ON BEHALF OF THE REPUBLIC OF AZERBAIJAN
DECISION
OF THE PLENUM OF THE CONSTITUTIONAL COURT
OF THE REPUBLIC OF AZERBAIJAN
On interpretation of the Articles 43.4-43.8 and 48 of
the Law of the Republic of Azerbaijan “On Mortgage”
attended
by the Court Clerk F. Aliyev,
the
legal representatives of the subjects interested in special constitutional
proceedings: Vusal Jabrailov, Judge of the Court of Appeal of Shirvan district,
the
expert: Sarvar Suleymanli, Deputy Dean of the Faculty of Law of Baku State
University, Associate Professor of Civil Law Department, Doctor of Philosophy
in Law;
specialists:
Bagir Asadov, Judge of the Supreme Court of the Republic of Azerbaijan, Sanan
Hajiyev, Judge of the Court of Appeal of Baku city, Farid Hajiabdulqalimzadeh,
senior adviser of the Legal Department of Mortgage Fond of Azerbaijan at
Central Bank of the Republic of Azerbaijan, Farid Bayramov, leading legal
adviser of the Department of Legal Coverage of Bank Control of Legal Department
of the Central Bank of the Republic of Azerbaijan;
based
on Article 130.6 of the Constitution of the Republic of Azerbaijan has examined
in open court session via special constitutional proceeding the constitutional
case on request of Court of Appeal of Shirvan city on interpretation of the Articles
43.4-43.8 and 48 of the Law of the Republic of Azerbaijan “On Mortgage”;
having heard the report of Judge R. Gvaladze, the reports of legal representatives of the interested subjects, conclusions of experts and opinion of visiting specialist, the Plenum of Constitutional Court of the Republic of Azerbaijan
DETERMINED AS FOLLOWS:
In
its request the Court of Appeal of Shirvan city asks Constitutional Court of
the Republic of Azerbaijan (hereinafter referred to as Constitutional Court) to
give interpretation of Articles 43.4-43.8 and 48 of the Law of the Republic of
Azerbaijan “On Mortgage” (hereinafter referred to as the Law “On Mortgage”)
concerning the cancellation of auction and holding of repeated tendering
because of not purchasing by a demander of a subject of a mortgage.
As
evident from the request, Z. Samedov appealed to District Court of Masalli
region with the statement of claim concerning the termination of a mortgage
connected with purchasing of a private residence.
The
claim was proved on May 13, 2010 and the District Court of Masalli region decided
to turn N. Guseynov's debt on the credit of 33.320 US dollars and 32 cents for
the private residence belonging to him which is a subject of a mortgage and to
sell the residence by auction.
The
first auction was conducted by the limited (liability) company “Kulek”
(hereinafter referred to as LLC “Kulek”) on February 28, 2011 and there-auction
on March 15, 2011. Further, on April 5, 2011 one more auction was conducted and
on April 12, 2011 the proposal on purchase within 30 calendar days and 25
percent cheaper than initial auction cost of a subject of a mortgage was made
to demander, otherwise the termination of a mortgage was declared.
Demander
having addressed organizers of auction by the letter of April 20, 2011 asked to
suspend temporarily the holding of auction, and by the letter of September 1,
2011 to restore actions according to the offer. Further on September 8, 2011
LLC “Kulek” conducted auction and the non-banking credit organization KredAqro
(hereinafter KONB “KredAqro”) became the winner of auction. On the same day following
the results of auction between the customer the Office of Execution of Masalli region
and the winner of auction the contract on a property purchase sale was signed.
By
its decision of January 15, 2013 the Masalli district court satisfied claim of
Z.Samedov.
On
April 16, 2013 the Court of Appeal of Shirvan city did not satisfy the appeal
complaint of KONB “KredAqro” and upheld the decision of Masalli district court.
By
the decision of Civil Board of the Supreme Court of the Republic of Azerbaijan as
of September 26, 2013 the decision of Court of Appeal of Shirvan city was
cancelled and the case sent for new consideration.
In
the request it is noted that the organizer of auction conducted three auctions.
