Thursday, 25 June 2015

Notary public warns against unfair contract terms - AG Cruz Villalón in C-32/14 (Erste Bank Hungary)

25 June 2015: opinion AG Cruz Villalón in case C-32/14 (Erste Bank Hungary)

Due to the importance of the mortgage agreements in most MS consumers planning to purchase a real estate need to conclude a loan/mortgage contract through the act of a notary public. Hungary is one of these countries. In this case a question arose inter alia as to the responsibility of the notaries public with regard to examining terms in the contracts they prepare against the unfairness test, as well as whether the proceedings to establish an executory title on a loan/mortgage agreement need to allow for an unfairness test of agreement's terms.

In December 2007 Attila Sugár concluded a loan agreement combined with a mortgage with Erste Bank Hungary. The contract was prepared by a notary public. Due to the consumer defaulting on his loan payments upon the bank's motion in December 2011 the notary public annulled the loan agreement and started execution proceedings against the consumer. In June 2013 the consumer appealed to the notary public to take away the executory title due to the loan agreement containing unfair contract terms. The notary public refused consumer's claim, confirming he acted in accordance with the formal proceedings that bind him as well as lack of his competence to preside over a dispute. The consumer appealed to court.

Advocate General concludes in his opinion that generally Member States may allow notaries to give executory titles to loan/mortgage contracts without having to engage in testing unfairness of this contract's terms. The Hungarian procedure taking place at the notaries' offices is purely formal and does not leave any room for unfairness test to be conducted. The AG indicates that while CJEU previously opposed a possibility to give an executory title to a loan/mortgage agreement without conducting an unfairness test, this assessment pertained to the judiciary role of courts. A notary public and his tasks are incomparable to these of a judge and a court (Par. 65-67) A consumer may still oppose the notaries' decision by going to court and if his protection against unfair contract terms is guaranteed in judiciary system, then AG considers Hungarian law compliant with the Directive (Par. 70-71)

However, if a notary public while preparing a notary act finds a potentially unfair contract term in it he should inform about this the consumer. The AG infers this duty to inform from the notaries general duty to inform and advise consumers (Par. 78-80). Just a warning about potential unfair contract terms in the contract is also insufficient, since the notary needs as well to explain to the consumer his role in and the procedure of execution of the loan/mortgage agreement (Par. 81).

While a notary public doesn't have a duty to search for unfair contract terms in a contract or to examine contract terms as to their unfairness, he acquires a duty to notify (inform/warn) the consumer that there is a potential unfair contract term in his contract. As with most duties to inform we may wonder when exactly consumer could expect to receive such a notification and what standard of care/ due diligence would be expected of the notary public by national courts.

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