These very brief lines aim to comment on Article 398 of the Civil Code as a fundamental norm that establishes the bases of the so-called “majority principle” in decision-making related to common property within the framework of co-ownership. This provision also establishes the subsidiary role of the judge in situations where the lack of a majority prevents the adoption of necessary and beneficial decisions for the co-owners.
Although the comments on this article are much more extensive and better-founded than the present one, the novelty would consist in relating this article to decision-making within a corporation (capital company) and, in particular, the connection with the judicial capacity to annul negative social agreements of capital companies and replace the absence of a decision with one that is more beneficial for the company.
While the partnership contract is qualified as an “organizational contract,” co-ownership is a modality of property rights by reason of the person holding the title, and not a contract. In both figures, one can discern the common element of the need for decision-making for the administration of the common element, whether it be a company or a thing belonging to several people.
Article 398 of the Civil Code (CC) establishes that:
“For the administration and better enjoyment of the common thing, the decisions of the majority of the participants shall be mandatory. In the absence of such a majority, or if it is gravely detrimental to the interested parties in the common thing, one may resort to the Judge who will decide what is appropriate, including appointing an administrator.”
This provision contains two essential elements: the recognition of a majority system for the administration of common property and judicial intervention as a subsidiary mechanism to ensure the effective functioning of co-ownership.
It is evident that the administration of the common thing requires organizational norms among the holders, and therefore Article 392 CC refers to the legal regime applicable for this purpose, in the absence of contracts or special provisions. Therefore, Article 398 CC could be understood as a supplementary norm to an organizational contract, which are characterized by regulating the structure and internal functioning of a legal relationship between several parties with a common interest. Unlike exchange contracts, which focus on the traffic of goods or services between the parties and require the full consent of their parties, organizational contracts require the adoption of collective decisions to achieve their purposes, collective decisions that are adopted by majority.
The majority principle, as enshrined in Article 398 CC, constitutes the mechanism par excellence to articulate these decisions, allowing common interests to prevail over potential individual discrepancies. This rule gives priority to the general interest of the co-owners and avoids blockages that may result from the requirement of unanimity.
Doctrine has highlighted that the majority principle enshrined in Article 398 responds to the need for balance between the individual rights of the co-owners and the collective interest inherent to the community. As José Luis Lacruz Berdejo indicates, the majority constitutes a rule of rationality and efficiency in decision-making to avoid the paralysis of the administration of common property. The computation of such a majority is carried out based on the participation quotas of each co-owner, as provided in Article 393 CC, which guarantees a fair proportion based on each one’s contribution to the common good.
And, delving into the concomitance between co-ownership and partnership, Article 398 CC foresees the possibility that the co-owners do not reach a majority agreement for the administration or enjoyment of the common thing. In these cases, the legislator introduces the figure of the judge as a neutral arbitrator, who has the power to adopt decisions that safeguard the common interest. This recourse seeks to avoid the harm that may result from inaction or the blockage of fundamental decisions.
It has been considered, in the field of co-ownership, that judicial intervention is subject to certain limits, such as respect for the fundamental rights of the co-owners and the need to adequately motivate the resolutions. The judge cannot exceed the scope of what is requested by the parties and must ensure that their decision conforms to the principles of proportionality and reasonableness, always seeking to protect the general interest of the community.
However, such necessary judicial intervention – for analogous reasons – in the corporation, has not been treated with the necessary extension until the challenge of negative social agreements – as will be known admitted and recognized since the Supreme Court Judgment of June 2, 2015, extensively developed by Judgment 492/2022, of June 24, of the Provincial Court of Madrid (Section 28th) (JUR\2022\292948) – specified that the challenge and subsequent ineffectiveness of the negative social agreement contrary to the social interest were absolutely vain and futile if the agreement that had been rejected was not subsequently implemented.
More recently, Judgment 218/2024 of the Provincial Court of Valencia addressed the formal and material admissibility of the challenge of negative social agreements. The judgment states that such agreements can be annulled when they are based on a contravention of the social interest or on an abusive refusal by the majority to adopt a beneficial agreement for the company (Articles 204 and 205 of the Capital Companies Act).
But what is truly remarkable is that the Provincial Court emphasizes the judges’ power to integrate the social will in situations where the blockage of decisions harms the collective interest. The judgment explains that this finds its basis in the general doctrine of contracts, according to which judges can intervene to supply the absence of consent when necessary to ensure good faith and compliance with contractual obligations (Article 1258 of the Civil Code). On the other hand, Article 708 of the Civil Procedure Act allows the judge to consider a declaration of will as issued if the essential elements of the business are predetermined. Although the judgment does not mention it, as the informed reader will not miss, in the context of bankruptcy and pre-bankruptcy law, the will of dissenting creditors or partners can also be supplied by the jurisdiction. In the context of corporate law, these fundamental elements could be concretized in the necessary judicial intervention for an effective safeguard of the social interest.
Article 398 is fully aligned with the doctrine established by the Provincial Court of Valencia. In cases where the lack of a majority blocks essential decisions for the common benefit, the judge can not only intervene to resolve the dispute but also to formulate a decision that supplies this absence and ensures the effectiveness of the co-ownership contract, in a manner analogous to how it is done in the corporate field. The initial reluctance of the jurisdiction to interfere in corporate life does not find true legal support in light of the cited precepts. The courts penetrate and overcome – so to speak – individual wills on countless occasions.
Article 398 of the Civil Code constitutes a key piece in the law of co-ownership, by establishing a majority system as the main mechanism for decision-making in the administration and enjoyment of common property. Furthermore, its relationship with the judicial powers recognized in the field of capital companies reinforces the possibility for the judge to act actively to ensure the continuity and effectiveness of agreements in situations of blockage. Judicial intervention, limited and motivated, must respect the principles of proportionality and reasonableness, contributing to consolidate a balance between individual rights and collective needs, both in the field of co-ownership and in the corporate field.