Lietuviškai
Case No. 17/01
THE CONSTITUTIONAL COURT OF THE REPUBLIC OF
LITHUANIA
RULING
ON THE COMPLIANCE OF PARAGRAPHS 3 AND 4 OF ARTICLE
571 OF THE CIVIL CODE OF THE REPUBLIC OF LITHUANIA
(WORDING OF 11 JUNE 1998) WITH THE CONSTITUTION OF
THE REPUBLIC OF LITHUANIA
9 April 2003
Vilnius
The Constitutional Court of the Republic of Lithuania,
composed of the Justices of the Constitutional Court Armanas
Abramavičius, Egidijus Jarašiūnas, Egidijus Kūris, Kęstutis
Lapinskas, Zenonas Namavičius, Augustinas Normantas, Jonas
Prapiestis, Vytautas Sinkevičius, and Stasys Stačiokas,
with the secretary of the hearing-Daiva Pitrėnaitė,
in the presence of:
the representative of the Seimas of the Republic of
Lithuania, the party concerned, who was Daina Petrauskaitė, a
senior consultant to the Legal Department of the Office of the
Seimas,
pursuant to Articles 102 and 105 of the Constitution of
the Republic of Lithuania and Article 1 of the Law on the
Constitutional Court of the Republic of Lithuania, on 26 March
2003 in its public hearing heard Case No. 17/01 which
originated in a petition of the Mažeikiai Local District Court
requesting to determine as to whether Paragraphs 3 and 4 of
Article 571 of the Civil Code of the Republic of Lithuania
(wording of 11 June 1998) were not in conflict with Articles 23
and 29 of the Constitution of the Republic of Lithuania.
The Constitutional Court
has established:
I
On 11 June 1998, by Article 1 of the Law on the Supplement
of the Civil Code of the Republic of Lithuania with Article 571
and Amendment of Articles 84, 318, and 4721 Thereof (Official
Gazette Valstybės žinios, 1998, No. 57-1582), the Seimas
supplemented the Civil Code (hereinafter also referred to as
the CC) with Article 571.
The petitioner, the Mažeikiai Local District Court,
requests to determine as to whether Paragraphs 3 and 4 of
Article 571 of the CC (wording of 11 June 1998) are not in
conflict with Articles 23 and 29 of the Constitution.
II
The request of the petitioner is based on the following
arguments.
1. Article 571 of the CC (wording of 11 June 1998) grants
the right to the creditor to challenge transactions concluded
by the debtor, which the latter was prohibited to conclude, if
this transaction violates the rights of the creditor, while the
debtor was aware or had to be aware of that. The petitioner has
doubts whether the provision "the exaction according to the
claim of the creditor to the debtor shall be directed at the
property transferred under the transaction or, in case this is
impossible, at the value of the property according to the
market price insofar as it is necessary to fulfil the claim of
the creditor" of Paragraph 3 and the provision "a person, who
has concluded a transaction with the debtor, in case the
transaction is recognised as null and void, must return not
only what he obtained under such a transaction, but also the
earnings which he gained before the recognition of the
transaction as null and void insofar as they exceed the
expenses for the maintenance of the property" of Paragraph 4 of
Article 571 of the CC (wording of 11 June 1998) are not in
conflict with Article 29 of the Constitution which establishes
the principle of equality of persons before the law, the court,
and other state institutions and their officials.
According to the petitioner, by the disputed provisions
advantages are granted to the creditor. Due to such legal
regulation negative legal effects may occur to the third party,
which concludes the transaction with the debtor, regardless of
the fact whether he was honest or dishonest, i.e. whether he
was aware or had to be aware that the transaction violated the
rights of the creditor: he must return not only what he
obtained under such a transaction, but also the earnings which
he gained before the recognition of the transaction as null and
void.
2. In the opinion of the petitioner, the provisions of
Paragraphs 3 and 4 of Article 571 of the CC (wording of 11 June
1998) are also in conflict with Article 23 of the Constitution,
which establishes the protection of the rights of ownership,
because the disputed provisions of Article 571 of the CC
(wording of 11 June 1998) do not sufficiently protect the
rights of ownership of an honest third party.
