With this article, we would like to highlight a number of legal issues of practical interest that have arisen in a case managed by the team of Costaș, Negru & Asociații. Thus, this paper is a summary of the litigation and of the relevant aspects drafted in the case file, which will be able to contribute to other cases with similar issues before the courts.
- Brief presentation of the relevant facts
By a decision of the City Council of the municipality – the sole shareholder in the applicant company – the defendant was nominated as a member of the Board of Directors of the applicant company.
Subsequently, the Ordinary General Meeting of Shareholders of the company (hereinafter referred to as the AGM) was held, at which the AGM Resolution was adopted appointing as members of the Board of Directors the persons nominated in the Resolution of the City Council of the Municipality, including the defendant.
On the basis of the same AGM Decision, the mandate contract was concluded by which the defendant was appointed member of the Board of Directors of the applicant company. At the same time, by a Decision of the Board of Directors, the defendant was appointed as General Manager of the applicant company, having a Contract of Appointment for a period of 4 years. With regard to the form of the mandate contract, by another Decision of the Board of Directors, the validity of the provisions of the mandate contract granted by the former Board of Directors to the former general manager was established until the completion of the specific mandate contract of the defendant.
By a third Decision of the Board of Directors (to which we refer below in paragraph IV, assumption No. 2), the new form of the contract of mandate relating to the post of Director-General was approved, on the basis of which, a Contract of Mandate was concluded, setting out the duties of the Director-General – the defendant in dispute.
At the end of 2013, by another Decision of the Board of Directors, the defendant was revoked from the position of General Manager before the expiration of his mandate. The defendant brought an action against that decision seeking damages on the basis of the penalty clauses in the contract of office. The claim was upheld in part, the claimant company was ordered to pay a sum by way of damages, and the counterclaim brought in the context of that dispute for the annulment of the contract of employment which established the duties of the Director General was dismissed as being unfounded.
At the same time, following the action brought by the National Integrity Agency, the decision of the City Council of the municipality mentioned above was partially annulled by the court, holding that the defendant’s son was in a conflict of interest, being at that time deputy mayor.
Furthermore, the Court of Auditors, having carried out a subsequent audit of the applicant company, found in its audit report and subsequent decision that all the amounts paid to the defendant, either under the Contracts of Engagement or under the judgment ordering the applicant company to pay a sum by way of compensation, constituted damages to be recovered.
In that context, the claimant company brought an action – the dispute which is the subject of the present analysis – seeking, first, a declaration that the agency contracts were absolutely void and, second, an order that the defendant pay all the sums of money paid by the claimant company in connection with the two mandate contracts, including on the basis of the judgment ordering it to pay compensation to the defendant.
Considering that during the trial the defendant passed away, the court ordered the company, in so far as no heirs were identified and no certificates of heirship were available, to submit the notary’s report on the fact that the succession in question had not been opened, and civil status documents to prove the heirship of the persons to be introduced in the case.
In this article we will outline the central issues in this case and come to a solution that was later confirmed by the High Court of Cassation and Justice. Thus, in the first paragraph we will analyze the situation of the heirs of the deceased party in the course of the trial, the following paragraph comes with a solution as to when the prescription period starts in the situation where the alleged obligation to reimburse is different from the moment of communication of the Court of Auditors’ report. Finally, the last paragraph concludes this article with an analysis of the application of the principle resoluto iure danis, resolvitur ius accipientis with regard to the annulment of subsequent acts of a local council decision.
- Introduction of heirs who have not accepted the inheritance
In this section we will deal with the hypothesis that the claimant introduces the defendant’s heirs without submitting the civil status documents and the corresponding certificates of inheritance, and simply indicates the names of the alleged heirs, the place where they carry out their professional activity and the response of the Chamber of Notaries Public confirming that the succession of the deceased defendant has not been debated.
To begin with, we point out that the provisions applicable in this case are those laid down in Article 412 para. (1) item 1 Code of Civil Procedure. Thus, the meaning of the rule established by this text of the law requires an analysis of the meaning of the concept used of “introduction of heirs into the case”.
With regard to the “heirs” of the party who passed away during the proceedings, it should be noted that, according to Article 38 of the Code of Civil Procedure, “the status of party may be legally or conventionally transferred, as a result of the transfer, in accordance with the law, of the rights or legal situations subject to the proceedings”. In the case of individuals, as in the present situation, the legal transmission of legal standing (active or passive) may take place by succession, the heirs who succeed the deceased party taking over all rights and obligations of a patrimonial nature thus acquiring legal standing in the case in which those rights or obligations were disputed.
