The Fiduciary Sale as a form of “Pacto Comisorio”

These brief lines aim to recall the prohibition by our law of any agreement that automatically assigns to the creditor in a contract the property of an asset belonging to the debtor. This ban is founded on moral reasons and equity since the existence of such an agreement would enable an unjust enrichment of the creditor. However, it should be noted that Royal Decree-Law 5/2005 allows for the direct appropriation of the object of the guarantee provided in favor of financial entities.

The fiduciary sale or sale under guarantee consists of a loan secured by an asset, generally real estate, under the guise of a sale of said asset with a “pacto de retro” in such a way that the debtor will repurchase the sold asset in the future for a price equivalent to the loan plus its compensation. The economic effect of the contract is clear: if the debtor fails to return the loan within the agreed term, the creditor will become the owner of the guarantee, even if it far exceeds the amount owed.

Regarding the purpose of this article, we will comment on Judgment 77/2020 of the Supreme Court (Pres. Díaz Fraile), which resolves an action for nullity initiated by the debtor-sellers against the buyers and other successive buyers. Specifically, the plea of the lawsuit of interest was the declaration of the existence of a loan contract secured by the formal or apparent sale of the aforementioned real estate, the declaration of nullity of the deeds by which the two mentioned sales were made public, the declaration of nullity of the registry entries that such deeds gave rise to, as well as sentencing the defendants to grant public deed of sale to transfer the formal ownership of the housing to the plaintiffs at the same moment in which the owed amount is restored to them by the borrowers, and to the payment of the procedural costs incurred.

After dismissal at first and second instance, the action for nullity was elevated to the Supreme Court, which admitted the cassation reason based on the “Infringement of the doctrine established by the Supreme Court regarding Article 1275 of the Civil Code and in relation to the doctrine established by the Supreme Court concerning the ‘resolutory condition'”.

Next, due to its expository and doctrinal clarity, we extract the literal paragraphs from the commented resolution: Our legal system outright rejects any legal construction (generically called “resolutory conditions”) by which the creditor, in case of non-compliance of their credit, can definitively appropriate the assets given as guarantee (Articles 1859 and 1884 CC). Such agreements are not admissible under Article 1255 CC and would fall within the scope of legal fraud under Article 6.4 CC. (…) Within the scope of this prohibition, this Court has on several occasions included the business of property transmission as a guarantee function instrumented through an indirect means consisting of the celebration of a simulated sale. (…) Furthermore, the judgment of June 15, 1999, declares the nullity of the resolutory condition in a simulated sales contract in a clear case of relative simulation and in cases of simulated leasing contracts.

On the other hand, the Resolutions of September 30, 1998, March 26, 1999, and November 26, 2008, concluded that the purchase option examined in them was granted as a guarantee (given the direct connection between the option right and the vicissitudes of the acknowledged debt, such that the exercise of that right was conditioned on the non-payment of this) understanding that this violates the traditional prohibition of the resolutory condition of Articles 1859 and 1884 of the Civil Code. Or the case of the Resolution of July 20, 2012, in an instance of a deed in which a company acknowledged a debt in favor of another subject to an unexpired amortization term and in the same deed agreed on a cession in payment of the assumed debt, subjecting this cession to a suspensive condition so that the cession would be without effect in the event that, on the due date of the obligation, the debtor transferor had paid the creditor transferee the amount owed (see the close connection between the fate of the guaranteed credit and the effectiveness of the transmission).

As pointed out by the aforementioned DGRN Resolution of July 20, 2012, echoing the jurisprudence of this chamber, the common will to transmit and acquire is not enough to provoke the sought-after transfer effect because “on one hand, the theory of title and mode for the voluntary and “intervivos” transmission of real rights governs (cf. Article 609 CC) and on the other, the validity of the contract presupposes the concurrence of a sufficient cause that justifies the legal recognition of the practical purpose pursued by the contracting parties (cf. Articles 1261-3, 1274 to 1277 of the Civil Code)”. In the “sale under guarantee” the true intent of the parties is not to effect an actual and definitive transfer of ownership but a provisional and cautionary transfer, serving as a guarantee, to be consolidated in the event of non-fulfillment of the obligation,” a purpose not supported by the legal system due to its contradiction to the prohibition of the resolutory condition imposed by the reiterated Articles 1859 and 1884 of the Civil Code. Consequently, in accordance with the jurisprudence extensively cited above, this results in the full and radical nullity of the transaction that commits such infringement.

However, the delivery of the real estate, although it cannot serve as a guarantee, can have a solutory function (…) because in the case of a liquidated, matured, and demandable debt (as was the case in the deed-in-lieu of payment subject to the Resolution of the DGRN of July 20, 2012), the transfer of the real estate through sale (or via a deed-in-lieu of payment) cannot serve as a guarantee but rather has a solutory purpose (…) (a performance different from that which constituted the content of the due obligation aliud pro alio, with agreement to consider the obligation extinguished).

In conclusion, the sale under guarantee is prohibited by the legal system and will be declared null and void by the jurisdiction at the request of the borrowing party.