3. The petitioner also notes that Paragraph 2 of Article
6.66 of the Civil Code of the Republic of Lithuania confirmed
by Law No. VIII-1864 of 18 July 2000, providing for the right
of the creditor to challenge transactions concluded by the
debtor (actio Pauliana), establishes that a bilateral
transaction may be recognised as null and void under the
grounds provided by Paragraph 1 of this article only if the
third party was dishonest in concluding the transaction with
the debtor, i.e. the former was aware or had to be aware of the
fact that the transaction violated the rights of the creditor,
while Paragraph 5 of the said article stipulates that the
recognition of the transaction as null and void has no effect
on the rights of an honest third party to the property, which
had been the object of the transaction that was recognised as
null and void.
III
In the course of the preparation of the case for the
judicial investigation, written explanations were received from
the representative of the party concerned D. Petrauskaitė.
1. The representative of the party concerned maintains
that by amending the CC by Article 571 (wording of 11 June
1998), one attempted to create the ground for the recognition
of the transactions on transfer of the debtor's property to
other persons, by which it was attempted to evade the exaction
directed at this property as null and void.
According to D. Petrauskaitė, after analysing the
provisions of Article 571 of the CC (wording of 11 June 1998)
on the right of the creditor to demand that the transaction be
recognised as null and void by means of which the debtor,
attempting to evade the fulfilment of the liability to the
creditor, transfers his property to other persons, one can draw
a conclusion that if the creditor wishes to contest such a
transaction made by the debtor, the creditor must prove that
his interests have been violated by such a transaction, e.g.,
the value of the debtor's property diminished, at which the
exaction could be directed at the demand of the creditor, and
also, that the debtor was dishonest, i.e. he was aware or had
to be aware that the transaction violated the rights of the
creditor.
The representative of the party concerned asserts that
Article 571 of the CC (wording of 11 June 1998) does not
contain any provisions under which the creditor must prove the
dishonesty of the third party to which the creditor has
transferred the property, i.e. that, acquiring the property,
the third party was aware or had to be aware that the
transaction violated the rights of the creditor of the debtor.
However, the Civil Code is an integral legal act and its norms
must be interpreted while taking account of its structure and
compatibility of individual chapters of the CC. According to D.
Petrauskaitė, while investigating cases related to recognition
of transactions as null and void, it is important to establish
the relation between liability law and material law. One of the
effects of the transaction being null and void, as well as one
of the ways of the violated liability right, is restitution
(Paragraph 2 of Article 47 of the CC). However, restitution may
and must be applied while taking into consideration the
provision of material law, since the person who has acquired an
item under a transaction also becomes its owner. Thus,
restitution is exaction of an item from one person and its
transfer to another person. According to the representative of
the party concerned, it means that restitution is possible in
the cases permitted by material law. Such cases are provided
for in Paragraphs 1 and 3 of Article 143 of the CC.
The representative of the party concerned is of the
opinion that if the transaction is recognised as null and void,
under Article 571 of the CC (wording of 11 June 1998) there
appear effects of invalidity of the transaction indicated in
Paragraphs 3 and 4 of the same article, which in respect to the
person who has acquired the property are similar to those
indicated in Paragraph 2 of Article 47 of the CC. After the
transaction is recognised as null and void subsequent to the
demand by the creditor, the exaction following the demand of
the creditor from the debtor is directed at the property
transferred by the said transaction, i.e. the property acquired
under the transaction is seized from the acquirer (new owner).
According to D. Petrauskaitė, the right of ownership is one of
tangible rights and its protection is regulated by norms of
material but not liability law, therefore, the property may be
exacted from the acquirer only in the cases established in
Article 143 of the CC. While analysing the norms of the CC in a
systematic manner, which are related to recognition of
transactions as null and void as well as to exaction of
property from the acquirer, one is to draw a conclusion that in
the cases indicated in Paragraph 1 of Article 571 of the CC
(wording of 11 June 1998) when the transaction is recognised as
null and void, the rights of a third party ought to be defended
by means of protection of violated rights established in
material law, while Article 571 of the CC (wording of 11 June
1998) ought to be construed and applied together with the norms
of material law (Article 143 of the CC).
