Borrowing money among family, friends or acquaintances is quite common. However, at the time of granting the loan, the parties do not always pay due attention to the legal aspects related to it. Giving a loan is often embarrassing or considers inappropriate for a close person to maintain a more formal approach when concluding this type of contract. It happens that such behavior later turns against him and as a result he has difficulties in recovering money. Today a few words about what to look for when borrowing money.
The loan is governed by the Civil Code.
If you lend money to someone, you conclude a loan agreement within the meaning of civil law. This contract is regulated in the Civil Code ( Articles 720 – 724 ). From a legal point of view, through a cash loan agreement, the person who grants the loan or lender, undertakes to transfer a certain amount of money to the property of the borrower or borrower. However, the borrower is obliged to return the same amount of money, in other words to pay back the loan. The loan agreement is therefore an obligation contract for both parties. It comes to fruition only by the parties’ agreement, that is from that moment it is legally binding for them. Lawyers define such contracts as consensual ones. Providing the borrower’s money is already the fulfillment of the concluded contract.
Can the lender withdraw from the concluded loan agreement?
Generally, the lender is obliged to pay the money he has undertaken to borrow. He may evade this obligation by withdrawing from the contract when the return of the loan is doubtful due to the borrower’s bad financial status. However, he will not be entitled to such a right if he knew or could easily find out at the time of signing the contract on the poor property status of the borrower.
A bad financial condition must exist at the moment when the lender withdraws from the contract and refuses to transfer the money to the borrower. In order to make this possible, the lender can not be in default with the transfer of money for the loan. A delay is a delay in the payment of money in relation to a set date for which the loan provider is liable. Deterioration of the borrower’s assets during the period when the lender was in such delay does not give him the right to withdraw from the loan agreement.
Bad financial status is a concept that is not defined, but should be assessed according to objective criteria. A bad state of affairs will occur when justified doubts arise from the point of view of life experience as to the borrower’s ability to return the loan. At the same time, the lender, when referring to such a circumstance, must prove it.
In what form should a loan agreement be concluded?
The law does not make the loan agreement valid from the preservation of a particular form. Even an oral contract will be valid. In practice, however, it is better to use a written form. It should be remembered that according to the Civil Code, a loan agreement worth more than PLN 500 should be confirmed in a document for evidence purposes.
From September 8, 2016, this requirement for a loan agreement has changed in both amount and form. You will read about it here: “Loan agreement over PLN 1000 and the document form”.
Disclaimer of written form for evidentiary purposes means that if it is not observed in a court dispute, evidence from witnesses or evidence from parties to the conclusion of a loan agreement is not admissible. Exceptionally, such evidence can be made when:
- both parties agree to it,
- the consumer demands this in a dispute with an entrepreneur,
- the fact of making a legal transaction will be substantiated by means of a letter,
- when the document containing the activity has been lost, damaged or taken away by a third party.
If the lender, for some reason, does not want to sign a document, formulated as a formal contract, in his own interest he should at least ensure that the borrower acknowledges accepting the money as a loan. Such a written receipt in the event of a dispute will make it probable that the loan agreement will be concluded and executed. What’s more, if it is quite detailed in its content, it is possible that it will be treated as a loan agreement document. In judicial decisions it is assumed that a letter constituting a receipt confirming the indebtedness of a loan that contains all the features of this contract required by art. 720 of the Civil Code and the manner of returning this loan, however, without specifying the date of its return, is in the nature of a loan agreement (judgment of the Supreme Court of 5 March 2002, I CKN 1086/99).
It should also be remembered that if the loan amount is significant, if the tax office in the loss of tax control demanded disclosure of sources of money from the borrower, the lack of evidence in this matter may prove to be very expensive for it. For the tax office it may mean that they came from illegal sources of financing.
For evidential and fiscal reasons, it is also worth remembering that in the case of transferring money from a loan by transfer to a bank account or a credit account at SKOK, enter information indicating the loan in the transfer title. This will make it easier to prove the fact of concluding a loan agreement, whether in a civil lawsuit or in the course of tax proceedings.
