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In this article we analyse the judgment of the Spanish Supreme Court dated 5th April 2018, which deals with the case of a limited liability company which granted two loans, for a total amount of 100,000 Euro in 2008, to one of its partners, who was furthermore the joint and several director of the company. Said loans were not documented in writing and therefore, the term of the loans was not recorded, that is to say, the date upon which the loans were to be paid back to the company.

Four years on from when the loans were granted to the partner the company summoned a partners’ meeting which took place on 20th August 2012. The company notified the holding of the meeting by certified fax (burofax) to the director who had received the loans. The following item was included as the second point of the meeting agenda “information and the claim of debts of the partners”.

In the partners’ meeting, which was not attended by the borrowing director, it was confirmed that the aforementioned was the only existing debt, which, with the interest accrued up until that moment amounted to 108,111.67 Euro.

One year later, on 4th September 2013, the company filed a lawsuit against the borrowing director claiming the return of the loans, as well as the corresponding interest accrued up until that moment, that is to say a total of 119,371.92 Euro. The judgment in the first instance declared that the existence of the loan had been proven, but dismissed the amount corresponding to the interest, and sentenced the debtor, however, to pay the interest generated as from the moment of filing the lawsuit, as well as condemning him to pay the costs of the proceedings.

The Court of the first instance based its arguments on the loan object of the lawsuit being a commercial loan regarding which a term for the return of the loan had not been fixed. Thus, for the return of the loan to be demandable, a notarised request would be necessary, which would initiate a term of 30 days for the return of the loan, as established by article 313 of the Spanish Commercial Code.

The director appealed in second instance, arguing that the breach of article 1128 of the Civil Code, which insofar as obligations concerning term go, establishes the following:

If the obligation does not specify a time limit, but it may be deduced from its nature and circumstances that it was intended to be granted to the debtor, the Courts shall fix the duration of the obligation”.

On the basis of this article, the partner argued that, in the case of loans with no fixed maturity date, this should be fixed by the courts prior to the agreement on their enforceability and obligation to repay, even though such fixing should be made at the request of one of the parties and not ex officio.

The Court of second instance dismissed said argument and maintained the sentence given to the defendant for the repayment of the loans and the corresponding interest accrued as from the filing of the claim.  However, it annulled the order for costs against the debtor partner on the grounds that, in order for the partner to be ordered to pay the costs, the claim brought by the company must have been upheld in its entirety. This was not so because the court of first instance admitted the payment of interest as from the moment of filing the claim, and dismissed the calculation of the interest requested by the company.

The partner appealed before the Supreme Court alleging that the judgment was inconsistent because it grants something which, in the opinion of the partner had not been requested, namely, the interest accrued from the start of the judicial inquiry.

The Supreme Court clarified the situation as follows:

Due to the nature and circumstances of the facts of this case, it has been accredited that there was no will to fix a certain deadline for the repayment of the credit, which thus excludes the application of article 1128 of the Civil Code.

As done so before by the Supreme Court, the demand for a notarised request must be broadly interpreted and, consequently, any form of request allowing the accreditation of the existence of such and the moment in which it materialised should be admitted, so that from then on the term of 30 days for fulfilling the obligation of returning the loan begins to count.

In this case a payment request has not existed as such, but only a record that the partner received a certified fax (burofax) in which he was summoned to the meeting of the lending company as a partner, and that the agenda of the meeting included an item regarding the claim for the payment of the debts of the partners. According to the Supreme Court, once the meeting has demanded the return of the loans from the partner, a formal request should have existed. If this requirement has not been fulfilled, the debt cannot be deemed enforceable.

However, the above does not exclude the notification of the court action which commenced the proceedings from constituting in itself a reliable order for payment, giving rise to the one month term for fulfilling the obligation.

This affects the accrual of interest, which cannot be incurred from the moment of filing the claim, but only within the 30 days following the notification thereof. For this reason, the Supreme Court deems that the judgment has not been inconsistent in condemning the debtor to pay the accrued interest, although it does reduce said interest, so that it is accrued starting 30 days after the filing of the lawsuit.

For more information, please contact:

Hugo Ester

4th of May 2018

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