D. Petrauskaitė maintains that the norms of the CC create
an opportunity to protect the violated rights for the creditor
(Article 571 of the CC (wording of 11 June 1998)) as well as
for third party to whose property the exaction is directed
(Article 143 of the CC), therefore the norms of the CC do not
violate the principle of equality of all persons before the
law, the court and other state institutions or officials.
The representative of the party concerned also maintains
that the disputed provisions of the CC are not in conflict with
Paragraph 2 of Article 29 of the Constitution, as Paragraphs of
3 and 4 of Article 571 of the CC (wording of 11 June 1998) do
not contain any norms that would deny or restrict the rights of
the person (creditor, debtor or a third party) on the grounds
of gender, race, nationality, language, origin, social status,
beliefs, convictions, or views.
2. D. Petrauskaitė notes that the norms of Article 23 of
the Constitution do not provide with any grounds to assert that
the Constitution establishes absolute protection of ownership.
If one has made the rights of ownership absolute, there might
appear preconditions to violate the property interests of other
persons. The Civil Code protects the rights of honest persons,
however in cases when persons are dishonest, i.e. if they have
acquired some property from a person, and they were aware or
had to be aware that the latter did not have the right to
transfer the said property, and that by the transfer of the
property damage had been inflicted to other persons (insolvency
of the debtor virtually means loss of the property of the
creditor), they must compensate for the damage that has
occurred.
D. Petrauskaitė asserts that the provisions of Paragraphs
3 and 4 of Article 571 of the CC (wording of 11 June 1998),
when they are construed and applied together with the norms of
material law of the CC regulating the ways of protection of
violated rights, do not violate the rights of ownership of an
honest third party and are not in conflict with Article 23 of
the Constitution.
IV
In the course of the preparation of the case for the
Constitutional Court hearing, written explanations were
received from P. Koverovas, State Secretary of the Ministry of
Justice of the Republic of Lithuania.
V
At the Constitutional Court hearing the representative of
the party concerned D. Petrauskaitė virtually reiterated the
arguments set forth in her written explanations.
The Constitutional Court
holds that:
1. On 11 June 1998, the Seimas adopted the Law on the
Supplement of the Civil Code of the Republic of Lithuania with
Article 571 and Amendment of Articles 84, 318, and 4721 Thereof
by Article 1 whereof the CC was supplemented with Article 571
titled "The Recognition of the Transaction Violating the Rights
of the Creditor as Null and Void". It is established therein:
"A transaction concluded by the debtor may be recognised
as null and void under judicial procedure subsequent to the
claim by the creditor, if the transaction violates the rights
of the creditor, while the debtor was aware or had to be aware
about it. Any complimentary transaction violating the rights of
the creditor, save transactions whereby ordinary items of low
value and small sums of money are given as presents, shall be
recognised as null and void subsequent to the creditor's claim.
The creditor shall have the right to present his claim
upon the ground provided for in the First Paragraph of this
Article within the one-year term of claim prescription, which
shall be counted from the day when the creditor learned or had
to learn about the transaction which violated his rights.
If the transaction concluded by the debtor and a third
party is recognised as null and void subsequent to the demand
by the creditor, the exaction according to the demand of the
creditor to the debtor shall be directed at the property
transferred under the transaction or, in case this is
impossible, at the value of the property according to the
market price insofar as it is necessary to fulfil the claim of
the creditor.
A person, who has concluded a transaction with the debtor,
in case the transaction is recognised as null and void, must
return not only what he obtained under such a transaction, but
also the earnings which he gained before the recognition of the
transaction as null and void insofar as they exceed the
expenses for the maintenance of the property.
If the court recognises a payable transaction as null and
void subsequent to the demand by the creditor, then the person
who concluded the transaction with the debtor may demand that
the latter return what the said person has paid or given to
him."