Though the carrying out of re-auction provided by the legislation, however
possibility of its termination by the second auction or carrying out after that
the new auction is not established. Since it becomes the uncertainty reason in
jurisprudence, there is a need for interpretation of Article 43.8 of the Law
“On Mortgage” regulating the matter.
In
the request it is also indicated that according to Article 43.8 of the Law “On
Mortgage” if mortgage holder does not get the mortgage object in 30 calendar
days after the declaration of re-auction as frustrated, the mortgage is
cancelled. As evident from the specified term, inaction of mortgage holder is
specified as the main condition of cancellation of a mortgage. However, this
Law did not regulate whether emergence of desire of the mortgage holder about purchase
of a subject of a mortgage after the determined time becomes adjusted by the
reason of cancellation of a mortgage.
In
Article 48 of the Law “On Mortgage”the circumstances of cancellation of a
mortgage are specified. However the provision“if mortgage holder does not get
the mortgage object in 30 calendar days after the declaration of re-auction as
frustrated”isnot provided in this article, as the circumstance which is the
reason of cancellation of a mortgage.
Thus,
according to appellant,for the reason that in jurisprudence application of
Articles 43.4-43.8 and 48 of the Law “On Mortgage” becomes the reason of
certain difficulties, there was a need of their interpretation.
In
connection with the request Plenum of the Constitutional Court considers
necessary first of all to reveal from the point of view of the legislation the
basis of origin of a mortgage, the rights and an obligations of the parties,
the rule of compensation at the expense of a mortgage of a debt and other civil
legal obligations.
Alongside
with proprietorial legal relations, obligatorily legal relations as one of
types of property legal relations also serve for free exchange of material
benefits between participants of a civil circulation. According to Article
385.1 of the Civil Code of the Republic of Azerbaijan (hereinafter referred to
as the CC)due to an obligation, one person (debtor) obliged to perform certain
actions to the benefit of the other person (creditor), namely: payment of
funds, execution of works, transfer of property, delivery of services, etc., or
refrain from certain actions, and the creditor entitled to demand from the
debtor the fulfillment of his obligations.
As
it is specified in the Decision of Plenum of the Constitutional Court of
December 30, 2008 “Onconformity of the resolution of Judicial Board on Civil
Cases of the Supreme Court of the Republic of Azerbaijan of October 23, 2007 to
the Constitution and Laws of the Republic of Azerbaijan in connection with
F.Javadov and V. Aslanov's complaint” with the purpose to discipline the
parties of the relations of the obligation, for encouragement of its full and
timely execution the CC also establishes the methods of providing fulfillment
of obligations which are creating a straight e or indirect load concerning the
debtor in comparison with the creditor and acting as an additional tool of a
guarantee. According to Article 460 of CC, one of such methods is a pledge
(mortgage). According to
Article 269.1 of CC pledge and hypothecation right mean property right of pledgee
in respect of pledgor’s property, and, at the same time, mean method of
guarantee to pledgee of debtor’s monetary or other obligations.
From
this point of view for the reason that a mortgage as the additional obligation
in cases of not of execution or a delay of execution of the obligations
provided to them, creates real threat of deprivation of property, compels the
debtor to fulfill the main obligation in due time.
The
Law “On Mortgage” regulates the bases of emergence of a mortgage connected with
the providing of fulfillment of obligations following from civil legal
instruments, its state registration, rules of repayment at the expense of a
mortgage of a provided debt and other civil right obligation, the right and an
obligation of the parties.
According
to civil legislation in the event debtor delays repayment of claim whose
guarantee method is hypothecation, mortgagor may demand sale of immovable
property (Article 317.1 of CC).
According
to Article 33 of the Law “On Mortgage” if mortgagor fails the commitment of
obligations or fulfils it insufficiently, mortgagee can apply for deduction of
mortgage object to execute the main commitment.
Rules
of tendering, the declaration of the auction frustrated, rules and results of
the re-auction held in this case are
regulated by Articles 42 and 43 of the Law “On Mortgage”.
According
to Article 43.1 of the given Law the organizer of auction publishes the frustrated
of auction in the information bureau where the declaration of auction was
declared in if any of the following situations happens: less than two buyers
come to the auction; no participant appears; the winner of auction refuses to
sign the report about auction results; the winner of auction do not pay the
sale price completely for a while intended on this law (on the condition that
time is not extended with mortgagee’s agreement).
