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On the repayment of a loan contract

 THE CONSTITUTIONAL COURT OF
THE REPUBLIC OF LITHUANIA

 R U L I N G

 On the compliance of Article 292 of the Civil Code of the Republic of Lithuania with the Constitution of the Republic of Lithuania

 31 March 1994, Vilnius

The Constitutional Court of the Republic of Lithuania, composed from the Justices of the Constitutional Court: Algirdas Gailiūnas, Kęstutis Lapinskas, Zigmas Levickis, Pranas Vytautas Rasimavičius, Stasys Stačiokas, Teodora Staugaitienė, Stasys Šedbaras, and Juozas Žilys

The court reporter—Rolanda Stimbirytė

The Constitutional Court of the Republic of Lithuania, pursuant to Paragraph 1 of Article 102 of the Constitution of the Republic of Lithuania and Paragraph 1 of Article 1 of the Law on the Constitutional Court of the Republic of Lithuania, in its public hearing, on 24 March 1994, considered case No. 4/94 subsequent to the petition submitted to the Court by the Panel of Civil Cases of the Supreme Court of the Republic of Lithuania requesting an investigation into whether Article 292 of the Civil Code is in compliance with the Constitution of the Republic of Lithuania.

The Constitutional Court

has established:

On 10 January 1994, the Panel of Civil Cases of the Supreme Court investigated under cassation procedure a civil case upon the complaint lodged by the defendant Anatolijus Volkovas against the decision passed by the Klaipėda City Local Court on 3 December 1993 which had complied with the suit brought by plaintiff Igoris Vysockis against defendant Anatolijus Volkovas pertaining to repayment of the loan amounting to 457.5 litas.

The Panel of Civil Cases, while examining the lawfulness and validity of this decision, by its ruling suspended the investigation of the civil case and addressed the Constitutional Court with a petition requesting an investigation into whether Article 292 of the Civil Code is in conformity with the Constitution.

In the ruling, the Panel of Civil Cases grounds its request on the fact that the Court complied with the suit pursuant to the loan contract for the sum of USD 200 which had been concluded between the parties (Article 291, Civil Code). In the argumentation of the contracting parties as well as complaints it is stated that the plaintiff gave the defendant a loan of USD 50 and his requirements exceeding the above-mentioned sum are based on the right to take interest on the loan, i.e. on the provisions of Article 46 of the Constitution which establish the right to private ownership and freedom of individual economic activity. The subject matter of the dispute is regulated in Article 292 of the Civil Code which limits the realisation of the right to ownership. This provides the basis for maintaining that the contents of said Article contradicts the provision of the first paragraph of Article 46 of the Constitution.

In the preliminary investigation of the case, the petitioner’s representative explained that the contents of the right to ownership includes the management, use, and disposal of property. The use of money similarly to the use of any other article (thing) manifests itself in its utilising in order to satisfy the owner’s needs as well as to gain profit. Article 292 of the Civil Code provides for the possibility of taking interest in compliance with the loan contract, i.e. to gain profit from the use of money only in cases prescribed by law as well as executing loan operations with respect to public mutual aid funds and city pawnshops. This norm limits the possibility of the realisation of the right to ownership to the full extent. In the preliminary investigation of the case, the Speaker of the Seimas of the Republic of Lithuania, acting as the representative of the party concerned, informed that the draft Law “On Amending and Supplementing the Civil Code of the Republic of Lithuania” is under consideration at the Seimas at present, which establishes the following wording of Article 292 of the Civil Code: “The amount of interest according to a loan contract may be determined by agreement between parties if the law does not prescribe otherwise”.

The Constitutional Court

holds that:

In Article 1 of the Civil Code which was adopted in 1964 and is now in force it is established that it shall regulate property relations and related to them non-property relations. In accordance with this Code, the basis for property relations was socialist economic system and socialist property of means of production, and the state had to provide conditions for the increase of this property. The Code also provided for individual property as one which derived from socialist property. It was established that individual property may be only articles of personal consumption, articles of domestic utility and subsidiary household articles, dwelling-house and labour savings. The basis of this property is earned income. Property, being private ownership of citizens, may not be the source of unearned income. Thus, the right to private ownership was denied. In compliance with these provisions of Article 292 of the Civil Code it was established that it is allowed to take interest according to a loan contract only in cases prescribed by law.