2. Article 571 of the CC (wording of 11 June 1998)
provides for the right of the creditor to contest the
transaction concluded with a third party, if these transactions
violate the rights of the creditor. This article establishes
the institution actio Pauliana, which was known as far back as
Roman law.
The institution actio Pauliana is meant to protect the
rights of the creditor from the dishonest debtor who, having
transferred his property to a third party, becomes insolvent,
therefore he is no longer able to fulfil his liability to the
creditor and thus violates the rights of the creditor. Actio
Pauliana thus is a demand by the creditor that the transaction
made by the debtor on the transfer of the property to a third
party be recognised as null and void. The effect of actio
Pauliana is restitutio in integrum. By actio Pauliana one
attempts to ensure that, after the restitution is carried out,
the debtor might again be able to fulfil his liability to the
creditor.
3. By means of borrowing Roman law, actio Pauliana as one
of the institutions protecting the rights of the creditor has
become widespread in various countries. In various legal
systems this institution has certain peculiarities.
This institution has been known in Lithuania as well. For
instance, the 1931 Law on Making Claims Against the Acts of
Debtors Which are Damaging to Creditors used to provide that
the creditor may file a claim on the invalidity of the
agreements or other acts made by the debtor with other persons
if the said persons were aware that thereby the debtor was
willing to inflict damage on his creditors. After such an act
was recognised as void (i.e. invalid) subsequent to the claim
by the creditor, the property or, if it was impossible to do
so, the value thereof used to be exacted from the third party
insofar as it was necessary to satisfy the demand of the
creditor. In case of the complimentary transaction, the third
party had to return what he had received together with the
earnings that had been received from the said property.
4. During the occupation period in Lithuania there was not
such a legal institution as actio Pauliana.
Upon restoration of the independent State of Lithuania,
the institution actio Pauliana was reinstated into Lithuanian
law: this was done when the CC was supplemented with Article
571 on 11 June 1998.
By the 18 June 2000 Republic of Lithuania Law on the
Confirmation, Entry into Force and Implementation of the Civil
Code, the Seimas confirmed a new Civil Code of the Republic of
Lithuania, in Article 6.66 whereof titled "The Right of the
Creditor to Contest Transactions Concluded by the Debtor (actio
Pauliana)" the institution actio Pauliana was consolidated
expressis verbis. Upon entry into force of the new CC (save its
individual articles) on 1 July 2001, Article 571 of the CC
(wording of 11 June 1998) became no longer valid.
5. The petitioner, the Mažeikiai Local District Court, had
doubts whether Paragraphs 3 and 4 of Article 571 of the CC
(wording of 11 June 1998) were not in conflict with Articles 23
and 29 of the Constitution.
Although the petitioner requests to investigate the
compliance of entire Paragraph 3 and that of entire Paragraph 4
of Article 571 of the CC (wording of 11 June 1998) with
Articles 23 and 29 of the Constitution, however, from the
arguments set forth in the petition it is clear that the
petitioner doubts whether Paragraph 3 of Article 571 of the CC
(wording of 11 June 1998) is not in conflict with the
aforementioned articles of the Constitution to the extent that
it provides that if the payable transaction concluded by the
debtor and a third party is recognised as null and void
subsequent to the demand by the creditor, the exaction
according to the demand of the creditor to the debtor shall be
directed at the property transferred under the payable
transaction or, in case this is impossible, at the value of the
property according to the market price insofar as it is
necessary to fulfil the claim of the creditor, and Paragraph 4
of the same article to the extent that it provides that a
person, who has concluded a payable transaction with the
debtor, in case this payable transaction is recognised as null
and void, must return not only what he obtained under such a
payable transaction, but also the earnings which he gained
before the recognition of the payable transaction as null and
void insofar as they exceed the expenses for the maintenance of
the property.
6. Article 23 of the Constitution provides:
"Property shall be inviolable.
The rights of ownership shall be protected by laws.
