"Creditors have better memories than debtors."
(Benjamin Franklin)
The procedure for collecting a debt in Germany
The first step in collecting a debt is sending a written demand letter with a clear payment deadline — this is a precondition for later recovering interest on late payment through the courts.
Almost every person, and an entrepreneur even more so, has at least once in their life run into a need for additional financing to promote and grow a business, or for other purposes. Of course, today's financial services market offers a great many banks and other financial institutions where one can obtain a loan to grow a business or for other important purposes. At the same time, loans from private individuals — most often from relatives or friends — are a genuine alternative to standard bank lending products.
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. A borrower's IOU 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. It should be borne in mind, however, that an IOU is not in itself a contract, but is precisely what proves that the property in question was actually transferred into the debtor's ownership.
Unfortunately, it often happens that relatives or close friends, when agreeing on loans, do not always properly document the transfer or return of property. When disputes over such matters arise, in the absence of a solid documentary evidentiary basis, one has to rely on circumstantial evidence and witness testimony. In this article, we share a story from our legal practice about how we managed to protect the interests of our client, whose debt was never repaid, through litigation in a German court.
Pavel and Stefan (names changed) had been business partners for many years. Pavel — a successful businessman from Saint Petersburg — owned property in various corners of the world, including in Germany. Stefan, a German national and sole proprietor in Germany, provided Pavel with various services under a services agreement, ranging from finding and selecting suitable commercial property and managing it, to finding a buyer and handling the subsequent resale.
Over their long business relationship, the two men had developed a trusting, almost friendly relationship. Pavel trusted Stefan so much that he gave him authority to manage the funds in his bank account and had the bank issue Stefan an additional card for it. The two men met periodically, both on business and on holiday, often accompanied by their wives. Everything went well, and the cooperation was mutually beneficial, until Stefan decided to expand into a new field and open his own real estate agency. As the great Roman emperor Julius Caesar put it: "Great deeds must be done, not endlessly deliberated." So Stefan, without delay, got down to business. To "get on his feet," he needed money, and the newly minted entrepreneur agreed with Pavel on an interest-free loan of 45,000 euros for a term of three years. The repayment deadline arrived very quickly, but Stefan was in no hurry to repay and asked for a six-month extension. To formalize this extension in some way, the two men signed a corresponding amendment to the loan agreement. When the additional six months also ran out, Stefan simply stopped responding. Our future client Pavel thus found himself in a rather unenviable situation: this money was certainly not his last, but the businessman had no intention of "forgiving" such a substantial sum. After several months of fruitless waiting, Pavel, on the recommendation of business partners, approached our law firm to help him protect his rights and legitimate interests.
Having carefully listened to the client and reviewed the documents he provided, our firm's attorney got straight to work. First, a demand letter was prepared, addressed to Stefan, requiring immediate repayment of the full loan amount. As we expected, after receiving the official letter drawn up by the attorney, the debtor soon responded — claiming, however, that he had already repaid the entire debt on time. According to Stefan's version, he had repaid the 45,000 euros to Pavel as follows:
- €15,000 he deposited into Pavel's account, to which he had access. Stefan made this deposit using his bank card one year after the loan agreement was concluded;
- €10,000 Stefan again deposited into Pavel's account about six months after the first repayment;
- €10,000 the debtor transferred by wire to another of Pavel's foreign-currency accounts;
- €10,000 Stefan handed over in cash at a personal meeting at his home in Germany.
Our client's version, however, was quite different:
- the €15,000 genuinely deposited into Pavel's account using Stefan's card was money our client had given him separately for a real estate deal of Pavel's in Germany;
- the €10,000 was deposited into his own account later by Pavel himself;
- the €10,000 genuinely transferred into Pavel's account was in settlement of a different debt that Pavel had lent Stefan while on holiday, at a ski resort in Italy;
- the €10,000 in cash Stefan never handed over to our client at all.
At this stage, we realized that this tangled dispute was unlikely to be resolved out of court. In agreement with the client, we prepared a claim for the court and began actively preparing for the hearing. We requested statements for the bank account of Pavel's to which Stefan had access, so we could establish precisely from which card, in what amount, and when funds had been deposited. Unfortunately, we had no written evidence that our client had lent Stefan a further 10,000 euros in Italy. This fact could, however, be confirmed by Pavel's wife, Irina (name changed), who had been present when the money changed hands. It later emerged that Stefan, too, had no written evidence that he had repaid our client 10,000 euros in cash. His account, however, was supported by his wife, Anna (name changed), who claimed to have likewise been present when part of the debt was repaid in Germany. The case thus came down to the word of one witness against the word of another. The attorney managed to find and bring in a further witness — Pavel's friend Ivan (name changed). Ivan had been in Germany and had spoken with Pavel during the period when the latter had brought 15,000 euros with him to hand over to Stefan. As our readers will appreciate, our attorney faced a far from simple task: with most of the supporting documents missing, to present the court with convincing evidence that our client was indeed telling the truth, and that Stefan still owed him 45,000 euros. Having gathered as much evidence as possible, and having done everything we could to secure a successful outcome, our client and we are counting on a court decision in his favour. But let us not get ahead of ourselves. Only time will tell how this case ends...
To be continued…
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THE LAW FIRM REPRESENTS CLIENTS' INTERESTS THROUGHOUT GERMANY
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