Division E of the Civil Court of Appeals stated that in light of the impossibility of acquiring foreign currency, the parties to US Dollar denominated mortgage loan must apply the mechanisms established in the agreement to determine the par value of the US Dollar and make the due payment. Payment in pesos at the official exchange rate was not admitted.

Banking & Finance

On April 12, 2013, in re: “Torrado, Norberto Leandro c. Popow, Alexis re. Foreclosure” Division E of the Civil Court of Appeals stated that the payment made in Argentine pesos under a US Dollar denominated mortgage loan, by applying the official exchange rate, does not fully cancel the obligation. The parties to the US Dollar denominated mortgage loan agreed as an essential condition that if it were impossible to acquire foreign currency, the debtor, at the creditor’s choice, would have to give (a) an amount of Pesos necessary to acquire the outstanding amount of US Dollars in Uruguay or in New York, United States of America; or (b) an amount of bonds or other securities issued by the Republic of Argentina which, traded in New York or in Montevideo, result in an amount equivalent to the outstanding amount of US Dollars.

The Court of Appeals based its decision on the “payment identity” principle, pursuant to which the debtor must give the creditor the same thing committed to be delivered and the creditor cannot be obliged to receive a different thing. The Court of Appeals stated that, although the Argentine Civil Code establishes that an obligation is discharged when its fulfillment becomes physically or legally impossible, provided that the impossibility is not attributable to the debtor, in this case it is not possible to judge that the fulfillment of the obligation was unfeasible. It also states that because when the parties agreed on the terms of the mortgage loan, they considered the possibility of existence of certain circumstances which may limit or prevent the purchase of foreign currency and established alternative mechanisms, different from the strict payment in US Dollars, to calculate the value of such currency and make the payment in Pesos or in kind. The Court of Appeals added that the parties must observe such mechanisms, considering that, in addition, it was not  argued, nor proved, that it was impossible to apply such provisions to estimate the outstanding amount.   Finally, it should be noted that the payment mechanism by using an exchange rate different from the official exchange rate or tied to a bond transaction, has been used in several transactions as a valid alternative for discharging obligations denominated in foreign currency when such currency cannot be acquired in the local foreign exchange market. In such a case, the obligation of the debtor remains in effect and enforceable vis à  vis the creditor maintaining the right to request for the amount of Argentine Pesos necessary to acquire foreign currency in a foreign market, or a quantity of securities denominated in foreign currency that, when sold in a foreign securities market, result in the outstanding amount of US Dollars.

Through this ruling, the Court of Appeals has validated this alternative mechanism of payment by resolving its application to the case under analysis.