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Shortcomings of the Credit Contracts in a Foreign Currency concluded in Ukraine in the period up to 2012
Author article
Vladymyr Marinich
Author article
Maryna Myklush

This point of view does not meet and will never meet the point of view of the state (or other political structures). Law is an irrelevant issue in this question because the state wants to receive its debts too. Furthermore, any state will not allow destroying a bank system for preservation of several hundred of human lives.

 

Prima facie, we want to notice that on the one hand there are a huge number of versions concerning shortcomings and invalidity of credit contracts and on the other hand there exists the system of courts, representatives of the state and pro-bank law firms, which is engaged in twisting and interpretation of laws for benefit of credit contracts.

Therefore, we want to explain several relevant aspects of credit contracts.

 

The first stage of the credit agreement fulfillment is granting of the credit by bank. This is the first what is worth your attention.

In accordance with the provisions of the Item 4.1 of the Resolution of the National Bank of Ukraine dated June 18, 2003 No 254, transactions performed by banks shall be properly documented.

Moreover, in accordance with the provisions of the Item 4.2 of the foregoing Resolution, the basis for a display of bank transactions on accounts of financial accounting are source documents, which under the provisions of the Item 1.10 of the previously mentioned Resolution shall contain banking activity information and confirmation of its implementation.

Therefore, in accordance with the provisions of the Item 4.3 of the abovementioned Resolution, the source documents shall be constituted during transaction implementation but whereas it is impossible, these documents shall be constituted in hard and/or soft copy immediately after its fulfillment.

Whereas, in accordance with the provisions of the Items 4.2 - 4.6 of the previously mentioned Resolution, the source documents (in hard and/or soft copy) depending on the type of bank transfer are divided into cash documents (cash voucher), which confirm implementation of transactions with cash, and memorial (payment orders, transaction memo and pay checks), which are used for a non-cash payment with banks, clients, transferring funds from bank accounts and for interbank transfers.

The requirements to such documents are determined by the provisions of the Items 4.8, 4.10 and 4.11 of the      aforecited Resolution and also by the Appendix No 1 to the Instruction approved by the Resolution of the National Bank of Ukraine dated January 21, 2004 No 22.

Besides of that in accordance with the provisions of the Item 7.12 of the Instruction on the Procedure of Opening of Accounts, approved by the Resolution of the National Bank of Ukraine dated November 12, 2003 No 492, funds in foreign currency, which was granted as a loan to individual, shall be transferred to his\her current account in foreign currency.

Thus, under the provisions of the Item 6.1 of the previously mentioned Instruction, the individual’s appropriate application and bank account agreement are the confirmation of the opening of the account.

Whereas, in accordance with the provisions of the Item 22.1 of the Law of Ukraine "On Payment Systems and Money Transfer in Ukraine" dated April 5, 2001 No 2346-III and the provisions of the Item 4.7 of the Resolution of the National Bank of Ukraine dated June 18, 2003 No 254, the transfer of money (for the loan) in foreign currency from bank account to the individual current account shall be confirmed by the transaction memo.

To summarize the above stated, it is possible to draw a conclusion that only the transaction memo of money transfer in a foreign currency to the relevant account, application for the opening of the account in a foreign currency and foreign currency bank account agreement are the documents, which confirm the granting of a credit by a bank and its obtaining by an individual.

The cash advance from the individual`s current account may be confirmed only by cash documents. Whereas, the application for a cash advance is not recognized as confirmation of a loan granting and receipt of a loan.

It is vital to note that in the resolution of the Superior Specialized Court of Ukraine for Civil and Criminal Cases dated November 16, 2011 in the case No 6-26103sv11 the court concluded as follows:

«However, the court violated the Articles 212-214 of the Civil Procedure Code of Ukraine, because it did not diligently examine if there were satisfactory evidences of obtaining loan by the Individual_3 as long as the application for a cash advance may prove only the intention of the borrower to receive money but does not prove the fact of obtaining money under a cash withdrawal receipt».

Moreover, in accordance with the resolution of the Superior Specialized Court of Ukraine for Civil and Criminal Cases dated November 16, 2011 in the case No 6-19306sv11 the court concluded as follows:

«In accordance with the provisions of the Item 7.1 of the credit contract dated December 24, 2007 the bank shall provide the borrower with credit funds by its transferring to the current account in the form of not revolving line of credit in amount of 33090 US dollars, including 24000 US dollars envisaged for acquisition of real estate. As the evidence of fulfillment of the mentioned contractual obligations the court referred to the application for a cash advance dated December 25, 2007 and application for a transfer of cash dated January 22, 2008.