According to Articles 43.3-43.5 of the Law
“On Mortgage” after the declaration day of auction frustrated mortgagee can buy
mortgage object in sale price from mortgagor on the basis of contract in 10
calendar days. If the contract intended on Article 43.3 of this law about the
purchase of mortgage object by mortgagee fails, re-auction should be held not
later than 45calendar days from the day which first auction is held on. New
auction is held under the rule provided in Article 42 of this law. The
organizer of auction offers mortgage object for new auction with 15% less than
initial sale price due to reasons provided on Article 43.1.2 of this law.
According to Articles 43.7 and 43.8 of the
Law “On Mortgage” if the auction frustrated is declared due to reasons
excluding the situation provided by Article 43.1.1 of the given Law, mortgagee
can buy mortgage object with not 25% less than initial sale price. If mortgagee
does not get the mortgage object in 30 calendar days after the declaration of re-auction
as frustrated, mortgage is ceased.
In
connection with holding of the re-auction from the point of view of the above
provisions of the Law “On Mortgage” the Plenum of the Constitutional Court
notes the following.
From
the sense of Article 43 of the Law “On Mortgage” it can to draw the conclusion
that as it provided in Article 42 of the present Law the carrying out only two
auctions is provided. So, if the first auction did not take place for the
reason provided in Article 43.1.2 of this Law that is because of absence of the
bidder then the sale of a subject of a mortgage at the re-auction on initial sale price of 15% lower than at the
previous auction is provided. Unlike it for other reasons provided in Articles
43.1.1, 43.1.3 and 43.1.4 of the present Law (that is less than two buyers come
to the auction; the winner of auction refuses to sign the report about auction
results; the winner of auction do not pay the sale price completely for a while
intended on this law, on the condition that time is not extended with
mortgagee’s agreement) the auction is declared frustrated, initial sale price
remains invariable.
Unlike
the first auction, the circumstance provided in Article 43.1.1 of the Law “On
Mortgage” that is less than two buyers come to the auction during the re-auction
are not provided, as circumstance of the
frustrated auction. So, according to Article 43.6 of the Law there-auction is
realized if at least one participant takes part and in this case that
participant is considered as a winner of auction.
In
case of the declaration of the repeated public auction as frustrated for the
reasons provided in Articles 43.1.2, 43.1.3 and 43.1.4 of the Law “On Mortgage”
to the mortgage holder has the opportunity during 30 calendar day to purchase a
subject of a mortgage at the price no more than 25 percent lower than its
initial sale price at the first public auction (Articles 43.7 and 43.8 of the
Law “On Mortgage”).
As
is seen from inquiry and reports at a meeting of Plenum of the Constitutional
Court, sometimes the organizer of the auction considering the proposal of the
mortgage holder as tendering holds the third auction. Besides, in practice there
are the cases of holding of tendering, even after passed certain time, on the
basis of the request of the executive official or a demander.
In
this regard, Plenum of the Constitutional Court notes that holding of three and
more auctions as repeated does not follow from requirements of the Law “On
Mortgage” and becomes a cause of infringement of the rights of mortgagor. So, since
the re-auction as frustrated it lead for mortgagor to emergence of the certain
legal opportunities provided in Article 43.8 of the Law “On Mortgage”, regulating
the termination of a mortgage.
As
it was noted, in Article 43.8 of the Law “On Mortgage” it is provided, what if
mortgage holder does not get the mortgage object in 30 calendar days after the
declaration of re-auction as frustrated, the mortgage is cancelled.
Thus,
Plenum of the Constitutional Court considers that by reason of that the Article
43 of the Law “On Mortgage” envisage the conducting only two auctions the
carrying out of new auction on any basis is recognized as contradicting to law.
As
regards the question which is brought up in the inquiry, concerning existence
of possibility of purchasing by the mortgage holder of a subject of a mortgage
also after the admission of 30 day terms provided in Article 43.8 of the Law “On
Mortgage” the Plenum of the Constitutional Court notes that in the Law “On
Mortgage” possibility of purchasing of a subject of a mortgage at the price
that is no more than 25 % lower than its initial sale price within 30 days in
case of the declaration of the re-auction as frustrated is provided to the
mortgage holder only once.
