The Spanish Supreme Court has recently ruled that banks and directors of real estate developer companies may be liable for losses caused to consumers regarding sales of properties that were sold before being completely built. The Court had to decide upon several claims filed by consumers who bought off-plan properties to developers that eventually would become insolvent.
Despite the fact that the Spanish lawmaker approved a law regulating the payment of sums in advance regarding the selling of housings under construction (“Ley 57/1968, de 27 de julio, sobre percibo de cantidades anticipadas en la construcción y venta de viviendas”) (the “Law”), many times when a developer became insolvent, such amounts were not protected at all. Thus, the consumers lost all the amounts paid and did not receive the property neither.
This is why consumers filed many claims, claiming for the liability of the banks that secured such payments and of the directors of the companies, who failed to fulfil the legal duty of the company to protect the paid amounts.
Hereafter we will analyze the grounds of the Supreme Court’s decisions in this regard.
As we just said, the Spanish lawmaker approved a Law regulating the payment of sums in advance regarding the selling of properties. According to the Law, real estate developers must keep the amounts received in advance from the consumers in a special separate account, which can only be used for expenses connected to the building of the properties. Besides, the Law establishes that the bank in which those amounts are deposited is responsible for the fulfilment of those requirements and also for requiring the issuance of a bank guarantee regarding such amounts.
This law has been recently changed (now the liability of the banks will take place only after the developer has obtained the works license) but it is still applicable to cases that took place before 2016.
The application of this Law means that the banks that allowed payments from consumers to developers without requiring a special guaranteed account are liable before such consumers for the total amount paid to any of the accounts of the developer (1).
The particular requirements to file the claim successfully, according to the different decisions of the Supreme Court, are the following:
Therefore, the Law and the Courts have established an obligation of control to the banks – upon the accounts of the developers –, which may be responsible for the damages of a contract agreed by the developer and the consumer. This line of case law provides a solution to many consumers who could not recover the amounts paid to real estate developers that became insolvent.
Liability of the directors
The Supreme Court bases its resolution (4) on the same obligation established by the Law to the real estate developers and referred herein above: the provision of a guarantee to the amounts paid in advance by the consumers to the developer. The Court analyses this Law together with the general companies regulation (“Ley de Sociedades de Capital”) that establishes a liability of the managers when they act on behalf of the company (5).
The managers and directors have the obligation of fulfilling the laws that concern the activity of the company. The failure to fulfil that obligation means that the company is actually failing to fulfil a law, thus, the directors are responsible for an act of negligence that harms the company. The damages arising from this failure can be directly claimed to the directors if the case meets the following requirements:
If those requirements are met, the Court considers that the director has failed to fulfil an obligation belonging to his charge, and that he is responsible for the damages caused. The decision points out that the liability of the directors exists because they fail to fulfil a legal obligation of the companies but not because of the failure to fulfil a contractual commitment.
To sum up, we could say that the Supreme Court has decided that the damages arising from the failure of fulfilment of the obligation contained in the Law of securing the amounts paid in advance by the consumers for a property under construction, can be claimed to the banks or to the directors of the companies. In order to be entitled to such claims, the consumers will have to fulfil the referred requirements. Considering the amount of real estate companies that entered in bankruptcy in Spain during the last years; these decisions open a big source of possible litigation cases in our country.
(1) Decision of 7 July 2016 (Tribunal Supremo Sala 1ª, S 7-7-2016, nº 468/2016, rec. 527/2014)
(2) Article 9 of the European Law Principles
(3) Decision of 29 June 2016 (Tribunal Supremo Sala 1ª, S 29-6-2016, nº 436/2016, rec. 1696/2014)
(4) Decision of 3 March 2016 (Tribunal Supremo Sala 1ª, S 3-3-2016, nº 131/2016, rec. 2320/2013)
(5) Article 241 LSC