoid legal risks that may arise in the future, it is recommended to pay attention to the following points:
• if the loan amount exceeds 3000 manats, always conclude a written contract;
• precisely indicate the loan amount, repayment period, and payment method in the contract;
• if possible, transfer the funds via bank transfer;
• obtain a receipt or written confirmation when issuing and repaying the loan;
• keep messages and other correspondence between the parties;
• obtain professional legal advice for drafting the contract when necessary.
Proper preparation of the loan agreement and transparent formalization of the relationship serve to protect the parties' rights, prevent potential disputes, and ensure legal certainty in civil turnover.