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Latest news from the Italian Supreme Court: art. 96 of the Italian Code of Civil Procedure and abusive inscription of mortgage

Latest News From The Italian Supreme Court: Art. 96 Of The Italian Code Of Civil Procedure And Abusive Inscription Of Mortgage

The recent decision no. 6533, issued by the Italian Supreme Court on 5 April 2016, marks an important turning point in terms of liability under art. 96, para. 2, of the Italian Code of Civil Procedure – according to which liability rests on the creditor who has placed a judicial mortgage on the debtor’s property for a value exceeding the secured claim.

Diverging from the previous, settled case law, the Supreme Court has in fact set out the following principle: “In the event that, as in the case at issue – it has been ascertained that the claim in relation to which the judicial mortgage was inscribed and the ordinary prudence in inscribing the judicial mortgage are inexistent, the aforesaid creditor can be held liable pursuant to art. 96, para. 2, of the Italian Code of Civil Procedure, if he has failed to exercise ordinary diligence in inscribing the mortgage on the property for a value that is proportionate to the secured claim, in accordance with the parameters identified by the law (articles 2875 and 2876 of the Italian Civil Code), since, in assigning a value to the property that is higher than the security, he has abused his right to secure the property to the detriment of the debtor“.

The case under the review of the Supreme Court

The issue at stake, from which the aforementioned decision and the present comment derive, stems from the opposition to an injunction issued in favor of a lender which, by virtue of such claim had placed a mortgage on all of the property of the borrower – bringing to a complete halt the business of the latter – despite the fact that the value of such property was much higher than the alleged claim.

The judge of first instance accepted the opposition only in the part concerning the ascertained inexistence of the lender’s claim but rejected the compensation claim for vexatious litigation brought against the alleged creditor. The Court of Appeal confirmed the decision.

The judgment was then appealed before the Supreme Court which was asked to determine – once ascertained the inexistence of the claim in relation to which the mortgage had been placed – whether or not the creditor could be held liable pursuant to art. 96, para. 2, of the Italian Code of Civil Procedure for having failed to exercise ordinary diligence in placing a mortgage mortgage on a property whose value was disproportioned in comparison to the secured claim.

The stand taken by the “old” case law

On many previous occasions, the Italian Supreme Court had already affirmed in relation to such topic that “although a creditor who has inscribed a mortgage for an exorbitant amount, or, on a property the value of which exceeds the amount of the claim, cannot be held liable, just because of that, pursuant to the second paragraph of art. 96 of the Italian Code of Civil Procedure, the same creditor may however still be held liable pursuant to the first paragraph of the same art. 96 of the Italian Code of Civil Procedure, if, as a result of his willful misconduct or gross negligence, he resisted the request to reduce the mortgage” (see, in this respect, decision n. 17902/2010 issued by the Italian Supreme Court).

The aforesaid thesis is mainly based on a strict interpretation of articles 2740, 2828 and 2877 of the Italian Civil Code.

In fact, Article 2740 of the Italian Civil Code introduces a principle according to which the debtor is liable towards his creditors with all his present and future property.

Article 2828 of the Italian Civil Code entitles the creditor to place a mortgage on any immovable property of the debtor.

Article 2877 of the Italian Civil Code provides that the costs of reduction are always chargeable to the applicant, unless the reduction takes place by reason of a disproportionate determination of the amount of the claim, in which case the costs are chargeable to the creditor.

On top of that, there is also the conviction (upheld on many occasions by case law) that, in similar hypothesis, the creditor may be held liable only pursuant to the provisions of the first paragraph of art. 96 of the Italian Code of Civil Procedure which envisages, however, the obligation to ascertain the willful misconduct or gross negligence.

The decision dated 5 April 2016

In delivering such decision, the Italian Supreme Court has taken quite a different direction from the one pursued by previous case law, giving a brand new and constitutionally-oriented interpretation of the aforesaid provisions – which is definitely more up-to-date and shareable.

The position expressed by the Supreme Court originates from the interpretation of both civil law and civil procedure rules in the light of the new art. 111 of the Italian Constitution which, by introducing the principle of a fair trial, sets out requirements for a reasonable length of the proceeding together with a general demand for fairness, in order not to allow nor justify any kind of abuse of right.

Thus, following such a perspective and according to the Supreme Court, articles 2140, 2828 and 2877 of the Italian Civil Code cannot be interpreted too strictly to the detriment of the debtor, given that:

  1. The principle of general security of the creditor under art. 2740 of the Italian Civil Code must always face the limit of the abuse of right;
  2. art. 2828 of the Italian Civil Code entitles the creditor to place a mortgage against any but not all of the property of the debtor;
  3. (pursuant art. 2877 of the Italian Civil Code) laying the burden of the costs of reduction of the mortgage on the applicant is justified by the fact that it is the applicant himself (which may not necessarily coincide with the debtor) who is the one mostly interested in having his property released.
  4. It will be interesting to see how much the aforesaid damage will be then quantified by the competent Court of Appeal.
  5. Under such circumstances, and according to the Italian Supreme Court, the most proper legal tool to be used is the one set forth by art. 96, para. 2, of the Italian Code of Civil Procedure, which must therefore be applied to the case at stake.
  6. It follows that the creditor placing a judicial mortgage on the property of the debtor for a value exceeding the amount of the inscribed claims by one third, increased by incidental claims but within the limit set forth by articles 2875 and 2876 of the Italian Civil Code, acts abusively, using the legal instrument provided far from the scope envisaged by the Legislator, hence determining damage to the debtor (who is consequentially entitled to receive compensation).

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This post first appeared on Italian Law & Litigation Blog: LitigAction, By Dla Piper Italy, please read the originial post: here

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