A common scenario in recent years, with a deep economic crisis in which the real estate market has had a special significance, is that of buyers who paid down amounts for the purchase of a property under construction that never materialized, usually through the bankruptcy of the corresponding developer. When they went to claim the return of their contributions, they discovered that the developer did not have any assets with which to face the debts and, on the other hand, they were never given a guarantee or a policy to secure the amounts they had paid on account, as required by Law 57/1968 and also some regional regulations.

Faced with this situation, some law firms have fought the interpretation of art. 1 of Law 57/1968, defending the responsibility of the banks that did not verify whether these guarantees existed, and finally the Supreme Court has recognized this responsibility.

“la Ley 57/1968 impone obligaciones de las que se derivan la responsabilidad de la entidad bancaria que recibe los fondos de los adquirentes si no cumplió con su obligación de velar porque dichas cantidades estuvieran respaldadas por un aval bancario o seguro de afianzamiento”

We refer to the recent decision of the Supreme Court, Civil Chamber, number 426/2015 of 16 January, which deals with the scope and interpretation of Article 1 of Law 57/1968.

Article 1 of Law 57/1968 reads as follows

“Individuals and legal entities promoting the construction of housing other than public housing, intended for the home or family residence, on a permanent basis or for seasonal, accidental or circumstantial residence, and who intend to obtain from their assignees deliveries of money before starting or during construction, shall comply with the following conditions

First: To guarantee the return of the amounts delivered plus six per cent annual interest, by means of an insurance contract with an insurance company registered and authorised in the Register of the Subdirectorate-General for Insurance or by a joint and several guarantee provided by an entity registered in the Register of Banks and Bankers, or a savings bank, in the event that the construction does not commence or does not come to fruition for any reason within the agreed period.

Second – To receive the amounts advanced by the purchasers through a bank or savings bank, which must be deposited in a special account, with separation from any other type of funds belonging to the developer and which may only be used for the services derived from the construction of the homes. In order to open these accounts or deposits, the bank or savings bank, under its responsibility, will require the guarantee referred to in the previous condition”.

In other words, the promoters must receive the amounts advanced by the purchasers through a bank or savings bank, which must be deposited in a special account, separate from any other type of funds of the promoter, and which may only be used for the services derived from the construction of the dwellings, and the banks, in order to open these accounts or deposits, must require that the amounts be guaranteed.

The financial institution must require the developer to comply with this obligation. And if it does not do so, the entity incurs direct and joint liability.

All of which, moreover, is confirmed by the Explanatory Memorandum of Law 57/1968, which establishes, without ambiguity, that the purpose of the entire system is that the amounts advanced be used to build the homes and that their return plus interest be guaranteed in the event that the home is not built:

“The justified alarm that in public opinion has produced the repeated commission of abuses that […] constitute serious alteration of the social coexistence, […] causing in addition irreparable damages to those who trust and in good faith accept without some repair those offers, forces to establish with preventive character preventive norms that guarantee so much the real and effective application of the economic means anticipated by the acquirers and future users to the construction of their house as their refund in the supposition that this one is not carried out”.

Thus, it is the Bank itself that must ensure that these amounts remain in a special account, as required by the Law itself: “for the opening of these accounts or deposits the Bank or Savings Bank, under its responsibility, will require the guarantee referred to in the previous condition”. In other words, the bank or savings bank must open these accounts, requiring the promoter to prove that these amounts are guaranteed, and if it does not do so, it is liable for it.

This shows that the legislator intends that the bank that receives the amounts advanced from the buyers should be the guarantor of this consumer protection system, and in a double perspective:

1. By setting aside the funds in an account where they are not mixed with other resources of the developer and where they are only available for the purpose of building those homes.

2. By requiring the developer to guarantee the amounts received and their interest, or to ensure their return.

On the other hand, it does not appear that if the developer does not open this special account of his own accord, he can freely dispose of the amounts advanced without even insuring them and that the bank or savings bank that receives them is exonerated from exercising any control and from any responsibility.

The will of the legislator is clear: to protect the consumer and, to this end, it makes the promoter and the bank jointly responsible and obliges them to ensure that these funds are deposited in the special account and that their return is duly guaranteed.

As we said, the Supreme Court has established for the first time this responsibility of the banking entities due to the absence of guarantees or surety policies in the Sentence of the Civil Chamber, number 426/2015 of the past 16th January 2015.