Property may only be seized for the needs of society in
accordance with the procedure established by law and shall be
justly compensated for."
7. Article 29 of the Constitution provides:
"All persons shall be equal before the law, the court, and
other State institutions and officials.
The human being may not have his rights restricted, nor
may he be granted any privileges on the grounds of gender,
race, nationality, language, origin, social status, beliefs,
convictions, or views."
8. While investigating the compliance of the disputed
provisions of Paragraphs 3 and 4 of Article 571 of the CC
(wording of 11 June 1998) with the Constitution, one has to
take account of the provision "a transaction concluded by the
debtor may be recognised as null and void under judicial
procedure subsequent to the claim by the creditor, if the
transaction violates the rights of the creditor, while the
debtor was aware or had to be aware about it" of Paragraph 1 of
the same article.
8.1. It is clear from the provision of Paragraph 1 of
Article 571 of the CC (wording of 11 June 1998) that the
following conditions are necessary in order to recognise the
transaction concluded by the debtor with a third party as null
and void: the rights of the creditor have been violated by such
a transaction; the debtor should not have concluded such a
transaction; the debtor, in concluding the transaction with the
third party, was aware or had to be aware that thereby the
rights of the creditor were violated, i.e. the debtor was
dishonest.
8.2. The formula "may be" employed in the said provision
of Paragraph 1 of Article 571 of the CC (wording of 11 June
1998) means that under the law the court does not have a duty
to recognise such transactions as null and void but has the
right to decide in every particular case whether or not to
recognise the transaction as null and void. While deciding
this, the court must follow the law. It must assess all the
circumstances of the case. Thus, the court must also assess
whether the third party, when concluding the transaction with
the debtor, was honest or dishonest.
8.3. Article 571 of the CC (wording of 11 June 1998) does
not mention expressis verbis honesty or dishonesty of a third
party.
Civil laws constitute an indivisible whole, one must
construe their provisions not taking them as isolated ones, but
together with other provisions of civil laws. It needs to be
noted that Paragraph 7 of Article 11 of the Code of Civil
Procedure of the Republic of Lithuania (wording of 8 November
1994; hereinafter also referred to as the CCP) prescribes that
in case the law or an agreement of the parties to the dispute
provides for settlement of certain issues by court, the court
must decide these issues on the grounds of the criteria of
justice and reasonableness.
Thus, the court must also follow these criteria, when
deciding whether a third party, while concluding the
transaction with the debtor, was honest or dishonest. The court
must defend not only the interests of the creditor, but those
of an honest third party as well.
9. It has been held in this Ruling of the Constitutional
Court that the formula "may be" employed in the provision "a
transaction concluded by the debtor may be recognised as null
and void under judicial procedure subsequent to the claim by
the creditor, if the transaction violates the rights of the
creditor, while the debtor was aware or had to be aware about
it" of Paragraph 1 of Article 571 of the CC (wording of 11 June
1998) that under the law the court does not have a duty to
recognise such transactions as null and void but has the right
to decide in every particular case whether or not to recognise
the transaction as null and void. While doing this, the court
must assess all the circumstances of the case; it must follow
the criteria of justice and reasonableness (Paragraph 7 of
Article 11 of the CCP (wording of 8 November 1994)).
If one interprets the provision "a transaction concluded
by the debtor may be recognised as null and void under judicial
procedure subsequent to the claim by the creditor, if the
transaction violates the rights of the creditor, while the
debtor was aware or had to be aware about it" of Paragraph 1 of
Article 571 of the CC (wording of 11 June 1998) in the context
of Paragraph 7 of Article 11 of the CCP (wording of 8 November
1994), then there are not any grounds for maintaining that it
did not permit to defend the rights of ownership of an honest
third party.
10. In the context of the case at issue, one is also to
note that, under Paragraph 5 of Article 571 of the CC (wording
of 11 June 1998), if the court recognises a payable transaction
as null and void subsequent to the demand by the creditor, then
the person who concluded the transaction with the debtor may
demand that the latter return what he has paid or given to him.
