Recognition of a loan agreement as invalid: legal grounds, court practice, and procedure

Having a credit (loan) agreement declared invalid is a legal remedy available to a borrower where the agreement was concluded in breach of law or consumer rights. An invalid transaction does not create contractual legal effects from the moment of conclusion, except for the consequences of invalidity (primarily restitution): as a general rule, the parties are restored to their pre-contract position. This remedy is particularly relevant where a bank or finance company acted in bad faith—for example, pressured the borrower into unfair terms, failed to disclose material charges, or arranged a loan without the person’s genuine consent or knowledge. Below we explain when and how an agreement may be declared invalid, what legal grounds are commonly relied on, how courts typically approach such disputes, what the practical consequences of a judgment are, and what steps a borrower should take—step by step.

What it means to declare a credit agreement invalid

The concept of invalidity: when a transaction does not comply with the law

An agreement is generally valid if three basic requirements are met: free consent of the parties, proper form, and lawful content. A breach of any of these requirements may provide grounds to challenge the transaction. Declaring a contract invalid means it is treated as never having created contractual rights and obligations, except for the statutory consequences of invalidity (restitution). A distinction is commonly made between:

• a void (null) transaction — invalid by operation of law (for example, concluded by a legally incapable person);
• a voidable transaction — treated as invalid only after a court decision.
  The distinction matters: with void transactions, courts often focus on recording and enforcing the consequences (return of what was received, removal of encumbrances), whereas with voidable transactions the claimant must first prove the grounds for invalidity.

Difference between invalidity and termination of a contract

Invalidity addresses a defect at formation: the agreement was unlawful from the outset. Termination, by contrast, ends an otherwise valid contract going forward (for example, due to a material breach or changed circumstances).

The consequences differ: with invalidity, the parties generally return what they received under the transaction and unlawful contractual charges may be removed; with termination, rights and obligations accrued up to the termination date usually remain in force. Termination does not prevent a claim for invalidity if defects in contract formation are later discovered.

Grounds for invalidity of a credit agreement

Borrower’s incapacity or absence of genuine consent (coercion, duress)

Only a fully capable person may enter into a credit agreement. A contract with an incapable person is typically void; a contract with a minor or a person with limited capacity is generally voidable (and may be challenged by the person and/or their legal representatives, depending on the circumstances). Grounds can also include situations where the borrower’s expression of will was distorted: physical or psychological coercion, threats, blackmail, signing while unable to understand or control one’s actions, or acceptance of extremely unfavorable terms exploited by the other party.

In Ukrainian law, this may also be framed as a transaction concluded under the influence of a grave circumstance and on extremely unfavorable terms (for example, excessive interest or disproportionate collateral). To succeed, claimants typically need to demonstrate: (1) a grave circumstance, (2) a clear imbalance of benefits, and (3) the counterparty’s exploitation of that circumstance.

Legal consequences of a transaction made under deceit (Art. 230 of the Civil Code of Ukraine)

Deceit involves intentional misrepresentation or concealment of material facts.

In lending, this may include: hidden fees, charges for “maintenance/service”, non-obvious penalties, or an unclear and non-transparent method of calculating the interest rate.

If charges were not disclosed clearly and intelligibly—and their existence or scale could have influenced the customer’s decision—this may provide grounds to invalidate specific clauses or, where the defect is material, the entire agreement.

Possible outcomes include: removal of unlawful provisions, recalculation of indebtedness, and in serious cases—declaration of the whole contract as invalid.

Evidence may include: the agreement text (including any “fine print”), tariffs, brochures/leaflets, advertising materials, records of communications with the lender (including chat logs and emails), account statements, and call recordings.

Damages: the law provides for compensation of losses (including, in certain deceit cases, an increased amount) and for non-pecuniary (moral) damage; in practice, the outcome depends on proof, causation, and the court’s assessment.

