DGRN Decision of 23 October 2008
This article analyses an appeal presented before the Dirección General De Registros y Noariado (“DGRN”) in relation to the failure of the Santoña Land Registry (the “Registry”) to record the cancellation of a unilateral mortgage.
This appeal arose when an official receipt and a mortgage cancellation deed was not recorded by the Registry because it has not complied with the requirements demanded in Article 141 of the Mortgage Act and Article 237 of the Mortgage Regulation.
Specifically, the matter related to the cancellation of a unilateral mortgage without having notified the creditor of the creation of the mortgage. This communication to the creditor is a legal requirement in order to accept the creation of a mortgage. Article 141 of the Mortgage Act states that: "if acceptance is not recorded within two months of the request to the creditor, the mortgage can be cancelled without the consent of the person in whose favour it was granted".
The appellant claimed that because the creditor had not been required to accept the unilateral mortgage the mortgage should be declared null and void. However, in accordance with the Register and the DGRN, a unilateral mortgage can only be cancelled if and when the creditor has been notified and two months have passed since this communication.
According to the doctrine of the DGRN, knowledge alone of the existence of the mortgage by the creditor who will be benefit from it is not sufficient to begin the two months period. Instead, it is also required that the debtor knows that if two months pass without the Registry recording the bank’s acceptance, the land owner will be able to cancel the mortgage without the consent of the person in whose benefit the mortgage was created.
Supreme Court Sentence of 25 September 2008
This sentence analyses the possibilities that a lending Bank, with a mortgage as guarantee of repayment, can exercise a declarative action against the borrower after having enforced the guaranteed mortgage by legal procedures without the sum lent under the mortgage having been fully reimbursed. The lender had resold the property in auction for less than the value of the outstanding mortgage.
The Bank presented a writ before the Court of First Instance requesting that the defendants be ordered to pay the outstanding debt plus interest accrued to the date of payment. By way of counterclaim, the defendants requested that the court declare that its debts and obligations with the plaintiff had been satisfied, claiming that the sale of the property by the lender had been for a value in excess of the outstanding mortgage.
The Court of First Instance ordered that the defendants pay the outstanding debt plus interest accrued to date. Further, it held that payment should be made jointly and severally.
The defendants successfully appealed against the decision of the Court of First Instance. In revoking the Court of First Instance sentence, the High Court stated that the Bank had exceeded its right in claiming the difference between the total value of the mortgage and the money recovered from the sale of the mortgaged property. The High Court stressed that the valuation of the assets agreed by the parties was on the mortgage deed. Further, the High Court held that it was this valuation that should be used in order to determine the sum that the Bank could recover, and not the auction price.
This sentence of the High Court was then appealed before the Supreme Court.
The Supreme Court revoked the High Court decision. It held that the Bank had legally taken control of the mortgaged property. The Supreme Court also stated that the Bank had not been unjustly enriched because of the lower price paid for the property at auction than the valuation stated in the mortgage deed.
Additionally, the Court considered that the Bank had not committed any abuse of law by demanding that the debtor pay the outstanding sum, arising as a consequence of the auction price being inferior to the value of the mortgage.
The Supreme Court considered that an abuse of law could only have been committed if the mortgage deed had stated that it was a limited liability mortgage in accordance with Article 140 of the Mortgage Act. This Article fixes the debtor’s liability and creditor’s rights to the value of the mortgaged goods and no more. Therefore execution of such a mortgage by a bank cannot cause the debtor to have to pay a further sum from other sources. The value of the house at auction is that which the bank will receive and is entitled to. This is an exception provided for in Article 105 of the Mortgage Act which establishes that a "Mortgage shall be constituted in guarantee of any type of obligation and shall not restrict the debtor’s unlimited personal responsibility as established by Article 1911 of the Spanish Civil Code”.
The conclusion of the Supreme Court was therefore that the parties had not agreed in the mortgage deed that the mortgage would be governed by Article 140 of the Mortgage Act. As a consequence, the Court held that in accordance with Article 105 of the Mortgage Act, the mortgage had not altered the debtor’s unlimited personal liability as established by Article 1911 of the Spanish Civil Code. Therefore assets other than the mortgaged property could be demanded until the creditor had fully satisfied the mortgage.
DGRN Decision of 27 October 2008
The present decision analyses the appeal presented by Benalmadena Council against the Property Register’s refusal to record a rescission of a right over land.
The Council rescinded a contract, under which it had granted a right over land, further to the occurrence of a condition stated in the contract.
The Register suspended the recording of the document presented by the Council, because other parties affected by the rescission of the contract had not been consulted nor had they given their consent. Furthermore, the concurrence of the required circumstances to rescind the contract had not been proved. Instead the Council had adopted a unilateral approach to the rescission of the contract. It was also claimed by the Register that the Council should be considered as subject to private law when contractually supplying goods. As a consequence the Register claimed that the Council should have presented a writ demanding the rescision of the contract before the civil courts.
In order to determine whether civil or administrative courts had jurisdiction, the “Dirección General del Registro y Notariado” (DGRN), applied the criteria followed in a sentence of 10th June 1998. This distinguished between acts of Public Authorities and Public Authorities acts concluding that only Public Authority acts can be appealed before administrative courts. The DGRN argued that only Public Authority acts should be qualified as such because only they had emanated from Public Authorities empowered with the right to act with "imperium" or exercise authority as a public legal entity rather than a private legal entity.
Moreover, the Council claimed in the appeal that the rescission of the contract was granted in an administrative contract under which the concurrence of the required circumstance had occurred. It therefore argued that it was a contract regulated by Article 5.2b of the Public Authorities Contracts Act, and therefore that Article 59.1 of the same Act should be applied. Article 59.1 states that:
"Within the limits and complying with the requirements and effects stated in this Act, public authorities have the prerogative to interpret their own contracts, resolve any doubts in relation to them, modify them for reasons of public interest and agree their resolution and determine the effects of this.
The corresponding agreements shall be immediately enforceable.”
Therefore, in accordance with Article 59.1, the Public Authority was able to resolve this contract with immediate affect. However, it could not prevent this decision being questioned in Spanish courts in the future.
Therefore, the appeal presented before the DGRN was upheld on the grounds that because it was a public contract in accordance with Article 5.2b of the Public Authorities Contracts Act, Article 59.1 of the same Act must be applied. Therefore, the Council was able to rescind the contract and with it rescind the right over the land. The Council rescission agreement was therefore immediately enforceable and to be recorded in the Land Registry.