The Limitation Period for Loan Claims

Legal Insight

April2021

Γιώργος Ψαράκης, ΜΔΕ, LL.M., PgCert

The Limitation Period for Loans

(republished from Euro2Day)

A question that is quite often asked by borrowers who are asked to repay their debts after several years is the following: after how many years can the bank claim what is owed? When does the limitation period for its claim expire? The answer is, in principle, that banks' claims lapse after 20 years. The limitation period for claims in private relationships is generally 20 years (Article 249 of the Civil Code), unless otherwise specified. In the present case, in the absence of any other provision in banking law, the general limitation period of 20 years applies, which makes it practically impossible for the debtor (borrower or guarantor) to lodge any objection. 

However, the detail that is often overlooked is the following: the limitation period for a loan claim is 20 years, unless there are instalments, in which case the limitation period becomes 5 years and starts to run from the end of the year in which each instalment became due and payable. Even then, however, we revert to the 20-year rule when the interest-bearing loan is terminated (See, for example, the Supreme Court's decision No 1455/2007: "When the lender has the right, in accordance with the terms of the loan agreement, to terminate it prematurely if the instalments are not paid, then all the periodic instalments due under the loan, relating to debt or interest or interest, become due. Upon termination, the loan agreement is terminated and therefore the contractual clause giving the lender the right to claim immediate payment from the debtor of the full amount of the outstanding principal, as well as default interest from the termination, is triggered. [...] Only when the condition is paid and the loan is terminated, however, no further instalments are due, but the entire capital outstanding up to that time, and the lender's claim to repayment of the loan is subject to the usual twenty-year limitation period, whereas if no termination is made, the claim to the periodic instalments, since they remain self-existent, is subject to the five-year limitation period').

Therefore, the situation becomes aggravating for the bank when the loan agreement for an interest-bearing loan does not provide for the possibility of termination, which is, however, quite rare. Fixed-term loan contracts (including those containing an interest rate agreement) cannot be terminated under the Civil Code because they have a fixed term. Termination is only possible if this is expressly agreed in the contract. One such case, for example, where no such agreement was provided for the possibility of termination by the credit institution, was that of certain loans granted by a particular credit institution in the context of the settlement of earlier debts (these settlements were made on the basis of the conditions laid down in Decision No 4216/B/269/07.02.2001 of the Minister of the National Economy and Finance on the settlement of debts of livestock and poultry enterprises for their reorganisation). In these contracts there was no provision for termination of the loan but only for payment of the individual annual instalments. In several of the above cases the credit institution (now in special liquidation) delayed in pursuing the interest payments in court for more than 5 years, with the result that, in the absence of a provision for termination, the claims were time-barred. 

Another question that arises is what the fate of the limitation period is when the bank terminates the loan but after the 5 years have passed and the last instalment has been paid. In this case it has already been accepted that the interest payments are overdue and cannot be collected (provided, of course, that the borrower's objection to the limitation period is properly raised). With the termination of the loan, the limitation period for all interest payments becomes 20 years, but only if they have not already expired (i.e. the 5 years had not elapsed as mentioned above). The Single Member Court of Appeal of Patras, for example, in its recent decision no. 65/2021, ruled as follows: "In the present case, however, all the interest instalments of the disputed loan, the last of which was due to be paid on 28-8-2002, have fallen within the five-year limitation period of Article 250 par.  15 of the Civil Code, which was completed on 1-1-2008 ... as ... the ... did not activate, by way of termination, the aforementioned relevant clause in the contract of the interest-bearing loan, which gave it the right to do so in the event of two or more instalments being overdue,  to declare the entire outstanding balance of the loan, together with default interest, to be due and payable, with the result that the claims of the periodic instalments of that loan remain independent, while remaining subject to the five-year limitation period laid down in Article 250(2)(a) of the Law of the European Union. 15 of the CC, which had already been completed at that time (3-4-2008). [...] It should also be noted that neither the above-mentioned document of ...., dated 30-1-2009, nor the above-mentioned document of ...., dated 3-4-2012 which was sent to the opposing party stating that his debt had fallen due on 28-8-2002 and that he had been asked to repay the full amount of the loan, have the force of rescission, as both were drawn up after the expiry of the limitation period for the defendant's claims, which, as stated above, took place on 1-1-2008".

Therefore, it is indeed quite rare that a question of a loan claim being time-barred due to the general 20-year provision arises. However, in certain cases, in particular in the case of credit institutions in special liquidation where the enforcement actions have been delayed, there is a strong concern that the borrower may be able to raise the relevant limitation objection either in defence or in attack.