However, when recognizing the previously mentioned money as a credit funds the court did not clarify the status of banking account from which funds was received, in what way this account was replenished and the origin of the finance transactions with the consideration of the fulfillment of the terms, which are provided by the Item 7 of the contract».

To confirm the granting and obtaining the loan the bank shall confirm the status of the individual’s account to which the credit funds shall be transferred and method of its replenishment.

The banks usually refuse to confirm such facts and submit the said documents.

 

It is also necessary to pay attention to the fact that any credit contract (agreement, deal) contains three principal obligations of the bank and of the borrower. Whereas, the credit contract may determine both the price of the obligations and the procedure of their fulfillment.

For example, the bank is obligated to grant you 100 000 US dollars as a loan, and you are obliged to return it. The mentioned issue is a specific price of the bank liabilities to grant a  loan. At the same time, you are obliged to return the previously mentioned loan and this is the price of your obligations. 

At the same time, specifying the loan in US dollars, the bank may prescribe in the contract its granting in the other currency (for example, in Euro, on the corresponding rate), and your obligation to return the loan in certain terms and in the other currency (for example, in UAH, on the corresponding rate as well). Thus, the procedure of obligation fulfillment may be determined by its parties in the credit contract.

Illiterate determination of the price of obligations and the procedure of their accomplishment (payment) in a foreign currency is often the basis for invalidity of the contract on each liability or in general under the following reasons.

First of all we should reject explanation of courts that the credit contract is anyway considered to be valid only due to fact that the contract is signed by the parties and the borrower is supposed to agree with the contract clauses. The mentioned fact is nonsense, because such an explanation may justify not only any credit contract but as well as any agreement which may contain, for example, the obligation to kill a person.

In accordance with the provisions of the Article 1054 of the Civil Code of Ukraine, the subject of the credit contract obligations is the bank`s service concerning granting the loan for value (interests). Thus, the bank has the obligation to grant a loan. Whereas you are obligated to return the mentioned loan and pay interests.

In accordance with the requirements of the Item (Part) 1 of the Article 524 of the Civil Code of Ukraine, any liability shall be determined only in Ukrainian currency unit (UAH). Whereas is accordance with the requirements of the Part 2 of the Article 524 of the Civil Code of Ukraine, the bank and borrower have the right to determine a monetary equivalent of liabilities in a foreign currency.

Thus, all liabilities (their price) shall be stated in the credit contract only in UAH. In addition, the bank and the borrower may determine the monetary equivalent in a foreign currency and not vice versa. For example the bank is obligated to grant 800 000 UAH loan which monetary equivalent is 100 000 US dollars and not vice versa. Moreover, the bank may not grant 100 000 US dollars which monetary equivalent is 800 000 UAH.

Furthermore, there is no matter if the bank has general or individual banking license. The mentioned issue is not also regulated by letters and instructions of the National Bank of Ukraine as this provision is an imperative one.

Thus, if the liabilities of the parties under the credit contract are stated only in a foreign currency instead of UAH (even if a monetary equivalent is in UAH) than all deals concerning these liabilities contravene the provisions of the Civil Code of Ukraine.

Whereas, in accordance with the provisions of the Item (Part) 1 of the Article 203 of the Civil Code of Ukraine the subject-matter of the credit contract (deal) may not contravene the requirements of the Civil Code of Ukraine. Therefore, in accordance with the requirements of the Item 1 of the Article 215 of the Civil Code of Ukraine if the provisions of such a contract contravene the requirements of the mentioned Code and other laws of Ukraine (in this case when the liabilities of the bank and of the borrower are stated in a foreign currency), it is evidence of a ground of invalidity of the contract.

In accordance with the provisions of the Article 638 of the Civil Code of Ukraine, the subject of the credit contract (main liability) is a significant condition of such a contract.

Therefore, if the subject matter of the contract is deemed not to be agreed (if this part of the contract is declared invalid under the provisions of the item 1 of the Article 215 of the Civil Code of Ukraine) than the contract is considered not to be concluded.

Subsequently you are obliged to return specifically everything you have received from the bank. Moreover, after the fulfillment of the mentioned actions your obligations under the mortgage contract and interest obligations are no longer valid.

Moreover in accordance with the requirements of the Item 1 of the Article 533 of the Civil Code of Ukraine and the Item 1 of the Article 3 of the Decree of the Cabinet of Ministers of Ukraine dated February 19, 1993 No 15-93 "On the System of the Currency Regulation and the Currency Control" the effecting any payments on the territory of Ukraine, which are connected with the implementation of the obligations of the bank or the borrower (disbursement of a loan, reimbursement of a credit and interest charge) may be performed only in UAH.

