The Constitutional Court of Azerbaijan has issued a significant decision concerning the interpretation of Article 739.2 of the Civil Code, which requires loan agreements exceeding AZN 3,000 to be concluded in writing.
The decision addresses an issue that has long created uncertainty in judicial practice. In a number of cases, courts treated the absence of a written loan agreement as a defect affecting the validity of the transaction itself. As a result, creditors who had actually transferred funds to borrowers were often required to rely on unjust enrichment claims rather than contractual remedies. Since unjust enrichment claims are subject to a considerably shorter limitation period, creditors could effectively lose the ability to recover funds despite being able to prove that the money had been provided to the borrower.
The Constitutional Court emphasized that the purpose of the written form requirement is not to invalidate genuine economic transactions between parties, but rather to facilitate the proof of the existence, amount and terms of a loan relationship in the event of a dispute. According to the decision, automatically treating an unwritten loan agreement as invalid would conflict with the principles of contractual freedom, legal certainty, protection of property rights and the stability of civil circulation.
The Court further noted that such an approach could create unfair outcomes whereby borrowers who had actually received funds would be able to avoid repayment obligations by relying solely on the absence of a written agreement. In the Court’s view, allowing a debtor to retain borrowed funds merely because the parties failed to formalize the agreement in writing would be contrary to the principles of justice and could result in unjust enrichment at the expense of the lender.
Importantly, it has been acknowledged that modern business and personal transactions are frequently evidenced through various forms of communication and documentation other than a traditional signed contract. In this regard, electronic documents and technical means of communication have been recognized as satisfying written form requirements and highlighted that evidence such as electronic correspondence, messaging applications, payment receipts, bank transfer documents, acknowledgements by the borrower and other written records may be relied upon to establish the existence and terms of a loan relationship.
Accordingly, it has been held that parties should not be deprived of the opportunity to prove a loan agreement and its terms through any available written evidence. Accordingly, courts should assess the totality of the evidence presented rather than automatically rejecting claims solely due to the absence of a formally executed written loan agreement.
The Court also recommended that the Milli Majlis consider legislative amendments to expressly clarify the legal consequences of non-compliance with the written form requirement under Article 739.2 of the Civil Code. Until such amendments are adopted, the legal positions expressed in the decision will apply both to future loan relationships between individuals and to disputes currently pending before the courts.