Online financial fraud, identity mismatch of the borrower, fake agreements

Online lending carries risks of pseudo-agreements concluded using stolen personal data. If a third party took out a loan without the real person’s consent, there was no genuine will of the data owner, and the agreement may be challenged as invalid. Typical indicators include: funds transferred to a card not owned by the claimant; authorization from another phone number/device; atypical application data; and IP addresses or geolocation inconsistent with the claimant’s situation.

A practical algorithm usually includes: an immediate police report (fraud), a written claim to the creditor demanding preservation and disclosure of technical evidence and suspension of disputed accruals, preservation of all communications, and collection of confirmations from the bank and mobile operator. The faster electronic and paper evidence is secured, the higher the chances of success.

Court practice — sample cases

Example based on fraud: no duty to repay what the victim never received

Courts may declare loans taken by third parties invalid and release victims from liability. In cases involving multiple fraudulent microloans, some judgments have not only rejected creditors’ claims but also ordered correction/removal of negative entries in credit history records. The core logic is that the person who misappropriated the funds should be responsible, not a victim who derived no real benefit.

Common evidence includes: an extract from the Unified Register of Pre-Trial Investigations, certificates from the mobile operator (SIM replacement/number porting/call logs where relevant), bank statements showing the flow of funds, and expert opinions (handwriting or technical examinations of signatures/logs), depending on the claim’s theory.

Decision in a “Moneyveo”-type case: the court refused because formal identification requirements were met and the claimant did not rebut them

Another group of cases shows the opposite: suspicion alone is not enough. If the creditor demonstrates that identification and authentication steps were formally completed (for example, OTP/SMS confirmation, BankID or card verification, and transfer to an account in the claimant’s name), and the claimant fails to rebut this with technical evidence, courts often conclude the contract was duly formed.

Typical reasoning includes: the contract could not have been concluded without some active actions attributable to the client; use of a bank card in the client’s name supports participation; and the mere fact of opening a criminal case—without further findings—does not automatically prove fraud in civil proceedings.

Conclusion: a strong evidence package (technical logs, IP, geodata, device information, inconsistencies in the recipient account) is crucial; otherwise refusals are likely.

Examples of disputes over pseudo-loans — public databases (e.g., YouControl)

Public databases of court decisions contain both refusals due to weak evidence and favorable appellate rulings overturning notarial writs/orders, declaring agreements invalid, and ordering the return of unjustly collected sums. Typical success factors include: mismatched application data, a different recipient of funds, atypical IP/logins, and expert conclusions. Typical failure factors include: prolonged use of the card without prompt objections, no timely police report after discovery, and formal complaints lacking technical corroboration.

Consequences of the court’s decision

Return of what was actually received, without contractual interest or fees

Under the general restitution rule, the parties return to each other what they received under the transaction. For the borrower, this typically means an obligation to return the principal only if the borrower actually received the funds; contractual interest, fees, and penalties under an invalid agreement are generally not recoverable. Any amounts paid may, depending on the case, be claimed back as unjust enrichment or set off against the principal.

If the main agreement is declared invalid, related security instruments (mortgage, suretyship, pledge) may also be affected; it is often advisable to ask the court to address this explicitly in the operative part of the judgment and to order the creditor to remove encumbrances from the relevant registers.

Removal of information from the credit history (in fraud cases)

An invalid loan should not continue to distort a person’s credit history. After the judgment takes legal effect, submit it to the relevant credit bureau(s) and request correction/removal of the record; the creditor should also update the data it provides. If corrections are delayed, you may file a complaint with the National Bank of Ukraine (NBU) in consumer-related cases and follow the statutory dispute procedure through the bureau.

Cleaning the credit history is important for future access to finance and for avoiding false “delinquencies”.