The doctrine is unanimous in considering that, in order to operate the procedural transmission of legal capacity, it is necessary to accept the inheritance (legal or testamentary) of the deceased party, because only by accepting the transmission of the patrimony – considered as legal universality – the heirs or legatees universally and with universal title can be considered to acquire not only the rights and obligations of the de cuius, but also all their accessories – actions and means of operation which belonged or could have belonged to the deceased if he had been alive.
Thus, it is not enough to summon the successor, but it is necessary to summon the heirs, i.e. those who choose to accept the inheritance, thus strengthening their title of heir with regard to the transmission of the inheritance, which was not binding until the act of acceptance.
Therefore, with regard to the application and scope of Article 412(1) item 1 of the Code of Civil Procedure, under no circumstances may the proceedings continue against a person who is only entitled to inherit from the deceased party who, in the absence of a certificate of inheritance or the capacity of heir, has not made an act of acceptance of inheritance, even one of those referred to in Article 1110 of the Civil Code which the successor could only have made as heir.
The successor cannot become a party to the proceedings in which a person in relation to whom he or she was only entitled to inherit by simply proving the family relationship (which means simply presenting civil status certificates), but the court should itself establish the status of heir.
This will mean that, prior to analysing the content of the legal relationship submitted to judgment, the court is obliged to clarify another constituent element of the civil legal relationship, namely to establish which are the parties, natural or legal persons who are claimed to be the holders of the civil rights and obligations that make up the social relationship governed by the civil law rule.
Obviously, the court is not obliged to supplement a duty of the notary public in the process, it is not the task of the court to examine the conditions for acceptance of the inheritance. Instead, it is for the interested party to prove the transmission of the inheritance either by a certificate of inheritance or by proving both the concrete right of succession of the person indicated as heir and the express or tacit act of acceptance which reinforces this capacity as heir.
Where there is a doubt as to the status of heir, the court should not proceed by taking further evidence in order to clarify these matters which are not the subject of the initial investigation, but is obliged to proceed by finding the existence of a case of suspension by operation of law and non-fulfilment of the requirements for the indication of heirs for the continuation of the trial.
On the other hand, if the party was deceased at the time the claim was submitted, Article 412(1) of the Code of Civil Procedure does not apply, since the action must be dismissed as brought against a person lacking capacity to sue, i.e. annulled in accordance with Article 56(1) of the Code of Civil Procedure.
Therefore, if at the time the court was seized the defendant was deceased, the proceedings are not suspended, but the claimant has to amend the action by summoning the heirs in order to justify the passive legal capacity with the certificate of heirship. We do not see the reason why, if the party dies during the trial and its continuation is requested, the transmission of the legal standing should be subjected to lax criteria, lacking in rigor, by mere presumption or possible heirship, i.e. only speculation of vocation.
To conclude, in order to avoid a possible suspension on Art. 412 para. (1) item 1 of the Code of Civil Procedure, the interested party is obliged to indicate the heirs of the deceased party; this indication can be made either by proving the status of heir with the certificate of heirship or of quality of heir, or by presenting the civil status certificates of the persons designated as such, together with providing evidence of the act of the person who has the concrete vocation to inherit, expressly or tacitly accepting the inheritance of the deceased party. However, the court will not be able to examine whether all the conditions for establishing the status of heir have been met if this is not clear from the evidence submitted at the time of the request for continuation/resumption of the proceedings.
The situation could be different for heirs who acquire the right to administer the estate and to acquire the rights and actions of the deceased in addition to the de facto ownership of the succession property. This benefit is not conditional on prior certification of the status of heir by notary or court.
In this case, we consider that, to the extent that the legal action can be qualified as an act of administration of the inheritance, in the hypothesis where the heir would acquire the legal capacity of the deceased, we should not look so rigorously at the question of proving the capacity of heir which is the burden of the person concerned. We submit here that the court, by reference to the qualification of the legal action as an act of administration, could allow the heirs to be brought into the case without proof of heirship in the above sense.
Of course, this rule should not always be applied when talking about heirs by inheritance, as we risk qualifying such an act as a tacit acceptance of the inheritance in the event that the legal action can be classified as an act of disposition.
In conclusion, the court should refer to the particularities of each action, and to the extent that it is qualified as an act of disposition by reference to the inheritance, the rigors analyzed above should be applied regardless of the status of the heirs. On the other hand, where heirs by inheritance are involved and the action is qualified as an act of administration of the inheritance, the criteria for proving heirship should be more volatile, but not non-existent.
- The starting point of the limitation period where the time at which the alleged repayment obligation falls due is different from the time of communication of the report of the Court of Auditors. Does the communication of the report restart the limitation period?
