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August 3, 2021

Constitutional Court rules debt discharge law partially unconstitutional

Romania’s Constitutional Court (CCR) on Tuesday ruled that a wording in the law on debt discharge by dation in payment has to be repealed, while other provisions pose problems of supervening unconscionability, with CCR Chairman Valer Dorneanu saying that the law may be considered partially unconstitutional.

”The law has been ruled partially unconstitutional. (…) It is our wish to issue a fair solution that will be understood by the banks and accepted by debtors. (…) Courts will be placed under an obligation to comply with our ruling and check the contracts to be concluded by dation in payment for supervening unconscionability,” said Dorneanu.

“Basically, we have admitted the unconstitutionality exception. It has been noted that the wording “as well as from the devaluation of real-estate assets,” included in Article 11, Thesis 1, is unconstitutional. It referred to the fact that they are also applicable to those cases which concern the devaluation of real-estate assets. But the object of the trial was the payment of the contract, it did not concern real-estate assets and the wording was eliminated because of this,” Valer Dorneanu said.

The Chairman of the CCR also stated that another exception was partially admitted: “We also admitted the unconstitutionality exception and we noted that the stipulations of Article 11, Thesis 1, related to Article 3, Thesis 2, to Article 4, 7 and 8 of Law 77 are constitutional to the extent in which the court verifies the conditions referring to the existence of hardship. Let me point out that the courts notified by banks or the parties did not have this possibility and from now on the court will have to consider all the implications of the hardship theory, in what concerns risks, proportionality and other aspects.”

Hardship is defined by Article 1271 of the Civil Code, which stipulates that “the parties are held liable to carry out their obligations even if doing so has become more onerous, either because of a hike in the costs of carrying out the obligation or because of a slump in the value of the service provided.” However, exceptions are included “if the carrying out of the contract has become excessively onerous because of an exceptional change in circumstances, which would obviously make unjust the forcing of the debtor to carry out his obligation.” In this case, the Civil Code points out, the court can order “the updating of the contract, to fairly distribute between the parties both the losses and benefits” or “the cessation of the contract.” Both options can be ordered by court only if “the change in circumstances occurred after the contract was signed” and “was not and could not have been foreseen by the debtor,” provided “the debtor did not take on the risk of changing circumstances” and if “the debtor tried, within a reasonable period and in good faith, to negotiate the reasonable and fair updating of the contract.”

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