Supreme Court: Notary's enforcement inscription is possible only in the presence of undisputed debt

The Supreme Court, composed of a panel of judges of the First Judicial Chamber of the Cassation Civil Court, considered case No. 643/6077/20 regarding the legality of a notary's enforcement inscription made on the basis of a loan agreement, as well as the borrower's claims for damages after the sale of his mortgaged apartment at electronic auctions.

The court examined whether there were grounds to satisfy the claims to recognize the actions of the bank and the notary as illegal, as well as to compensate for the damage the plaintiff associated with the sale of the mortgaged apartment.

Case Facts

In 2007, a loan agreement was concluded between the borrower and Ukrsotsbank for the amount of 95 thousand US dollars to purchase an apartment. To secure the fulfillment of loan obligations, the parties concluded a mortgage agreement under which the apartment was pledged to the bank.

The loan agreement stipulated that in case of delay in fulfilling obligations for more than 60 calendar days, the loan term would be considered expired, and the borrower was obliged to repay the entire debt early, including interest and penalties. The last loan payment was made in August 2008. Consequently, the term for fulfilling the main obligation was changed to November 2008.

In October 2017, the bank applied to a private notary with a request to make an enforcement inscription to recover over 202 thousand US dollars of debt under the loan agreement. Based on the submitted documents, the notary made the enforcement inscription, after which enforcement proceedings were opened. Within the framework of compulsory enforcement, the borrower's apartment was sold at electronic auctions for 578,888 UAH.

The borrower went to court, considering the enforcement inscription illegal. He argued that the debt was not undisputed, the loan agreement was not notarized, the term for applying for the enforcement inscription had expired, and the bank did not send him a written demand for debt repayment. He also requested compensation for damages in the amount of the market value of the apartment, which he estimated at over 1.2 million UAH.

Court Decisions

During the initial hearing, the court of first instance denied the claim, and the appellate court upheld this decision. However, in 2023, the Supreme Court overturned both decisions and sent the case for a new trial, indicating that the courts did not establish whether there was undisputed debt at the time of making the enforcement inscription, its actual amount, and whether there were disputes between the parties regarding the debt.

During the new hearing, the bank informed the court that no written demand for debt repayment was sent to the borrower.

After the new hearing, the Saltivskyi District Court of Kharkiv (formerly Moskovskyi District Court) partially satisfied the claim. The court recognized the enforcement inscription as unenforceable because it was made based on a loan agreement that was not notarized, during a period when the relevant provisions of the government resolution regarding the possibility of making such inscriptions were effectively not in force. At the same time, the claims to recognize the actions of the bank and the notary as illegal and to compensate for damages were denied.

The Kharkiv Court of Appeal agreed with the conclusion about the unenforceability of the enforcement inscription but changed the reasoning part of the decision. The court noted that the three-year term for applying for the enforcement inscription expired in November 2011, while the inscription was made in 2017 regarding debt accrued in 2014–2017. This indicated the absence of undisputed debt. At the same time, the appellate court left unchanged the conclusions about the denial of compensation for damages.

Legal Conclusions of the Supreme Court

The Supreme Court dismissed the cassation appeal and agreed with the conclusions of the lower courts. The court emphasized that when resolving disputes about recognizing an enforcement inscription as unenforceable, courts must verify not only the compliance of the notary with formal procedures but also establish whether there was truly undisputed debt at the time of making the inscription, whether its amount corresponded to that indicated in the enforcement inscription, and whether there were no unresolved disputes regarding the debt.

The court noted that after the proper fulfillment of loan obligations ceased in 2008, the term for fulfilling the main obligation was changed to November 2008. From that moment, the creditor had the right to demand early repayment of the entire debt. Accordingly, the three-year term for applying for the enforcement inscription expired in November 2011. Therefore, the enforcement inscription made in 2017 regarding debt for the period 2014–2017 could not be considered based on undisputed debt.

Regarding the claims to recognize the actions of the bank and the notary as illegal, the Supreme Court agreed with the conclusions of the lower courts that the bank's application to the notary for making the enforcement inscription is not unlawful in itself and was carried out within the rights and obligations defined by the loan agreement, the Law "On Notariat," and the list of documents allowing undisputed debt recovery.

Regarding the claims for damages, the Supreme Court indicated that to impose civil liability, it is necessary to establish the presence of damage, the unlawfulness of the defendant's behavior, a causal link between such behavior and the damage, as well as the fault of the person.

The Supreme Court agreed with the conclusions of the lower courts about the absence of grounds for damage recovery. The court took into account that the subject of the enforcement inscription was the loan debt, not the plaintiff's apartment, the plaintiff did not challenge the property appraisal during enforcement proceedings, and also did not prove the presence of all elements of civil liability, in particular the causal link between the notary's actions and the claimed losses.

The court also noted that after recognizing the enforcement inscription as unenforceable, the legal basis for the bank's acquisition of funds from the sale of the apartment ceased.

In such a situation, the person is not deprived of the right to apply to the court with a separate claim for the recovery of unjustly acquired funds under Article 1212 of the Civil Code of Ukraine. This method of protection is appropriate in the relevant legal relations.

Accordingly, the proper method of protection in such legal relations may be a claim for the return of unjustly acquired funds in accordance with Article 1212 of the Civil Code of Ukraine.

In conclusion, the Supreme Court left unchanged the decision of the court of first instance in the part not amended by the appellate court and the ruling of the Kharkiv Court of Appeal.

The ruling of the cassation court enters into legal force from the moment of its adoption, is final and not subject to appeal.

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