Ruling of the Provincial Court of the Balearic Islands, Section 3, July 25, 2014. Ruling no. 236/2014, Rec. 108/2014.

In February 2004, the borrower entered into a mortgage loan for the purchase of a home with a financial institution (Citifin S.A. EFC.). Subsequently, upon becoming unemployed and unable to meet the mortgage payments, the borrower sued the lender by application of the rule rebus sic stantibus to his case.

The Court of First Instance number 1 of Palma dismissed the claim on the grounds that the doctrine rebus sic stantibus was not applicable to this case, considering that the fact that the borrower was unemployed did not constitute an unforeseeable and irremediable alteration which could justify the application of the doctrine. The court noted that rebus sic stantibus can only be applied exceptionally and cautiously, and that specific criteria must be met (SCR of January 17, 2013).

In light thereof, the borrower, disagreeing with the ruling, lodged an appeal which was admitted by the Provincial Court of the Balearic Islands which declared the application of the abovementioned clause to be fair.

The Court based its decision, as does the court of first instance, in the Ruling of the High Court of January 17, 2013 which, although taking into consideration the principle of contractual obligation contained in the Civil Code according to which contracts must be fulfilled,  it also considers that the rebus sic stantibus clause is a channel for solving the problems which arise when, due to an unforeseen and extraordinary change of the current situation or circumstances when the contract was entered into (as is the case with the current economic recession in Spain), an exorbitant and incalculable disproportion between the respective expectations of the parties arises. However, as the Supreme Court stated, the application of  this clause must be made taking into account the circumstances of each specific case and, particularly, when dealing with the purchase of homes affected by the economic crisis, the application cannot be founded simply on the fact of the crisis and the ensuing financing difficulties, but rather on a combination of factors, in order to determine whether or not said doctrine can be applicable.

In this case, the Court analyzed the specific circumstances in order to determine whether the criteria are met from a doctrinal and jurisprudential perspective, such as the purpose of the purchased house as the usual residence, the financial situation of the purchaser at the time of entering into the contract, the real extent of impossibility of financing or the possibilities of negotiation of payment terms with the seller.

Throughout its analysis, the importance of good faith between the parties has been highlighted as a requirement for application of the clause, as well as the evident fact of the economic crisis Spain is currently undergoing, as recognised by the legislator itself in the explanatory memorandum of Royal Decree-Law 6/2012, of March 9, 2012, on urgent protection measures of mortgage debtors without financial resources.

Finally, and supported on various Supreme Court rulings, the Court admitted the fairness of the application of the rebus sic stantibus clause as, in contrast with the court of first instance, the specific circumstances and criteria for the application of said doctrinal creation were met in this case. By virtue of which, the parties were granted a reasonable period (30 days) to renegotiate the variable interest rate payable as set forth in the mortgage loan contract. During this time the parties may adapt it so that the resulting profits and losses from such a change of circumstances may be distributed between the parties in an equitable and fair manner.

The rebus sic stantibus doctrine, despite being configures as an exceptional phenomenon, is increasingly being invoked at the courts to request the termination or the review of agreements entered into prior to the crisis and that, also with increased frequency, the criteria and circumstances are met which allow the application thereof.