What Do You Need to Know in Order to Prove that You Have Issued a Loan?

Author: Vilius Martisius, Associated Partner, Attorney-at-Law and Court Mediator at METIDA

6748965761_110d18f752_zHave you lent your acquaintance money by signing a loan agreement expecting it to be repaid in the future, if not in a friendly manner, then, at least, with the help at courts? If so, do not be surprised if you have to prove that you have issued the loan to your borrower.

Under the Lithuanian Civil Code (part 1 of article 6.870), by the loan agreement one party (the lender) transfers into the ownership of the other party (the borrower) the money or consumable generic things, and the borrower undertakes to repay the lender the same amount of money (the amount of loan) or return the same amount of things of the same kind and quality, and to pay the interest unless otherwise stated in the agreement. Thus, in accordance to the Civil Code, the loan agreement comes into effect from the moment of transfer of money or things.

All the procedures may seem uncomplicated at first: the loan agreement can be made in a simple written form, e.g. a loan receipt or any other debt instrument. Also, under the new amendments of the Civil Code that came into force at the beginning of 2015, the agreement has to be made in the notary form if the loan exceeds 3000 euros.  However, private persons signing these documents generally forget to include an important element which may be critical in proving that the loan has been really granted: the confirmation of transfer of money. Usually, you should clearly indicate in a specific paragraph of the document that the subject-matter of the loan agreement has been transferred to the borrower (e.g. “money received”, “this agreement confirms the transfer of money” and etc.)  This will help you avoid any related disputes.

The Supreme Court of Lithuania has emphasized the importance of including this element into the documents too. According to them, the loan is considered to be executed if the loan agreement confirms the transfer of subject-matter to the borrower. The borrower in this case is obliged to prove that the loan has not been granted. What is more, any abstract lender’s explanations or other vague information with regards to transfer of the subject matter of the loan agreement to the borrower are not substantial enough in confirming that such transfer actually happened. This suggests that even a simple confirmation of transfer of the subject matter of the loan agreement is required to be definite enough. But what could a creditor do if he has not included this matter in his loan agreement? How can he possibly prove his claim for repayment at the court?

Firstly, if the loan receipt or any other debt instrument does not record the transfer of money (subject- matter of the loan agreement) to the borrower, it is the lender who is burdened to prove the transfer. Secondly, under the new case law, linguistic explanation of the agreements, used definitions and expressed grammatical forms, as well as conditions concerning the application of means guaranteering the repayment and obligations to return the money or things are important in analysing the formation of the agreement even if the transfer of money is not explicitly recorded. Circumstances under which the original copy of the agreement is in the possession of the lender or the borrower will also be taken into account, as well as records or any other proof about the execution of the agreement (e.g. repayment in instalments, interest payment, negotiations concerning the change of deadlines of when the repayment must be completed or different repayment ways and etc.). In other words, just because the agreement loan lacks the explicit proof of transfer of the subject matter of the loan agreement to the borrower, the lender is not hindered to state the existence of this fact: he can prove the transfer by providing other evidence and important circumstances.

To conclude, under the discussed regulations concerning the concept of the loan agreement, you are strongly recommended to explicitly indicate that your borrowed money was transferred and received by the borrower if you are planning to make the loan agreement or work on any other documents certifying the loan. If you have not included such confirmation, you may have to find other evidence proving that you have lent the money. Note, however, that if you fail to find this evidence, your may encounter a lot of difficulties in retrieving the payment. On the other hand, if you appropriately recorded the transfer of the subject-matter of the loan agreement to the borrower, you are likely to face shorter and less complicated litigation procedures.

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