11. Having held that there are no grounds to maintain that
the provision "a transaction concluded by the debtor may be
recognised as null and void under judicial procedure subsequent
to the claim by the creditor, if the transaction violates the
rights of the creditor, while the debtor was aware or had to be
aware about it" of Paragraph 1 of Article 571 of the CC
(wording of 11 June 1998) does not permit to defend the rights
of ownership of an honest third party, and while taking account
of the legal regulation established in Paragraph 5 of the same
article, one is also to hold that there are no grounds to
maintain that Paragraph 3 of Article 571 of the CC (wording of
11 June 1998) to the extent that it provides that if the
payable transaction concluded by the debtor and the third party
is recognised as null and void subsequent to the demand by the
creditor, the exaction according to the demand of the creditor
to the debtor shall be directed at the property transferred
under the payable transaction or, in case this is impossible,
at the value of the property according to the market price
insofar as it is necessary to fulfil the claim of the creditor
and Paragraph 4 of the same article to the extent that it
provides that a person, who has concluded a payable transaction
with the debtor, in case the transaction is recognised as null
and void, must return not only what he obtained under such a
payable transaction, but also the earnings which he gained
before recognition of the payable transaction as null and void
insofar as they exceed the expenses for the maintenance of the
property, violated the rights of ownership of an honest third
party.
Thus, Paragraphs 3 and 4 of Article 571 of the CC (wording
of 11 June 1998) to the aforesaid extent were not in conflict
with Article 23 of the Constitution.
12. Having held that Paragraph 3 of Article 571 of the CC
(wording of 11 June 1998) to the extent that it provides that
if the payable transaction concluded by the debtor and the
third party is recognised as null and void subsequent to the
demand by the creditor, the exaction according to the demand of
the creditor to the debtor shall be directed at the property
transferred under the payable transaction or, in case this is
impossible, at the value of the property according to the
market price insofar as it is necessary to fulfil the claim of
the creditor and Paragraph 4 of the same article to the extent
that it provides that a person, who has concluded a payable
transaction with the debtor, in case the transaction is
recognised as null and void, must return not only what he
obtained under such a payable transaction, but also the
earnings which he gained before the recognition of the payable
transaction as null and void insofar as they exceed the
expenses for the maintenance of the property were not in
conflict with Article 23 of the Constitution, one is also to
hold that Paragraphs 3 and 4 of Article 571 of the CC (wording
of 11 June 1998) to the aforesaid extent were not in conflict
with Article 29 of the Constitution, either.
Conforming to Articles 102 and 105 of the Constitution of
the Republic of Lithuania and Articles 1, 53, 54, 55 and 56 of
the Law on the Constitutional Court of the Republic of
Lithuania, the Constitutional Court of the Republic of
Lithuania has passed the following
ruling:
To recognise that Paragraph 3 of Article 571 of the Civil
Code of the Republic of Lithuania (wording of 11 June 1998) to
the extent that it provides that if the payable transaction
concluded by the debtor and the third party is recognised as
null and void subsequent to the demand by the creditor, the
exaction according to the demand of the creditor to the debtor
shall be directed at the property transferred under the payable
transaction or, in case this is impossible, at the value of the
property according to the market price insofar as it is
necessary to fulfil the claim of the creditor and Paragraph 4
of the same article to the extent that it provides that a
person, who has concluded a payable transaction with the
debtor, in case the transaction is recognised as null and void,
must return not only what he obtained under such a payable
transaction, but also the earnings which he gained before the
recognition of the payable transaction as null and void insofar
as they exceed the expenses for the maintenance of the property
were not in conflict with the Constitution of the Republic of
Lithuania.
This Constitutional Court ruling is final and not subject
to appeal.
The ruling is promulgated in the name of the Republic of
Lithuania.
Justices of the Constitutional Court: Armanas Abramavičius
Egidijus Jarašiūnas
Egidijus Kūris
Kęstutis Lapinskas
Zenonas Namavičius
Augustinas Normantas
Jonas Prapiestis
Vytautas Sinkevičius
Stasys Stačiokas