How to proceed — step-by-step

Collect evidence (contract, proof of deceit), consult an attorney

1. Collect and organize: the contract, application forms, schedules, receipts, statements, correspondence, screenshots of accounts and apps, SMS messages, promotional materials, and call recordings (where available).
2. Send a pre-trial claim to the creditor: request preservation and disclosure of the technical package (logs, timestamps, IP/device data, authentication evidence), recalculation (if applicable), and suspension of disputed accruals while the dispute is being reviewed.
3. File a complaint with the NBU in consumer-related disputes (hidden charges, forced services, failure to provide mandatory information).
4. In fraud cases: report to the police; obtain the register extract; block SIM/cards, change passwords; document suspicious login attempts and communications.
5. Consult an attorney: assess prospects and strategy, send attorney’s requests to bureaus/banks/operators, and prepare the statement of claim.

Preparing the claim, proving invalidity, representation in court

The claim may include requests to: declare the loan (and any security instruments) invalid, cancel a notarial writ/court order (where applicable), remove entries from public registers, and return sums collected without proper legal basis. Attach supporting evidence, motions to obtain documents from the lender and third parties, and—if needed—requests for expert examinations (handwriting, technical/IT).

In consumer disputes, procedural rules may allow the claimant to choose venue options (including filing at the consumer’s place of residence in certain categories of claims). It may also be appropriate to seek interim relief: a stay of enforcement, a prohibition on sale of collateral, or temporary suspension of disputed accruals, depending on the case posture.

After judgment, monitor execution: removal of mortgages/arrests, refunds (if awarded), and updating of credit history records.

Comparison with alternatives

Invalidity vs. termination or restructuring

Invalidity is a strong but narrow remedy: it applies where there are defects at formation (lack of genuine consent, unlawful terms, breach of form/procedure). Termination is a tool to end a valid contract going forward, where problems arose during performance. Restructuring is a negotiated route: it changes the schedule/term/rate and may reduce penalties or part of the debt.

If there are insufficient legal grounds for invalidity, negotiation and restructuring are often more practical—lenders are also interested in recovering the principal without litigation risk.

When another route makes more sense (e.g., enforcement tactics, restructuring)

Invalidity is usually not the right tool where: (1) the contract was properly concluded and the issue is purely inability to pay; (2) alleged breaches relate to performance (incorrect accruals, unilateral rate changes)—in such cases it may be more effective to challenge specific actions/accruals rather than the entire contract; (3) you are a guarantor and cannot independently challenge the borrower’s loan—defense may instead focus on the scope/termination of suretyship or coordinated action with the borrower; or (4) the limitation period for challenging the transaction has expired.

In these scenarios, restructuring, recalculation, settlement, or targeted challenges to creditor actions may be the priority.

FAQ

Can I get a result without going to court?

In practice, a non-litigation outcome is most common in two situations: (1) a void transaction (although a court is often still needed to formalize consequences), and (2) the consumer’s statutory right to withdraw from a consumer loan agreement within 14 calendar days—by returning the principal and paying interest only for the actual period of use (the agreement is treated as if it had not been concluded). Sometimes creditors voluntarily write off debts in proven fraud cases—this is discretionary and depends on their internal policies and evidence.

How long does the process take?

Typical timelines are: 6–12 months in the first instance; appeals—2–4 months or more; cassation—varies depending on the caseload and admissibility. Complex disputes may last 1.5–2 years overall.

What if the bank continues enforcement?

Notify the creditor in writing that the debt is disputed, challenge the notarial writ/court order (if applicable), and consider applying for interim measures (stay of enforcement, suspension of seizures, prohibition on sale). Communicate with collectors in writing; in case of unlawful pressure—complain to the NBU and law enforcement where appropriate. Be cautious with payments during a dispute: in some situations, payments may later be argued as acknowledgment of the debt; discuss strategy with counsel and document your position.

Legal assistance

Credit disputes often require a combination of civil, financial, and procedural expertise and quick responses to the creditor’s procedural steps. An attorney for credit matters can assess prospects (whether there are grounds for invalidity or whether alternatives are more realistic), help secure evidence, draft claims, seek interim measures, represent you in court, and monitor enforcement (removal of mortgages, correction of bureau entries, return of funds where awarded). If the grounds are substantial and the evidence is strong, the chances of a favorable outcome increase; if not, restructuring or other amicable avenues should be considered realistically.