If we take the process of buying a home as an example, it is carried out through a private contract, in which the price, payment conditions, and a series of reciprocal obligations are set, as well as guarantees or penalties in the event of non-compliance with them.
Once the price has been paid, the public deed is granted, the seller receives the price and simultaneously the property is acquired by the buyer, who takes possession of the home, and the keys are handed over to him.
These deeds usually never refer to the previous private contract, which in most cases only serves to execute the deed, to set the dates and amounts of payments, which currently must be recorded in the deeds for tax control reasons.
But the truth is that at no time is it usually said whether that private contract is still valid or whether it is extinguished as a consequence of the deed..
For some, delving into this subject may seem trivial, due to a lack of interest, or a technical topic, which only interests theoretical lawyers. However, nothing could be further from the truth, which often surpasses fiction.
I am making this comment following the Supreme Court ruling of 13 September 2016 (ROJ STS 4044/2016) which refers to the sale of a property in Catalonia, and according to the account of the facts, the parties involved were people who we can describe as somewhat complicated.
The fact is that through a private contract dated July 22, 2004, a home is sold, a payment schedule is established and on the one hand, for the benefit of the seller, a resolutory condition is agreed upon as a guarantee for the payment of the deferred price, and on the other hand, as a guarantee for the buyer, a penalty clause is established, in the event that the selling party does not hand over possession of the property within a certain period, all with the following literal wording:
«Resolutory condition and penalty clause:
If, on the date of granting the public deed, which has been established in the fourth clause of this contract, the buyer does not pay the established price, the seller may choose between:
»a) Demand judicially or extrajudicially the outstanding price for payment or,
»b) Resolve this document, for which it will reliably notify the buyer of the granting of a term of 20 business days in order and for the purposes of paying the amount that remains outstanding and, after this term has elapsed, it will retain 40% of the amounts received up to the act of non-compliance and will keep that amount as a penalty deposit and will return to the buyer 60% of the amounts received that it will make available to her in a reliable manner.
In any of these cases, all expenses and legal costs that may arise will be the responsibility of the buyer for breach of this contract.
On the other hand, in the event that the seller does not hand over possession of the property, signing the deed in its entirety on September 9, 2006, or does not appear at the notary's office designated by the buyer, or, appearing there, does not sign the public deed, a penalty clause of 250.00 euros is established for each business day of delay, until the date of granting of the public deed and the effective delivery of possession of the property. This amount will be deducted from the amount remaining pending payment and without prejudice to any legal action that Ms. *** deems appropriate for strict compliance with this contract.
Once the private document was signed, and before the public deed was granted, the selling party requested a postponement of a few days, which went from September 9 to September 25, but the truth is that when that day arrived, he did not go to the Notary either.
The Minutes of Non-Appearance.
In this situation, the buyer takes a fairly common action, which is to ask the Notary to “make a record” that a certain person has not appeared at the Notary on a certain day and time. I do not like these records very much, since the negative fact of the lack of execution of the deed is only proven by accreditation of its execution, but the truth is that practice has been consolidating these records, which are usually called non-appearance records.
At the same time, the buyer requires the seller, by means of a new notarial act, in this case a notification, “to appear before this notary […] on October 3, 2006 at 13:00 p.m., in order to execute the public deed of sale, with respect to the property […],” to which the seller answers by saying “I will not attend the signing ceremony for which you require me, because, as I have already verbally anticipated on repeated occasions, the contract that we granted and to which you refer is rescindable, since the object of the same is real estate and the price is detrimental, by more than half of its fair price. ”
Can the selling party refuse to grant the public deed?
We must remember that contracts once signed have the force of law between the parties, and as the article tells us 1091 CC dThey must be complied with in accordance with the same, which is what is called the principle of “"agreement is served".
Therefore, unless there was a cause for nullity due to a defect in consent, the contract was firm and had to be fulfilled.
The contract was made with a price of 90,000 euros and it seems that the property could be worth 415,000 euros. That was the reason why the seller was "slow" to grant the public deed, which she only agreed to do after a judge ordered it.
The ultradiminium rescission from the Catalan Compilation
However, in Catalan law there is the so-called ultradiminiun rescission, which is the power of the seller or transferor, in contracts of sale, exchange and others of an onerous nature, relating to real estate, in which the transferor has suffered damages of more than half of the fair price, shall be rescinded at his request, even if the contract meets all the necessary requirements for its validity.
