Argentina: New Ruling On USD -Denominated Obligations

A new ruling issued by a Court of Appeals established that, since article 765 of the Civil and Commercial Code is not imperative, the debtor should make the payment in US Dollars because this has been agreed on by the contracting parties.

On February 14, 2017, the Court of Appeals in Civil and Commercial Matters of (hereinafter, the "Court of Appeals"), Province of Buenos Aires, confirmed the judgment in re "Di Prinzio, Marcelo Ceferino and other v Chiesa, Carlos Javier re Fulfillment of civil/commercial contracts", file No. 8977/2013.

The lower court judge sentenced the defendant to pay the sum of USD 70,000 under the conditions set out in the bill of sale executed by the parties, applying interest to the lending rate in US dollars of the Bank of the Province of Buenos Aires.

With respect to the currency of payment, the judge held that the respondent could not prove to have requested authorization from the Federal Administration of Public Revenues to acquire US dollars. The judge took into account that the debtor did not demonstrate that, if he had resorted to some valid alternative means to acquire that currency, for example buying Argentine sovereign bonds listed abroad in pesos, this would have caused expectations not to be met in  the economic equation terms of the contract. In addition, since the restrictions to acquire foreign currency have been removed, the judge considered that there is no impediment to sentence to pay in the currency agreed on by the parties.

The respondent appealed the decision, aggrieved by the application of the rules of the repealed Civil Code, holding that article 765 of the Civil and Commercial Code ("CCCN") must be applied to the case, which allows the debtor to be released from the obligation by giving the equivalent in legal tender. . He also expressed his grievance against the requirement to prove the impossibility of purchasing foreign currency, since it specifically arises from the rules of the Central Bank of the Republic of Argentina.

The Court of Appeals pointed out, with regard to ongoing contracts at the time of the entry into force of the CCCN, that article 7 provides that new supplementary standards do not apply to them, with the exception referred to  consumer relations. Therefore, to determine if article 765 of the CCCN is a supplementary standard, the Court of Appeals took into account that the CCCN contains several rules that allow executing contracts in foreign currency. So they concluded that a harmonious and coherent interpretation of the CCCN indicates that the provision which allows the debtor to be released of the obligation to pay with currency that is not legal tender, by giving the equivalent in currency of legal tender, is neither imperative nor of public order.

Regarding the grievances referring to the impossibility of acquiring foreign currency, the Court of Appeals pointed out that the debtor should have acquired Argentine sovereign bonds in the local market, denominated in US dollars, and settled them in the securities market to pay off their debt in US dollars.

Therefore, both grievances expressed by the respondent were dismissed.

Judge Castro Durán's vote added scholars' opinions  in support of the position taken by the Court

  1. Waiving the debtor's faculty to be released from the obligation to pay in foreign currency by giving an equivalent in currency of legal tender, infringes no pillar of public order.
  2. The waiver to pay by giving the equivalent strengthens the generic solution that imposes that obligations must be fulfilled by giving the creditor the promised object.
  3. The possibility of paying with an equivalent is in fact an exception to the legal and natural order.
  4. The form of expression that the standard uses to give the debtor the choice confirms the absence of imperativeness, and this a simple permission and not a prohibition or an obligation, so it may be left aside.
  5. There is no provision establishing the mandatory nature of the final paragraph of article 765, so it should be considered of a supplementary character under the general principle of article 962 of the CCCN, which establishes that the legal rules concerning contracts are supplementary of the will of the parties.
  6. The possibility of cancelling a debt with the equivalent in currency of legal tender may be of natural application when the equivalence that the same text requires may be fulfilled through the identification between the actual value and that resulting from the application of the exchange rate.
  7. The obligation of the debtor to deliver the corresponding quantity of designated kind, be it in currency of legal tender or not, is a rule of categorical nature established in the article 766 of the CCCN.
  8. Article 959 of the CCCN on the binding effect of the contracts confirms the validity of what was agreed by the parties and the following article 960 sets forth express restrictions to the revision faculties of the judges.
  9. The order of priority established by article 963 of the CCCN gives priority to the particular rules of contracts over the supplementary rules.
  10. The property right of the contracting party enshrined in article 965 of the CCCN would be violated by modifying the object of the obligation, without the consent of the affected party.
  11. Constitutional property rights enshrined in articles 14, 17, 19 and 75.22 of the Constitution, would be seriously affected if the creditor should receive a value that ignores more than 40% of the actual market value of the business object.
  12. A valid payment under the terms of articles 867 and 868 of the CCCN wouldn't be made if the principles of identity and integrity are not recognized.
  13. The good faith principle enshrined in article 961 for contracts and by article 9 in general for the exercise of all rights in the CCCN, would be seriously violated if a payment method is agreed as essential object of the contract and then its modification is sought, alleging an impossibility to comply with it which the Court considers that is not such and intending a form of equivalence which is far from being real.
  14. Revision of contracts should be an exceptional measure to which judges should turn to in a restrictive and strictly founded manner, since if practiced with lightness the legal certainty which is of constitutional value would be violated.

Taking all these opinions into account, the Court of Appeals rejected the appeal of the respondent and confirmed the  first instance judgment.

This precedent confirms the case law tendency of recent times with respect to the supplementary nature of article 765 of the CCCN and the requirement to fulfill the obligations in foreign currency in the agreed currency.

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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