The Plenum of the Constitutional Court of the Republic of Azerbaijan made a decision “on interpretation of the Article 1.0.9 of the Law of the Republic of Azerbaijan “On Banks” in accordance with the Articles 10.5, 14 and 48 of the Law of the Republic of Azerbaijan “On Mortgage” and the Articles 307.4, 405.1 and 477.0.1 of the Civil Code of the Republic of Azerbaijan” on July 25, 2019. The Constitutional Court stated its opinion on the validity of guarantee agreements and mortgage agreements concluded as a guarantee of credit line agreements in case of amendments in essential terms in the decision.
According to the decision, the guarantee agreement is terminated when responsibility is changed without the consent of the guarantor, and this amendment aggravates the condition of the guarantor. The Constitutional Court stated the issue of whether terminating the guarantee agreement in whole, or in part in its Decision, which is a controversial issue in practice. In this case, the guarantee agreement is terminated in whole, not in part, since the grounds for partial termination of the guarantee agreement are not prescribed by the Civil Code. It should be noted that partial termination of a guarantee agreement means that the guarantor will be liable under the terms and conditions set out in the agreement, not in the amount of the liability in accordance with the amendments.
The Constitutional Court's legal position is that, unlike the guarantee agreement, the mortgage agreement is considered as not concluded in case of not specifying the essential terms of the mortgage agreements concluded as a guarantee of credit line agreements, or not asking mortgagor's consent when such conditions are later determined. According to the legislation, the amendment to liability without the consent of the mortgagor is not a basis for the termination of the mortgage agreement. However, an agreement is considered to be concluded only when the parties agree on all the essential terms of the contract as required. Therefore, the mortgage agreements concluded as a guarantee of credit line agreements is considered as not concluded in case of not defining the essential terms (amount, term, interest rate, currency, etc.). It should be noted that the mortgagor is liable under the terms of the mortgage agreement if all the essential term is specified in the mortgage agreement in accordance with the legislation, and these terms are changed without the consent of the mortgagor in subsequent loan agreements.