This ruling deals with the liability of a bank that finances a development and is NOT a DEPOSITORY of the clients’ funds, although it enters into an interpretation of art. 1 of Law 57/1968, clearing up the legal issues that are the object of the present lawsuit:

“THIRD .- 1 .- Responsibility of the financial institution appellant. This is based on the aforementioned Law 57/1968, 27 July. Its first article, first paragraph, imposes on natural and legal persons who promote the construction of housing… and receive advance payments of the price, the duty to guarantee the return of the amounts paid… by insurance contract… or by joint and several guarantee… in the event that construction does not begin or does not come to a successful conclusion. And the second paragraph adds that the amounts advanced by the purchasers… must be deposited in a special account. And the last point of this section is added, which is important in this case: for the opening of these accounts or deposits the bank or savings bank, under its responsibility, will require the guarantee referred to in the previous condition. This is none other than the guarantee of return of the amounts paid, by means of the insurance contract or a joint and several guarantee. This rule is ratified by the first additional provision of Law 38/1999, of 5 November, on building regulations, which insists on the guarantee of the amounts paid in advance, by means of an insurance policy that indemnifies the breach of contract in a manner analogous to the provisions of Law 57/1968, of 27 July.

This liability is the basis of the first ground of appeal which, under Article 477.1 of the Civil Procedure Act, alleges the infringement of Article 1 of that Act, precisely because it was improperly applied to this appellant.

The judgments of 11 April 2013 and 19 July 2013, further developing the line marked by the previous judgments of 25 October 2011 and 10 December 2012, have declared the following:

“…in the current jurisprudence, the configuration of this guarantee provision can no longer be sustained as a merely accessory obligation of the contract whose breach is reduced to the scope of an administrative infringement and, therefore, unrelated to the channel of the breach of contract. On the contrary, the case law of this Chamber has recently endeavoured to configure the contractual basis of this figure and its corresponding overlapping in the contract concluded, as it has done with the licence of first occupation. This jurisprudential development has been carried out progressively. Thus, in what we can call the first phase, STS 25 October 2011 (no. 706, 2011), this Chamber has already highlighted, as a general principle, that the omission of the guarantee or collateral, as well as the deposit in a special account of the amounts advanced by the future purchasers of the homes, article one of the aforementioned Law 57/68, implied a violation of the agreement that could be qualified as serious or essential.

In the same sense, that of 7 May 2014, he adds:

“The guarantee aims to ensure buyers against the failure of sellers to deliver the work on time, requiring the developer to invest the amounts delivered in the agreed work (preamble to Law 57/1968), a legal provision whose need is highlighted in situations of economic crisis, which reinforces the essential nature of the guarantee we are analyzing. Examined by this Chamber, the tenor of the precepts of Law 57/1968 can be seen that, by requiring the constitution of the guarantee, it reinforces its guaranteeing function by providing it with an executive nature and not being able to forget that the fact that it is imposed by a Law, gives it special transcendence to the extent that this has contributed to this same Chamber considering, as an essential obligation, its constitution”.

From these regulations and case law, although there is no specific case law on the issue raised here, the responsibility of the promoter, which in this case is the COOPERATIVE, and of the financial institution CAJA BURGOS, is clear.

In view of the more than proven facts admitted, it is clear that CAJA CANTABRIA, now the appellant LIBERBANK, S.A. had taken out a mortgage on the property where the COOPERATIVE was to build the homes, which it did not do, and the CAJA BURGOS entity received the contributions and neither had complied with the requirement for a special account and guarantee as required by law. Both have been silenced by the ruling in favour of the lawsuit pronounced at the time by the Court of First Instance, which was not even appealed by them.

What does arise in this appeal is the responsibility of LIBERBANK, S.A.. And this must be estimated. The cooperative members did NOT pay their contributions to CAJA CANTABRIA, which was the mortgage creditor to which the other entity (CAJA BURGOS), which did receive the contributions, paid funds to cover the mortgage loan. It should not be overlooked that it was that entity which financed the operation and was separate from the cooperative and the entity (CAJA BURGOS) which received the contributions from the cooperative members. Consequently, it cannot be maintained that CAJA CANTABRIA was affected by that legal obligation; it is outside the scope protected by this law. Article 1 of that law [Law 57/1968] imposes obligations on the financial institution through which the promoter receives advances from the purchasers, but does not refer to the institution financing the promotion or to those credit institutions that might subsequently receive the funds.

In short, it is not possible to apply this standard and hold the financial institution liable which, like the appellant, is different from the institution through which the promoter received the amounts delivered by the purchasers, cooperative members”.

In other words, this ruling establishes that Law 57/1968 imposes obligations from which the banking institution that receives the funds from the purchasers is liable if it did not comply with its obligation to ensure that those amounts were backed by a bank guarantee or surety, differentiating it from that other banking institution that could have intervened in the real estate development but did not become the depositary of the funds of the purchasers.

(Martín de la Herrán)

You can consult the Law 57/1968 here and the sentence 426/2015 of the Supreme Court here.