The Supreme Court determined the jurisdiction of the dispute regarding the enforcement inscription on a mortgage securing a legal entity's loan
The Supreme Court, composed of a panel of judges of the Second Judicial Chamber of the Cassation Civil Court, examined a dispute regarding the challenge of a notary's enforcement inscription by which foreclosure was initiated on the mortgage subject to repay the debt under a loan granted to a legal entity within the framework of the state program "Affordable Loans 5-7-9%".
The key issue in the case was determining the proper jurisdiction of the dispute, since the claim was filed by an individual mortgagor who secured the obligations of the company under the loan agreement.
Case Facts
In September 2022, a contract was concluded between JSC "Ukrgasbank" and LLC to join the Rules for granting loans to clients of micro, small, medium, and corporate businesses under the financial state support program for business entities "Affordable Loans 5-7-9%". The bank provided a loan of 15 million UAH with a repayment deadline of September 22, 2025.
To secure the fulfillment of the loan obligations, on the same day, a mortgage agreement was concluded between the bank and the individual, notarized. The mortgage subject consisted of six garden houses and six land plots in the Kyiv region.
Due to the borrower's failure to fulfill the loan obligations, as of December 2023, a debt of 16.9 million UAH had accrued. The bank sent demands to the property guarantor to remedy the violations, but the case materials did not contain evidence of their actual receipt.
On March 25, 2024, a private notary made an enforcement inscription on the mortgage agreement to initiate foreclosure on the mortgage subject to repay the debt. Subsequently, a private executor opened enforcement proceedings.
The mortgagor filed a lawsuit seeking to declare the enforcement inscription unenforceable. The claim was based on the fact that the written demand to remedy the violations was not received, and the debt was not undisputed, as there were agreements between the parties regarding the sale of the pledged property and deferral of enforcement measures. The plaintiff also referred to correspondence concerning pre-trial settlement, which, in their opinion, indicated the creditor's failure to follow the procedure for making the enforcement inscription.
Decisions of the Courts of First and Appeal Instances
The Vasylkiv City District Court of Kyiv region satisfied the claim and recognized the enforcement inscription as unenforceable. The court concluded that the claims were justified and found grounds to declare the enforcement inscription invalid before enforcement.
The Kyiv Court of Appeal left this decision unchanged. The appellate court agreed with the local court's conclusions, noting that they were supported by the evidence in the case, and the bank's appeal arguments did not indicate incorrect application of substantive or procedural law.
Disagreeing with these decisions, JSC "Ukrgasbank" filed a cassation appeal requesting to cancel the decisions of the previous courts and deny the claim.
Legal Conclusions of the Supreme Court
The Supreme Court noted that the decisive factor in resolving the jurisdiction issue is not only the subject composition of the dispute but also the nature of the disputed legal relations and their connection with the main obligation.
The court recalled that after the entry into force of Law No. 2147-VIII on December 15, 2017, disputes regarding transactions concluded to secure the performance of the main obligation are subject to consideration by commercial courts if the main obligation itself has a commercial nature and the dispute concerning it falls within commercial jurisdiction.
The Supreme Court referred to the legal conclusions of the Grand Chamber of the Supreme Court and the United Chamber of the Cassation Civil Court, according to which disputes regarding transactions concluded to secure the performance of obligations between legal entities are derivative of commercial loan relations and must be considered under the rules of commercial proceedings. This approach also applies to disputes about recognizing notaries' enforcement inscriptions as unenforceable.
Analyzing the circumstances of case No. 362/4082/24, the Supreme Court established that the dispute arose due to the LLC's failure to fulfill obligations under the loan agreement concluded with the bank. The enforcement inscription was made precisely as a method of foreclosure on the mortgage subject securing the performance of this commercial obligation.
Therefore, the dispute concerns legal relations derivative of credit relations between business entities and is subject to consideration under commercial proceedings.
The Supreme Court concluded that the courts of first and appeal instances did not properly establish the legal nature of the disputed legal relations and mistakenly considered the case under civil procedure rules. Such a violation of subject-matter jurisdiction rules is an unconditional ground for canceling court decisions regardless of the arguments in the cassation appeal.
Accordingly, the Supreme Court partially satisfied the bank's cassation appeal, canceled the decisions of the previous courts, and closed the proceedings in the case. The plaintiff was explained the right to apply for referral of the case to a commercial court.
The Supreme Court also noted that, given the established violation of jurisdiction rules, it does not analyze other arguments of the cassation appeal on the merits of the dispute.
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