In the light of the facts set out above and in the light of the contradictory grounds put forward by the claimant company in its application, we shall attempt to summaries the arguments which subsequently led to a final decision in favor of the defendant.
Considering the manner of formulation and specification of the claims in the application, in conjunction with the legal basis indicated, i.e.: undue payment, general and/or special contractual liability, tort, are subject to the general limitation period of 3 years. And the moment from which the 3-year period starts to run is stipulated in Article 2523 of the Civil Code, according to which “the limitation period starts to run from the date when the holder of the right of action knew or, depending on the circumstances, should have known of its occurrence”.
The moment from which the prescription period starts to run has been analysed by 3 courts in 3 levels of jurisdiction by reference to the multitude of legal grounds invoked. They held that the prescription period runs from the date on which the allegedly unlawful payments were made. Since the court’s analysis was comprehensive, the limitation period was also checked by reference to another point in time from which it emerged that the applicant – a joint stock company with the municipality as its sole shareholder – was aware of the occurrence of the damage, namely the date of the internal public audit report carried out by the Court of Auditors.
We would like to point out that, in the light of Decision No 19/2019 of the High Court of Cassation and Justice published in the Official Gazette of Romania, Part I, No 860 of 24.10.2019, the actual control by the Court of Accounts, completed with the issuance of the Report and the related Decision, does not represent a reason for the prescription period to be reinstated and is not able to generate a new prescription period for the recovery of the amounts identified and established as damages in these documents.
Thus, the High Court established in an extremely clear manner that: “the act of control carried out by the Court of Auditors or by another body with control powers, by which the employer is obliged to take action for the recovery of damage caused by an employee or resulting from the payment to him of an undue sum of money, does not mark the beginning of the prescription period for the extinction of the action for the employee’s financial liability.”
We argued that, by reference to the provisions of Art. 111 para. (2) of Law no. 31/1990, the claimant – a public limited company with the sole shareholder being the municipality, should have known about the damage at the latest at the end of 5 months after the end of the financial year for 2013. More specifically, it should have known about this alleged undue payment/pretended damage at the time when the Ordinary General Meeting was obliged to rule on the management of the board of directors, i.e. the director. However, that time cannot be later than 5 months after the end of the financial year for 2013.
In contrast, the High Court held that “the beginning of the right of action is the date on which the subjective right was infringed, disregarded or, as the case may be, had to be exercised, whereas the beginning of the limitation period is the date on which the holder of the right of action has the material and legal possibility to take legal action”.
In the light of the findings of the Court of Appeal, the Court of Appeal found that the limitation period of three years had expired on the date on which the action was brought, since it was not necessary to annul the Municipal Decision in order for the limitation period to begin to run. Moreover, the applicant company should have been aware that the right of action had arisen at the latest on the date on which the allegedly unlawful payments were made to the applicant.
In addition, the Court of Appeal also gave reasons why the date of the Court of Auditors’ decision cannot be taken as the starting point of the limitation period. It was not necessary for a ‘hierarchically superior State institution’ to find that the payments made were unlawful in order to ascertain the damage (in the light of the legal grounds on which the claim was based). On the one hand, the Court of Auditors is not a hierarchically superior institution of the State, being essentially an autonomous administrative authority, and, on the other hand, a finding of illegality of payments by a third institution cannot trigger the running of a new limitation period, a matter already settled by Decision No 19/2019 of the High Court of Cassation and Justice. As has been held in the case-law, “the findings in a report of the Court of Auditors of Romania do not, in themselves, constitute evidence of the existence of damage to the appellant-claimant’s assets, nor of the guilt of an employee, or of an obligation to take legal action against a particular person”.
In conclusion, we point out that the Court of Auditors’ Decision did not create the premise of a case of prescription, moreover, it cannot be identified as a moment from which the limitation period starts to run. That moment is identified in accordance with the general rule laid down by the Civil Code in Article 2523, namely – the date when the holder of the right of action knew or, depending on the circumstances, ought to have known that it had arisen.
- The nullity of acts subsequent to a Local Council Decision
The discussion starts from situation no. 1: By a resolution of the Local Council, another person was mandated to vote at the AGM on the appointment of the defendant as a member of the Board of Directors, which was finalized by the AGM resolution of the applicant company. This resolution represented the will of a shareholder regarding the appointment of a member of the Board of Directors of the company of which he is a shareholder.
Thus, between the Decision of the Local Council and the Mandate Contract by which the defendant was appointed member of the Board of Directors of the applicant company, there is the Resolution of the General Assembly, in which another person was mandated to vote on this appointment. This resolution embodies the defendant’s appointment and the will of the company.
