The Civil Court of Appeals resolved that the annual interest rate on a debt in US Dollars must not exceed 8% in concept of compensatory interest, or 4% in concept of punitive interest.
On November 22, 2016, a judgment of Tribunal I of the Civil Court of Appeals in “Poliak, Raúl Ignacio vs Goldsztein, Ana and Another re Execution” (file No. 70218/2015), held that the annual interest rate applicable to a debt in US Dollars must not exceed 8% in concept of compensatory interest, or 4% in concept of punitive interest.
On February 16, 2012 the parties signed a loan agreement in US Dollars and agreed on the interest rates applicable to the debt.
The creditor filed a lawsuit claiming the payment of the amount owed and the lower court judge resolved the case by limiting the interest rates that had been agreed upon in the contract. The claimant appealed the decision in terms of such limitation.
The Court of Appeals clarified that its decision does not consist of determining an interest rate, but only in limiting that agreed by the parties, to the extent that such rate infringes the moral rule set both by the repealed Civil Code (“CC”), and by the Civil and Commercial Code currently in force (“CCCN”).
Article 21 of the CC provided that contracts cannot leave laws that ensure public order and good customs without effect, while article 1197 of the CC stated that the contracts are law for the parties. The Court of Appeals recalled that these provisions were subject to the guidelines of articles 656 and 953 of the CC: the first established the faculty of judges to reduce sanctions when their amount is disproportionate to the seriousness of the violation that they sanction and when there is an abusive advantage taken of the debtor’s situation. Article 953 provided that the object of legal acts should be things that are in commerce, or facts that are not are impossible, illicit, contrary to the good customs, not prohibited, not opposed to freedom, or causing prejudice to third parties; to the contrary, such acts will be null.
For its part, article 769 of the CCCN establishes that punitive interests agreed upon by the parties are governed by the rules in the penal clause, while the second paragraph of article 794 of the CCCN provides that judges can reduce penalties when their amount is disproportionate to the severity of the breach that they sanction, or gives rise to an abusive exploitation of the debtor.
The Court of Appeals pointed out that the authority given to judges to reduce rates is similar in both the repealed and current regulatory frameworks; therefore, a problem of temporal application of the laws was not posed in this case. By virtue of article 771 of the CCCN, the judges can reduce interest rates when the fixed rate or the result of the capitalization of interest exceeds, without justification and disproportionately, the average cost of money for similar debtors and transactions, in the place where the obligation was incurred.
Bearing this in mind, the Court of Appeals stated, citing case law of the same Tribunal, that “setting substantially low rates, undoubtedly would result an incentive for non-compliance with the debts and, fundamentally, courts would transform into a cheap source of funding for delinquent borrowers”.
In view of the above, the Court of Appeals admitted the appeal and modified the judgment of the lower court judge in regards to the interest rate.
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