Debt Recovery and Loan Agreement in Armenia
Loan agreement is a very significant document which, if properly processed, establishes mutual rights and obligations of the parties. In accordance with the Article 877 of the Civil Code of the Republic of Armenia, under the agreement of loan, one party (the lender) transfers to the ownership of the other party (the borrower) money or other property determined by generic characteristics, and the borrower undertakes the duty to return to the lender the same sum of money (the amount of the loan) or an equal quantity of other property received by it of the same type and quality.
Loan agreement between the natural persons shall be concluded in writing, if the sum of the agreement exceeds 20.000 AMD. In case if at least one of the parties is a legal entity, the agreement must be concluded in writing irrespective of the sum of agreement. In case of non-observance of simple written form of a transaction, parties lose their right to rely for confirmation of the transaction and its terms upon the testimony of witnesses, but they save the right to produce written and other evidence.
Agreement must establish the date and place of its signing, information about the parties (name, surname, date of birth, passport data and address of registration). Another important point the lender should take into account is the provision of deadline for paying back the debt. The agreement may also provide conditions on collection of penalties, forfeitures and interest for the default of borrower’s obligations. The agreement shall be prepared in duplicate and by the decision of the parties it may also be verified by the notary.
Special attention should be given to the documents evidencing the transfer of money and fulfillment of the loan agreement. In most cases the borrower prepares a receipt evidencing transfer of money or property and containing information concerning the money transferred to the borrower. Practice shows that receipt should be written by borrower’s hand (not using additional technical tools) to let lender prove that borrower really got the money. The receipt should include passport data of both borrower and lender, address and additional information identifying the parties, the fact of transfer of money, place and date of its transfer as well as the deadline for its repayment. It is also important to make a reference to the basic contract in the receipt stating its number and date of signing.
As soon as money returned to the lender the original of receipt must be returned to the borrower. The lender signs the receipt and makes a handwritten annotation that borrower has returned the full amount of money. In practice sometimes borrowers claim that they has not borrowed any money and the receipt is written and signed by other persons. In this case the court orders handwriting examination. It’s noteworthy that not only the signature will be subjected to examination, but also the whole text of the receipt.
Ensuring the performance of an obligation
If the loan agreement provides a big sum of money to be transferred, it is recommended that you use the means of ensuring the performance of obligations. In Armenia, the most common and effective of them is pledge. For the occurrence of pledge it is necessary to sign a pledge agreement. It should be mentioned that only the property which cannot be hidden from the lender should be used as a subject of pledge. Thus the most reliable type of pledge is a mortgage and it can be explained by the lack of possibility to conceal the mortgaged property and it is subject to state registration in the Agency of the State Cadastre of real estate of Armenia.
In addition, the pledge is convenient because of possibility to recover the debt without the judgment of court in case if parties provided such a condition. In this situation, the sale and alienation of property without the consent of the lender (pledgee) is impossible, and in case of violation of obligation to repay money the lender will be able to apply to the appropriate authority for the implementation of the pledged property. Remember that pledge is invalid if it does not meet the requirements on the state registration.
Filing a lawsuit
None of us is secured from dishonest actions of debtors and due to this the lender should initiate the procedure of debt recovery by filing a lawsuit. When collecting debt under the loan agreement the limitation period is 3 years. Basically, it begins from the moment when the term of debt repayment comes, and in case of expiration of the limitation period, the court may dismiss the claim.
The claim on debt recovery should be presented to the court of first instance at the defendant’s place of residence, unless otherwise provided by the loan agreement. The receipt confirming the payment of the state duty, agreement, receipt and other necessary documents shall be attached to the lawsuit. For the preparation of lawsuit we recommend you to consult experts in the field of law since the filing of a lawsuit has its peculiarities, ignorance of which often does not allow lenders to return the transferred money.