- Supreme Court of Lithuania
- Danske Bank A/S v. I. J. and others
LOAN AGREEMENT - BETWEEN LITHUANIAN COMPANY AND DANISH BANK - REFERENCE TO UNIDROIT PRINCIPLES AS MEANS OF INTERPRETING APPLICABLE DOMESTIC LAW (LITHUANIAN LAW)
MISTAKE - GROUND FOR AVOIDANCE OF CONTRACT ONLY IF SERIOUS AND MISTAKEN PARTY NOT GROSSLY NEGLIGENT - REFERENCE TO ARTICLE 3.2.2 OF UNIDROIT PRINCIPLES TO INTERPRET ARTICLE 1.90 OF THE LITHUANIAN CIVIL CODE
A Lithuanian company, entered into a loan agreement with a Danish bank. The loan was secured by a mortgage of the real estate of the company together with a suretyship of the shareholders of the company. When the company failed to repay the loan, Plaintiff decided to exercise its security rights. Shareholders of the company (sureties) objected that the suretyship was void for mistake since it had erroneously thought that the suretyship was effective only until the mortgage came into force.
In deciding in favour of Plaintiff (the bank), the Court, invoking Article 3.2.2. of the UNIDROIT Principles, pointed out that to justify the avoidance of the contract, the mistake must be of such importance that a reasonable person in the same situation as the party in error would only have concluded the contract on materially different terms or would not have concluded it at all if the true state of affairs had been known. In the case at hand, the Court held that shareholders of the company should have known the nature and effects of the suretyship and could therefore not invoke its mistake as a ground for avoidance of the contract.