Herewith, in accordance with the provisions of the Item 2 of the Article 533 of the Civil Code of Ukraine if the credit contract includes a monetary equivalent of the obligation in a foreign currency it does not allow to perform payments in a foreign currency. The mentioned issue entitles to calculate the amount of obligations in UAH in accordance with the currency rate determined by the National Bank of Ukraine.

Whereas, in accordance with the provisions of the Item 3 of the Article 533 of the Civil Code of Ukraine a foreign currency may be used to effect payments on the territory of Ukraine when the following requirements are observed all at once and established by law:

  • compliance with the list of cases of application of foreign currency for payments;
  • fulfillment of the procedure of application of foreign currency in the mentioned cases;
  • compliance with the conditions under which the application of foreign currency is allowed only in the cases and under the procedure established by law.

However none of the mentioned permissive directions is established by law except for the conditions of applying of banking licenses.

Whereas in accordance with the provisions of the Item 4 of the Article 5 of the mentioned Decree, a great number of Resolutions and letters of National Bank of Ukraine, the individual license is required to disburse a loan to an individual or legal entity in a foreign currency. Moreover the content of all general licenses of all banks of Ukraine confirms the mentioned statement.

Although, in accordance with the provisions of the Item 2 of the Article 5 of the Decree the borrower and the bank may not perform payments on the basis of a general banking license, because under such a license only currency transactions the fulfillment of which does not require an individual license may be performed.

Moreover, in accordance with the provisions of the Item 4 of the Article 5 of the Decree the rendering of credit in a foreign currency on the basis of an individual license may be performed if the terms and loan amount exceed the limit established by the legislation.

Nota bene! The mentioned issue contains a blanket regulation concerning the necessity of the establishment by the Ukrainian legislation the limits of the certain terms and amounts of the loans in a foreign currency.

Thus, the aspect that is mentioned in the Decree is not completely determined and may not be applied under the provisions of the Item 3 of the Article 533 of the Civil Code of Ukraine. This problem exists due to the fact that the abovementioned limits are not established by law.

In addition the procedure of application of foreign currency while granting and obtaining loans has not been specified by any law of Ukraine.

Thus, regarding the fact that the triplicity of requirements determined by the Item 3 of the Article 533 of the Civil Code of Ukraine has not been determined, the application of foreign currency may not be performed while granting and obtaining loans in relations of Ukrainian residents within the territory of Ukraine. Moreover, any contract that provides the rights to grant, obtain and return a loan in a foreign currency is considered to be contrary to the Ukrainian legislation.

Special attention shall be paid to the obligations concerning interest charge in a foreign currency.

In legal terms the credit interest is considered to be an ordinary payment for a bank service concerning loan granting. For example, we pay the same service charge for municipal services. Thus, the individual banking license does not have any impact on the procedure of interest payments. The procedure of interest charge payment is established by the general norms of the above mentioned laws of Ukraine determining that the payments for services in relationships of Ukrainian subjects within the territory of Ukraine shall be performed exclusively in UAH.

In other words, provisions of credit contracts under which one is obliged to pay for services (interest) in a foreign currency are considered to be contrary to the current legislation. If the state does not agree with this statement, then you may go to savings bank and pay for housing services in US dollars or Euro.

Whereas, the National Bank of Ukraine has no right to change the above mentioned regulations regarding the fact that in accordance with the provisions of the above-stated Decree, the National Bank of Ukraine may only exercise currency exchange control, grant licenses for implementation currency transactions and determine the procedure of import, transfer from abroad, as well as of export and transfer abroad of currency of Ukraine, which may be performed by residents and nonresidents.

Thus, the National Bank of Ukraine has no right to establish and determine the procedures and peculiarities of fulfillment of credit obligations (loan granting and etc.).

Whereas, in accordance with the provisions of the Item 1 of the Article 203 of the Civil Code of Ukraine, contents of the credit contract (deal) may not contradict to the requirements of the Civil Code of Ukraine.

Therefore, in accordance with the requirements of the Item 1 of the Article 215 of the Civil Code of Ukraine if the provisions of such a contract contradict to the requirements of this code (for example, establishment of the procedure of credit obligations and interest charge fulfillment in a foreign currency), - it is the basis for invalidity of such a credit contract.

Moreover, in accordance with the provisions of the Article 162 of the Code of Administrative Offences, the performance of illegal payments in a foreign currency (in this case, the payments that are connected with the accomplishment of the credit contract) is an administrative offense which is punishable by the penalty and confiscation of currency.

Thus, the credit contract that includes obligations in a foreign currency is considered to be contrary to the Ukrainian legislation. The fulfillment of the mentioned obligations in a foreign currency contravenes the law and entails liability as it is deemed to be an administrative offense.

 

Managing Partner of the Law Firm "FOX" Vladimir Marinich

 

Partner of the Law Firm "FOX" Marina Miklush