Article
43.8 of the Law “On Mortgage” bears in itself the purpose of creation of
definiteness and stability of legal relationship, and also to discipline the
mortgage holder for this purpose that he in due time exercised the rights.
The
mortgagor has a right of use, possibility of the termination of a mortgage
which is important for him if the mortgage holder in due time did not use the
possibility of purchasing of a subject of a mortgage.
Interpretation
of the Law “On Mortgage” in other form, that is anew granting to mortgage
holder of this opportunity also after the term provided by the law can let to
violation of the rights protected by the law and interests of a mortgagor.
Also
in the inquiry it is specified that in Article 48 of the Law “On Mortgage”
among the basis for the termination of a mortgage, the provision “if mortgage
holder does not purchased the mortgage object in 30 calendar days after the
declaration of re-auction as frustrated, the mortgage is cancelled" of Article
43.8 of the Law is provided, as the circumstance which is the reason of the
termination of a mortgage.
Besides,
though in the Law “On Mortgage” it is specified concerning the termination of a
mortgage, the procedural order of the termination is not indicated, that is
what body (court or other body) as what procedure (as claim procedure or
execution of judgments) has to cancel a mortgage.
In
connection with the question the Plenum of the Constitutional Court notes that
circumstances of the termination of a mortgage are specified in Article 48 of
the Law “On Mortgage”.
These
circumstances are following: when both mortgagee and mortgagor agrees about
this; when a main responsibility is put an end; s a result of the application
of deduction on mortgage object when it is sold; when a mortgage object is
abolished; other cases with respect to this law (Articles 48.1.1-48.1.5 of the
Law “On Mortgage”).
As evident, though the circumstance of not
of purchasing by the mortgage holder of a subject of a mortgage within 30
calendar days after the declaration of the re-auction as frustrated directly is
also not specified in article 48 of the Law “On Mortgage”, acts as one of other
circumstances of the termination of a mortgage provided by the present Law (Article
48.1.5 of the Law “On Mortgage”).
Due
to procedure of termination of a mortgage on the basis specified in Article
43.8 of the Law “On Mortgage”, Plenum of the Constitutional Court notes that
the mortgage can be cancelled on the basis of legal proceedings on the claim of
mortgagor if the mortgage holder does not purchase a mortgage subject within 30
days after the declaration of the re-auction as frustrated.
Considering
the above stated, the Plenum of the Constitutional Court comes to conclusion
that:
because
of the fact that the Article 43 of the Law “On Mortgage” provide holding only
two auctions the carrying out of new auction on any basis is recognized
contradicting to the present Law;
according
to requirements of Article 43.8 of the Law “On Mortgage” mortgagor has only one
opportunity to get a mortgage subject within 30 calendar days after the declaration
of the re-auction as frustrated;
the
mortgagor under civil legal proceedings can demand the termination of a
mortgage if the mortgage holder within 30 calendar days after conducting the
secondary auction did not purchase a mortgage subject.
Being guided by part VI of Article 130 of the Constitution of the Republic of Azerbaijan and Articles 60, 63, 65-67 and 69 of the Law of the Republic of Azerbaijan “On Constitutional Court”, Plenum of the Constitutional Court of the Republic of Azerbaijan
DECIDED:
1.
Because of the fact that the Article 43 of the Law “On Mortgage”provide holding
only two auctions the carrying out of new auction on any basis is recognized
contradicting to the present Law.
2.
According to requirements of Article 43.8 of the Law “On Mortgage” mortgagor
has only one opportunity to get a mortgage subject within 30 calendar days after
the declaration of the re-auction as frustrated.
3.
The mortgagor under civil legal proceedings can demand the termination of a
mortgage if the mortgage holder within 30 calendar days after conducting the
secondary auction does not purchased a mortgage subject.
4.
The decision shall come into force from the date of its publication.
5.
The decision shall be published in “Azerbaijan”, “Respublika”, “Xalq Qazeti”
and “Bakinskiy Rabochiy” newspapers, and “Bulletin of the Constitutional Court
of the Republic of Azerbaijan”.
6.
The decision is final, and may not be cancelled, changed or officially
interpreted by any body or official.
