Notification procedure of the mortgagors fails to ensure the conditions of clarity of the law

On 27 September 2016, the Constitutional Court of Moldova delivered its judgment on the exception of unconstitutionality of certain provisions of Articles 31.2 and 31.4 of the Law No. 142-XVI of 26 June 2008 on mortgage.

Circumstances of the case

The case originated in the exception of unconstitutionality of the 2^nd sentence of Article 31.2 of the Law no. 142-XVI of 26 June 2008 on mortgage, raised by the lawyers Igor Litvinenco and Dionisie Vition, in the case No. 2a-4933/14, pending before the Chișinău Court of Appeal.

In order to initiate the execution of the mortgage right – under Article 31.1 of the Law on mortgage – the mortgagee is bound to send to the mortgagor and, as the case may be, to the debtor a notification showing the intention to execute the mortgage right under the mortgage contract.

In accordance with the 1^st sentence of Article 31.2 of the Law on mortgage, the notification shall be sent to the mortgagor, and as the case may be, to the debtor, by registered letter with confirmation of receipt. Under the 2^nd sentence of the same paragraph, the notification shall be considered delivered upon expiration of 7 working days as of the date of sending.

The authors of the exception of unconstitutionality claimed that the provisions of the 2^nd sentence of Article 31.2 of the Law on mortgage, under which the notification shall be considered delivered upon expiration of 7 working days as of the date of sending – provided the mailing is carried out by registered letter with confirmation of receipt – are not sufficiently clear and predictable.

The Constitutional Court of Moldova ruled on the complaint in the following composition:

Mr Veaceslav ZAPOROJAN, presiding of the sitting,

Mr Aurel BĂIEȘU,

Mr Igor DOLEA,

Mr Victor POPA, judges

Conclusions of the Court

Hearing the reasoning of the parties and examining the casefiles, the Court held that Article 23.2 of the Constitution guarantees the right of every individual to be aware of his rights and duties, which involves the adoption by the legislator of accessible, predictable and clear laws.

At the same time, both in the caselaw of the Constitutional Court of Moldova and that of the European Court there has been found unanimously that, in order to meet the three mentioned criteria of quality, the legal text is to be formulated with sufficient precision so that it would enable the individual to regulate his conduct and to foresee – to a degree that is reasonable in the circumstances – the consequences of such conduct.

Analyzing the Law on mortgage as a whole, the Court found that the exercise of the mortgage right is in close connection with the property right of immovable mortgaged property. Given that the mortgaged property remains in the ownership of the mortgagor, the Court underscored that the property right continues to exist as a fundamental right of the mortgagor, including within the forced execution proceedings.

The Court held that in accordance with Article 31.1 of the Law on mortgage, the mortgage right may be exercised by the mortgagee only following the exhaustion of the procedure of notifying the mortgagor and following the registration of the notice on its execution in the Register of immovable property.

The Court noted that Article 31.3 of the Law establishes the mandatory content of the notification and the information letter, while indicating that the mortgagee must provide a term and indicate the amounts of arrears to be paid in order to avoid execution proceedings.

Thus, the Court found that the notification represents a preliminary stage of exercising the mortgage right as well as a final settlement procedure, which affords the mortgagor the opportunity to set off the mortgage instituted on the immovable property.

The Court held that while the 1^st sentence of Article 31.2 of the Law provides that the notification shall be sent to the mortgagor, and as the case may be, to the debtor, by registered letter with confirmation of receipt, under the 2^nd sentence of the same paragraph, the notification shall be considered delivered upon expiration of 7 working days as of the date of sending.

Analysing the abovementioned provisions as a whole, the Court found that the procedure of receiving the notification is governed by two legal texts containing diametrically opposed and deficient content, which cannot be correlated and equally applied.

The Court held that the applicability of the 2^nd sentence of Article 31.2 of the Law on mortgage raises a number of legal shortcomings in terms of clarity and predictability of the provision.

The Court underscored that, provided that the mortgaged property may be directly executed, especially in the case of a notarial act invested with an enforceable formula, the lack of predictability and clarity of the moment of receiving the notification directly affects the right to property of the mortgagor. However, the main purpose of the notification is to warn the mortgagor of the execution of the mortgage and to encourage him to pay the amounts of arrear, in order to halt the process of mortgage execution.

Thus, given the consequences of omitting the term prescribed in the notification, the Court held that reaching an actual awareness of the mortgagor relates to the very essence of exercising the mortgage right, as well as of protecting the property right.

Therefore, the Court held that the text of the challenged law is formulated in an imprecise and unclear manner, which does not fulfil the requirements of clarity and predictability enshrined in Article 23.2 of the Constitution. However, the shortcomings attested in Article 31.2 of the Law present a causal link with the provisions of paragraph (4) of the same article, namely in the part where the registrar shall verify the proof of receipt of the notification or of the expiry of the estimated term for notification receipt, set forth in paragraph (2). In this regard, the unconstitutionality of the provisions of the 2^nd sentence of Article 31.2 entails the unconstitutionality of paragraph (4) in of the abovementioned part.

At the same time, the Court attested that mortgage relations, analysed in this case, primarily relate to the banking system of the Moldova, which most often turns to mortgage guarantees for provided loans. For these reasons, the Court reiterated the approach held in its Judgment No.11 of 11 May 2016, which underlined „the necessity to maintain the economic welfare of the country, which is also based on the financial stability of banks that form the banking system." Thus, it is necessary to strike a fair balance between the economic interests of the country and the protection of the property right of mortgagors.

In this respect, the Court underscored that the effects of the notification shall not be based entirely on the actual receipt by the mortgagor of the notification. In case the mortgagor refuses the reception or does not receive the notification through no fault of the mortgagee and in order for legal certainty not to be affected, there shall be applied the general rules recommended for the procedure of  sending recommended letters, set by the regulatory framework on postal communications.

Therefore, in order to preclude situations where the mortgagor could make use of bad faith when receiving the notification, the Court will issue an Address to the Parliament with a view to regulate the procedures of sending and receiving the notification, so as to strike a fair balance between the rights of both contracting parties.

Judgment of the Court

Stemming from the above reasoning, the Constitutional Court of Moldova declared admissible the exception of unconstitutionality and declared unconstitutional the phrase „The notification shall be considered delivered upon expiration of 7 working days as of the date of sending" and the phrase „the proof of receipt of the notification or of the expiry of the estimated term for notification receipt" of Article 31.4 of Law no. 142-XVI of 26 June 2008 on mortgage.

The Judgment of the Constitutional Court is final, cannot be appealed, shall enter into force on the date of passing, and shall be published in the Official Journal of Moldova.