The Supreme Council of the Republic of Lithuania by 11 March 1991 Act has restored independent State of Lithuania and on the same day confirmed the Provisional Basic Law of the Republic of Lithuania. In Article 44 of this Law it was stipulated that the economy of Lithuania shall be based on the property of the Republic of Lithuania, which shall consist of the private property of its citizens, the property of groups of citizens, and state property. In Article 46 of the Constitution of 1992 it is established that Lithuania’s economy shall be based on the right to private ownership, freedom of individual economic activity, and initiative. Thus, by these constitutional provisions, the right to private ownership has found its way back into the legal system of the state.

In Article 23 of the Constitution of the Republic of Lithuania it is set forth that property shall be inviolable, the rights of ownership shall be protected by law. That means the right of the owner to manage, use and dispose of this property and the duty of other persons to restrain from behaviour violating ownership rights. The implementation of property owner’s rights is also guaranteed by the freedom of individual economic activity and initiative which are established in the first paragraph of Article 46 of the Constitution. Thus, the property owner does not only have the right to freely use his property and to gain profit but also to delegate his rights to other persons by way of contracts. Therefore, contracts may be concluded which would ensure use of property (e. g. contract of insurance), confirm management of property (e. g. lease contract), certify disposal of property (e. g. contract of purchase). The freedom of making contracts means that contracting parties of their free own will shall establish mutual rights and duties.

One of the forms of civil contracts is a loan contract. By the loan contract a loan giver transfers into the ownership of a loan borrower the money or other articles defined by characteristics of sort and the loan borrower takes the responsibility of repayment to the loan giver the same sum of money or the same amount of articles of the same kind and quality for compensation or without it.

The right to getting payment according to a loan contract was already established in Roman civil law. Subsequently, this right was interpreted in various ways, however, it has survived in modern civil law which is based on private ownership. Thus, in compliance with traditions of civil law, the contracting parties may agree about the compensation (interest).

The freedom of concluding contracts, similarly to property rights, has certain limits. While implementing his rights and exercising freedoms, a human being must observe the Constitution and the laws of the Republic of Lithuania, and must not impair the rights and interests of other people (Article 28 of the Constitution). Thus, in terms of protecting the rights of a loan borrower, there might be limitations on the amount of compensation (interest) which, by the way, have been applied since the times of Roman civil law. In the third paragraph of Article 46 of the Constitution it is established that the State shall regulate economic activity so that it serves the general welfare of the Nation. Thus, when a person, while exercising property rights, takes part in economic activity, he becomes one of special entities of economic relations, and then special limitations prescribed by law may be applied to him. However, even such entities according to their status may freely conclude contracts. Thus, said limitations do not deny the principle of freedom in concluding contracts.

The provision of Article 292 of the Civil Code establishing that, according to a loan contract, it is permissible to take interest only in cases prescribed by law, actually means a prohibition on concluding contracts freely and, thus, restricts the rights of private property owners and other persons, their economic freedom and initiative, therefore, this Article contradicts the first paragraph of Article 46 of the Constitution of the Republic of Lithuania.

Conforming to Article 102 of the Constitution of the Republic of Lithuania as well as Articles 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 gives the following

ruling:

To recognise that Article 292 of the Civil Code of the Republic of Lithuania contradicts the first paragraph of Article 46 of the Constitution of the Republic of Lithuania.

This ruling of the Constitutional Court is final and not subject to appeal.

The ruling is pronounced in the name of the Republic of Lithuania.

Justices of the Constitutional Court:

Algirdas Gailiūnas                           Kęstutis Lapinskas                           Zigmas Levickis

Pranas Vytautas Rasimavičius         Stasys Stačiokas                              Teodora Staugaitienė

Stasys Šedbaras                               Juozas Žilys