The figure of self-contracting often appears in current legal traffic, although it lacks systematic and unitary legal regulation. There are only a few regulatory provisions that prohibit specific cases of self-contracting, such as when the commission agent enters into a contract without the consent of the principal in commercial matters (Article 267 of the Spanish Commercial Code).
In the case of the administration organs of companies, which are the body or means through which the company operates in legal transactions, the General Directorate of Registries and Notaries (GDRN) clarified, in a resolution dated 24th July 2019, that a distinction must be made between cases of self-contracting as such, where the representative powers of the directors would be limited and the registration of the business concluded could be rejected, and cases of simple conflict of interest where there is no real self-contract.
In the case dealt with in the aforementioned resolution, the same person acted as the director of two companies, one the grantor of a mortgage loan and the other the borrower. The registrar deduced that a conflict of interest between the companies existed, which had to be remedied by means of an agreement made in the shareholders meeting of the grantor company. The GDRN revokes the negative classification of the registrar, on the understanding that there was no case of self-contracting.
The doctrine of the aforementioned GDRN deems that there is self-contracting when a person intervenes in the same contract in his own name and in that of the other contracting party, or when such person represents both parties to the legal transaction. As far as admissibility is concerned, apart from certain special prohibitions, the general rule leans in favour of such admissibility; however, in this case the notary, when assessing the representative powers of the representative, must expressly mention the power to self-contract.
With regard to the figure of the directors, we must bear in mind that, according to Article 234 of the Spanish Capital Companies Act, they have the power to act in all acts that are included in the corporate purpose of the company, and any limitation of the director’s powers is ineffective against third parties, furthermore, the company is obliged to act before third parties that have contracted with the directors in good faith and without serious fault, even when these acts surpass the corporate purpose. However, these broad powers are limited, according to the GDRN, in the case of self-contracting.
However, it should also be borne in mind that the directors are a body representing the company, and there is a risk of entering into conflicts of interest which may jeopardise the proper fulfilment of legal duties and obligations (duty of loyalty under Article 227 of the Spanish Capital Companies Act, etc.). In order to avoid this situation, limits are imposed on powers for contracting, with the obligation, among other things, to avoid conflicting situations such as taking advantage of the company’s business opportunities, etc. (Article 229 of the Law on Corporations).
As for the infringement of the duty of loyalty, and the consequent conflict of interest, the GDRN states that it may impose sanctions through Articles 227.2 and 232 of the Spanish Capital Companies Act. That is to say: the imposition of the obligation to compensate for the damage caused to the company and the repayment, if applicable, of the amounts unjustly gained; as well as the possibility of exercising actions that seek the annulment of the acts and contracts entered into by the directors in violation of their duty of loyalty.
For all of the above reasons, an act carried out in breach of the duty of loyalty is generally understood to be effective from a representative point of view, so that cases of conflict of interest, as in the case of breach of the duty of loyalty, unless the conflict is well-known and affects the representation itself, must be subject to judicial control, through the exercise of the appropriate legal actions, and therefore surpasses the function of the registrar to qualify documents.
Jaime Madero
Vilá Abogados
For more information, please contact:
3rd January 2020
