Argentina: Foreign Currency Obligations

Last Updated: 8 August 2016
Article by Canosa Abogados

On August 28, 2015, Division "F" of the National Court of Appeals in Civil Matters (the "Court") hold that, pursuant to Section 765 of the Civil and Commercial Code ("CCC"), foreign currency obligations in Argentina do not involve public order rules. As set forth in Section 766 of the CCC, the parties may agree to allow the debtor to deliver the pertinent amount of the kind designated by them. The decision was made by the Court in an attempt to make the judicial consignment effective in order to pay off a debt in US dollars. This happened in "Fau, Marta Renée vs Abecian, Carlos Alberto and others in re: Consignment" where the parties entered into a Mortgage Loan Agreement by which plaintiff received a USD$37,900 loan, payable in equal monthly payments over 36-month terms of USD$1,536 plus 16% annual interest.

The first payments were cancelled in the agreed currency, but when Mrs. Marta Fau (the "plaintiff") was about to make the sixth payment, she asked one of her creditors, Mr. Juan Jose Abecian, that in view of the restriction to dollar access imposed by the Argentine Government, she could not make the future payments. Therefore, she requested that her obligations with Argentine pesos be cancelled due to the force majeure situation. By means of a registered letter, plaintiff requested defendants to agree –in a ten-day term- on how future payments not due would be collected. Otherwise, creditors would collect each monthly payment in their equivalent in pesos at the official rate of the day before the due date. Finally, the registered letter abovementioned established that in a specified date and place and in the presence of a civil law notary public and two witnesses the plaintiff will make the agreed payment, reserving the right to bring civil proceedings for refusal.

The creditor answered to the registered letter and denied the fact that the "dollar clamp" involved force majeure. In addition, he stated that the only way to cancel the obligations in Argentine pesos is through the use of transactions known as "Blue-Chip Swap Transactions", because otherwise, he cannot acquire on his own the same amount of dollars that Mrs. Fau has a duty to pay. Therefore, when Mrs. Fau attempted to make the seventh payment, her transaction was rejected, and the pertinent process of judicial consignment was initiated for the amount due.

The complaint filed by Mrs. Fau was dismissed since plaintiff could not prove the impossibility of obtaining dollars due to the "dollar clamp" (in fact, she could have obtained dollars by other authorized means such as "blue chip swap transactions"). In addition, in accordance with the Civil Code in force at the moment of the Court decision (i.e. November 3, 2014), plaintiff could only comply with her obligation by delivering the designated foreign currency, since the obligation involved an obligation to deliver sums of money and it was not possible for plaintiff to pay its equivalent in the legal tender (Section 2252, 617 and 619 of the former Civil Code). Therefore, plaintiff filed an appeal to dismiss the decision of the First Instance Court, based upon the fact that the economic context was not taken into account, reaffirming that the "dollar clamp" constituted force majeure resulting from a governmental act.

The Appellate Court not only confirmed the decision of the First Instance Court, stating that there was no impossibility of payment to give rise to consignation, but also analyzed the obligations to deliver sums of money set forth in the new Argentine Civil and Commercial Code.

Firstly, the Court mentioned the general principle by which legal provisions regarding contracts have supplementary application instead of the parties 'will, and exceptionally they are considered public order rules. In this sense, it should be noted that the Court interpreted that the fact that the obligations to deliver sums of money in foreign currency are considered obligations to deliver amount of goods – in which case the debtor could comply with his obligations paying in national currency (Section 765, CCC)- does not constitute an imperative norm. Therefore, in accordance with Section 766, the parties may agree on the terms of payment – in a designated currency- at the moment the debt is due.

Moreover, the Court established that in accordance with Section 7 of the new legislation, the supplementary rules are not applicable to ongoing contracts, in which case, the legislation in force at the moment the contract was made shall be applied. The Court ruled that the abovementioned case must be governed by the rules included in the former Civil Code, stating that Mrs. Fau´s obligation to deliver involved an obligation to deliver sums of money, thus plaintiff must comply with her obligation in the agreed kind. Therefore, on August 25, 2015, Division "F" of the National Court of Appeals in Civil Matters confirmed the decision of the First Instance Court.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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