This possibility of termination is not applicable to all contracts, since it does not apply to sales or transfers made through public auction, since it is presumed that the price obtained is objective (ha ha ha…) nor in those contracts in which the price or consideration has been decisively determined by the random or litigious nature of what was acquired, or by the desire for generosity of the transferor.
In the end, the deed of sale was executed on July 31, 2008, by court order, since the seller did not use any means of defense or even appear in court, by elevating the private contract to public, and in it it was agreed by both parties that the resolutory condition was left without effect, but the validity or not of the penalty clause was omitted.
The buyer's revenge
Perhaps because of all the suffering the seller had caused, in December 2010, more than two years after the public deed was executed, the buyer filed a lawsuit against the seller, claiming the penalty for delay that had been agreed in the private document, calculated at a rate of 250 euros, from the date of the private contract until the day of the execution of the deed, which amounted to 110,000 euros.
In colloquial terms, and as a result, the buyer got the sale for free.
When the case reaches the Supreme Court, it makes a series of considerations, in which it seems that it will give the buyer the right, since it dismantles the seller's arguments, but in the end it turns 180 degrees and resolves as we will see.
The will to innovate is not presumed.
The first thing that the seller said was that once the deed was granted, everything was finished, which is usually the most common. However, the Supreme Court tells us that hethe will to innovate is not presumed.
To novate a contract is to modify it in all or some of its aspects. Since no reservation of the right of withdrawal was made in the public deed, the question arose as to whether the penalty for delay agreed in the private document was still in force despite the execution of the public deed.
On the question of whether the public deed implies a modification of previous private contracts, the opposing positions of two illustrious Notaries are traditional.
So on the one hand, there is the so-called position of the “RENEWAL CONTRACT”, maintained by Núñez Lagos, who tells us that the elevation to public of the private document implies a renewal of contract or the birth of a new contract, which would extinguish the private document.
GONZALEZ PALOMINO argued in the opposite direction, arguing that although the parties must give their consent in the deed, this does not mean anything other than that they agree with the statements imputed to them therein, so that such consent does not constitute a new contract, unless the reproduction intentionally does not match the original, in which case we would be dealing with a new contract.
The Supreme Court accepts this second position, and thus in the judgment we are discussing it states that it is established case law that the will to novate is not presumed, although it can be deduced from the incompatibility between one obligation and another. Although in the case discussed, this incompatibility cannot be deduced, Therefore the existence and validity of the penalty clause must be maintained.
Judicial moderation of agreed sentences
The second thing that the selling party raised was the possibility of hethe judicial moderation of the agreed sentences Well, according to the Article 1154 CC “The Judge will equitably modify the penalty when the principal obligation has been partially or irregularly fulfilled by the debtor.”
However, in this case there was not a partial breach, but a total one, and for these cases the Supreme Court has established that "in contracts by negotiation, in which a conventional penalty is expressly provided for in the case of unilateral withdrawal by the parties, the assessment or financial scope of the established penalty cannot be subject to the judicial power of moderation, a question that belongs to the principle of autonomy of the will of the parties."
Saved by the bell. The well-known article 1255 CC.
All seemed lost, however, despite these considerations, the Supreme Court ended up saving the seller-breacher, due to the last argument put forward by the latter, pointing out that the penalty clauses with a punitive function, have as limits, like any other contractual agreement, those indicated in article 1255 CC, and therefore conventional penalties whose amount extraordinarily exceeds the amount of the damages and losses that, at the time of the execution of the contract, could reasonably be foreseen that would arise from the breach contemplated in the corresponding penalty clause, may be considered contrary to morality or public order.
In the debated case, if the penalty clause is accepted, the amount would be higher than the agreed purchase price.
Likewise, since there has been no express reservation of the possible claim for the penalty in the claim for performance of the contract (which is otherwise required by article 341 BGG and can be deduced from article 1110 of the Civil Code) once the contract is executed through the granting of the public deed, demanding its compliance also constitutes an exercise of rights contrary to good faith (article 7.1 CC.), due to unfair delay, and an objective disloyalty may be presumed with respect to the reasonable trust aroused in the debtor regarding the non-claim of the credit, trust that must necessarily arise from the creditor's own acts to that effect.
Hiring Tips
My friend José María, when he visits the Notary, often tells me that in life today, in order for nothing to happen to you, you have to be accompanied by an “accountant” and a “solicitor”. I simply think that you have to be advised, that our rights must be asserted in the right place and time, and that everyone has the possibility of fairly good, and above all accessible, advice through Notaries.
In Lleida on October 22, 2016
