Every entrepreneur builds on the successful promotion and growth of their business. Loans from private individuals or entrepreneurs are an excellent financial tool for achieving these goals. Loans are a genuine alternative to classic bank lending. The terms of bank lending grow stricter every year, and the ways of obtaining a bank loan are becoming unfavourable or altogether impossible. That is why the popularity of private loans is growing. In the event of unforeseen circumstances, using this method of financing a business is particularly advantageous. A lender who has the funds available will provide a loan quite quickly and without bureaucratic procedures. Speed and simplicity in structuring the deal are thus the main advantages of a loan.
Under Art. 807 of the Civil Code of the Russian Federation, under a loan agreement one party (the lender) transfers into the ownership of the other party (the borrower) money or other fungible items, and the borrower undertakes to return to the lender the same amount of money (the loan amount) or an equal quantity of other items of the same kind and quality that they received. A loan agreement is considered concluded from the moment the money or other items are handed over. In addition, under Art. 808(2) of the Civil Code of the Russian Federation, a borrower's promissory note or other document confirming that the lender transferred a certain sum of money or a certain quantity of items to the borrower may be submitted as evidence of the loan agreement and its terms.
Important to know
A debt IOU, even drawn up in simple written form, is sufficient evidence of a loan in a German court — provided it clearly states the amount, the parties, and the repayment deadline.
An IOU is not a contract, but it is precisely what guarantees repayment of the debt, if need be through the courts. It should be handwritten, so that a handwriting examination can be carried out if a dispute arises. It should state the full names of the lender and the borrower, as well as their identity-document details and home addresses; the loan amount in figures and in words; the repayment deadline; the date the note was drawn up; and signatures. It must contain all the essential terms of the transaction.
Rostislav and Timofey (names changed), both sole proprietors, met at a social event in Moscow. Over time they became friends, and their relationship grew close and trusting. Rostislav had long told Timofey about his business ideas, and Timofey supported his friend's plans. So when Rostislav once asked Timofey for a certain sum of money as a loan to carry out his new project, Timofey could not refuse. No loan agreement was drawn up, however — only an IOU was written and signed. The sum involved was one million rubles. Rostislav intended to use the money to buy a tanker of fuel and resell it. The two men also agreed verbally on how the profit from the deal would be split. The IOU recorded a repayment deadline of six months.
When the deadline passed, however, Rostislav was in no hurry to repay the loan, arguing that his deal had fallen through. According to him, the seller of the fuel tanker had taken his money without handing over the goods in return. Timofey had no way of verifying this.
Although Rostislav had spent recent years in Moscow and held a job there, he in fact split his life between two countries: Russia and Germany. Timofey knew nothing of this, so when he heard rumours that Rostislav had dropped everything in Moscow and left for Germany, he was unpleasantly surprised — after all, no one had ever repaid him the debt.
Timofey then reached our law firm through acquaintances, asking us to help him recover the money. It did not take us long to track down the borrower. Representing our client's interests, the attorney filed a claim with the court seeking recovery of the debt from the borrower, thereby setting in motion a lengthy court process. The defendant, unwilling to repay the debt, claimed that he had never signed the IOU and that the signature was not his at all. Our firm's attorney then filed a motion for a forensic examination to establish the authenticity of the signature. The expert established that the signature had indeed been made by the defendant. Unwilling to give up, Rostislav then argued that the gap between the final paragraph (which stated the deadline and had been handwritten) and the signature on the IOU was too small. In his view, this showed that the paragraph had been added much later, not at the time the IOU was signed. To rebut this, we again requested that the court order an examination — this time to determine when that paragraph had been written. The examination found that, with a high degree of probability, the paragraph had been written at the time the IOU itself was drawn up and signed, since the analysis showed that the paragraph had been written with the same ink as the rest of the text, including the signature.
But the other side's arguments did not stop there. On the day the IOU was drawn up, Rostislav had not come alone — he had brought an acquaintance whom he introduced as a business partner and whom our client had never met before. Rostislav explained that, since they were partners, they would sign the IOU together. This came as a surprise to Timofey, but he did not think much of it at the time. As a result, the IOU bore two signatures. The defendant therefore argued in court that he should be liable for only half the amount, not the whole of it. Having carefully analysed Russian law and delved into current Russian case law, our firm's attorney established that, in this case, since the loan had been taken out to carry out a commercial business transaction — that is, for the purposes of commercial activity — under Russian law each of the signatories was liable to repay the debt in full. The other side was forced to concede this point.
Still hoping to win the case, however, the defendant tried to turn the situation on its head by claiming that, when the IOU was signed, the money had not been a loan at all, but an investment. Under Russian law, an investment differs from a loan in the level of risk borne by the investor. With a loan, the principal and interest must be repaid on the agreed schedule regardless of whether the underlying project is profitable, whereas an investment (invested capital) is returned, and yields a return, only if the deal turns a profit. Since Rostislav's deal had fallen through at the last moment and he had made no profit from it, the argument went, Timofey, as an investor, could not expect any return either, and his investment had to be regarded as lost. This argument, however, was not especially successful, since the IOU clearly specified a repayment deadline, namely six months. Moreover, although no loan agreement had been drawn up between the borrower and the lender, we had witnesses who could confirm the verbal agreement between the two entrepreneurs. Their verbal discussion had precisely set out the terms for repaying the sum of money within the six-month period, and there had been no talk whatsoever of an investment.
Having weighed and assessed the arguments and evidence presented by the parties, the judge, without much deliberation, sided with us and ordered the debtor to repay the loan amount, together with the corresponding interest for late payment on account of missing the repayment deadline.
In conclusion, we would like to say that, despite the advantages of a loan — in particular, how easy it is to arrange — no matter what kind of relationship connects you to the borrower, we recommend never losing a businesslike approach when structuring the deal, and always drawing up an IOU in any case. It can become a real lifesaver in the event of litigation, as a document confirming that the lender transferred a certain sum of money or a certain quantity of items to the borrower.
It should also be noted that a borrower, too, can fall victim to fraudulent conduct by a lender, so when concluding an agreement, it can be highly useful to review the document being signed from the perspective of how it would hold up in litigation.
No one is immune to fraudsters, who are willing to do anything, through deception or abuse of trust, to seize someone else's property. By turning to an experienced attorney in good time, however, you can protect yourself from negative consequences.
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THE LAW FIRM REPRESENTS CLIENTS' INTERESTS THROUGHOUT GERMANY
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