Not to confuse the will of a shareholder (in this case the municipality) with the will of the complainant company. Hypothetically, if the municipality had not been the majority shareholder, the nomination made by the resolution of the local council could have had no further legal effect in the absence of the votes of the other shareholders to the same effect.
The act subsequent to the HCL is only the act immediately following the annulled act, in this case the Resolution of the General Meeting of the applicant company, in which a third person was mandated to vote on this appointment, and not the Mandate Contract which expressed the will of the mandating shareholder.
Consequently, between the annulled act – the Municipal Decree and the act whose annulment is requested – the Mandate Contract, there is another valid act, unattached and undeclared, thus not fulfilling the condition of subsequence, an essential condition for the applicability of the provisions of Article 1254 para. (2) of the Civil Code.
The mandate agreement could have been annulled under Article 1254 para. (2) of the Civil Code only as a result of the annulment of the decision of the General Meeting of the claimant company, in which the trustee voted the defendant as a member of the Board of Directors.
The same was the conclusion of the High Court of Cassation and Justice, which ruled as follows: “the principle of the annulment of the subsequent act following the annulment of the initial act – ‘resoluto iure danis, resolvitur ius accipientis’ is the rule of law according to which the annulment/dissolution of the initial/primary legal act also entails the annulment of the subsequent legal act, due to their legal connection. In the light of those theoretical considerations, the Supreme Court holds that, in order to be annulled, the subsequent acts must be subsequent to the initial act annulled, that is to say, there must be a direct link between them.
However, in the case in question, following the administration of the evidence, a matter which is beyond the appellate court’s assessment, the appellate court held that, as regards the mandate contract No XXX/2013, by which the defendant was appointed as a member of the Board of Directors of the applicant company, it was not based on the decision of the City Council of the municipality, but on the decision of the General Meeting of Shareholders of the claimant company, having been concluded only after the adoption of that AGM decision.”
In other words, it was held that there is no direct causal link between the Decision of the Local Council and the mandate contract, the invalidity of which was sought, i.e. there is no subsidiarity between the HCL and the mandate contract.
Situation No 2 concerned a different mandate contract: By a resolution of the Board of Directors of the applicant company, the new form of the mandate contract for the post of general manager was approved, on the basis of which the second mandate contract was concluded, setting out the duties of the general manager – the defendant in the present case.
The Decision of the Board of Directors makes no reference to the Decision of the City Council of the municipality, an administrative act without any relevance to the appointment of the defendant as Director. The Decision of the City Council of the Municipality has the legal value of a nomination for membership of the Board of Directors of the company, without any impact on the (actual) employment as a director of the company.
Moreover, the position of director of the company is not subject to the condition of being a member of the Board of Directors, this position can also be held by any other person who is not a member of the Board of Directors.
Therefore, there is no direct causal link between the annulled act – the Decision of the City Council of the municipality – and the act whose annulment was requested – the second Mandate Contract – as in the case of the first mandate, which makes the provisions of Article 1254(2) of the Civil Code.
In addition to this aspect, the Mandate Contract is not a subsequent act to the Decision of the City Council of the Municipality since the subsequent act is only the act that immediately follows the annulled act, in this case, in relation to the Mandate Contract, there is no act underlying it that has been annulled by a court.
However, in this case, between the annulled act – the Decision of the City Council of the municipality – and the act whose annulment is sought – the second Mandate Contract – there are several valid acts, including the Decision of the Board of Directors.
Thus, in the absence of a challenge and annulment of the Decision of the Board of Directors, the annulment of the Mandate Contract based on the provisions of Article 1254 para. (2) of the Civil Code.
We can see that the same reasoning applies as in the first hypothesis, which is why the conclusions of the High Court of Cassation and Justice remain applicable in the present situation. Consequently, since the criterion of subsidiarity of the two Mandate Contracts in relation to the annulled Local Council Decision has not been met, we cannot discuss an annulment of those contracts on the basis of the principle resoluto iure danis, resolvitur ius accipientis.
This article was prepared for the Costaș, Negru & Asociații Blog by lawyer Florina Virginia Negru from Arad Bar Association and lawyer Nicoleta Dreglea from Cluj Bar Association.
Costaș, Negru & Asociații is a lawyers’ civil partnership with offices in Cluj-Napoca, Bucharest and Arad, providing legal assistance, representation and consultancy in a number of practice areas with a team composed of 16 lawyers and consultants. Details regarding legal services and the members of the team can be found on the website https://www.costas-negru.ro. All rights for the materials published on the company’s website and on social media belong to Costaș, Negru & Asociații, their reproduction being allowed only for information purposes and with the correct and complete disclosure of the source.
