DOI: https://doi.org/10.36719/2789-6919/53/15-24
Rufat Goyushov
“De Fendo” Law Office, Bar Association of the Republic of Azerbaijan
PhD in Law
https://orcid.org/0009-0009-1688-2996
rufat.goyushov@gmail.com
Architecture for Reducing Credit Risk:
Contract Terms and Security Methods as Dual Mechanisms for the Enforcement of Financial Obligations in Comparative and National Law
Abstract
The fundamental stability of the financial system depends on the predictability and reliability of the legal mechanisms for the compulsory enforcement of credit obligations. This study offers a comprehensive analysis of the architecture for credit risk management, focusing on two main, interrelated pillars: detailed contract terms (3.1), which act as a means of proactive risk allocation, and property security methods (3.2), which provide structural protection. The work applies a comparative legal approach based on transaction cost theory to assess how historical distinctions in the legal differentiation of property rights between civil law and common law systems impact the effectiveness of security. Although civil law has historically favoured the concept of full ownership (dominion) and common law has tended toward the fragmentation of rights (estate system), both systems demonstrate a functional convergence by seeking to reduce transaction costs for creditors. It has been established that the rigidity and punitive character of contract terms (including prepayment penalties) are often inversely proportional to the perceived weakness and lack of transparency in the implementation of the in rem regime of collateral. High enforcement costs and deficiencies in legal systems associated with the opacity of the debtor’s assets compel creditors to rely on strengthened contracts and restrictive factors. The research also covers national legislative reforms in civil law jurisdictions aimed at increasing enforcement speed and aligning with international standards, emphasizing the necessity of balancing consumer protection with the safeguarding of bank liquidity.
Keywords: credit risk, contract terms, security interests, comparative law, civil law, common law, enforcement mechanisms