What is worth saving in the loan agreement?
A loan agreement in writing, in order to avoid any doubts, should be duly written out, bearing in mind the conclusion of several important provisions. First of all, you must specify the parties to the contract, i.e. who lends and the exact amount of the loan.
You should also set and save the deadline for returning the borrowed money. It may be indicated by specifying a specific date or otherwise, for example, that the loan will be returned within 90 days from the date of conclusion of the contract.
With dates marked in days, please note that in accordance with the Civil Code:
- the period in days ends on the last day,
- the time limit in weeks, months or years ends on the day that the name or date corresponds to the starting date of the date, and if there was no such day in the last month – on the last day of that month,
- if the date is marked at the beginning, middle or end of the month, it shall mean the first, fifteenth or last day of the month,
- the half-month term is equal to fifteen days,
- if the end of the period for performing the activities falls on the day deemed statutorily free of work, the deadline expires on the following day.
In the situation when the deadline for returning the loan has not been marked in the contract, the borrower (the debtor) is obliged to return the loan within 6 weeks after the loan provider denounces it.
As for the repayment date, it should also be remembered that if the loan repayment date has been marked in the contract, but the parties have not specified otherwise, it is deemed to be in favor of the debtor. This means that he can repay the loan ahead of schedule and the lender must accept such a repayment.
In the loan agreement it is also good to write down the provision specifying how the loan should be repaid. Its repayment can take place once or in installments. Installments, in turn, can have the same height or vary in altitude. Installments can be paid monthly on a fixed day or in other periods, e.g. quarterly, semi-annual, etc.
Interest on the loan.
The loan agreement may be interest-bearing or not. If the parties have agreed that the loan will be subject to interest, then they should specify the amount of interest in the contract. When determining this amount, it must be remembered that it should not be higher than the maximum interest. If the interest rate is higher, the maximum interest is due to the lender. When the parties agreed that the loan would bear interest but did not determine the amount of interest, statutory interest should be due. You can read more about the interest here: Interest – what do you know about them?
By providing interest, you can also determine when they are to be paid. In the case of installments, they can be paid as part of them. If the loan is repaid on a one-off basis, the interest is usually repaid with the repayment of the principal.
In the absence of a different provision in the contract, as to the date of payment of interest they are payable each year in arrears, and if the loan repayment date is less than one year – simultaneously with the payment of the principal sum.
Another thing to keep in mind is interest for late payment of the loan. In the loan agreement, you can decide what interest for the delay the lender will have the right to demand if the borrower is late with repayment of the loan. If the rate of interest for delay was not pre-determined, the lender will be entitled to statutory interest (from January 1, 2016, the so-called statutory interest for delay, read here: Statutory interest, maximum interest, interest for delay – new calculation rules.
When does the loan claim expire?
The lender’s claim for a refund expires after ten years, but if the loan is related to running a business after three years. Also, with the lapse of three years, the claim for the payment of interest on the loan expires.
The claim of the borrower for the payment of money on the loan expires after six months from the time when it should take place.
What else is worth remembering?
The fact that repayment of the loan can be secured, for example, in the form of a surety or any other method provided for by law. I often write about the methods of securing debts on the blog, so you can read about them if you are looking for information on this subject.
In a situation where a loan was contracted by a person who is married without the consent of the spouse, what rules, the other spouse is not responsible for repayment. More on the principles of this responsibility I wrote here: Getting a loan or a loan without the consent of the spouse. This publication is indeed mentioned on the loan or a bank loan, but the same rules apply mutatis mutandis to private loans, or borrowing from lenders other than banks.
Also, remember that when the lender gives a loan as part of his business, the loan will be a consumer loan. There are many important issues involved. If you are interested in this subject, you can read a few blog publications that bring it closer. I wrote about the differences between a loan and a loan here: What is the difference between a loan and a loan ?
A loan agreement may also involve the obligation to pay tax on civil law transactions. A cash loan and a tax on civil law transactions.