NEWS & ARTICLES
Article 1265 of Spanish Civil Code stipulates that “Consent given by error, violence, intimidation or malice shall be null and voidable.”
In the following article we will discuss what constitutes ‘intimidation’ and whether it is possible to annul the clause or contract when there is ‘economic intimidation’ -what in Common Law is known as ‘economic duress’- e.g. whether it is possible to annul the clause in cases where consent has been given in the face of the threat of an economic harm.
Thus, the Spanish Civil Code defines intimidation as follows: ‘There is intimidation when one of the contracting parties is inspired by a rational and founded fear of suffering an imminent and serious harm in its person or goods,’ (Art. 1267 CC).
Prima facie, it seems the fear of harm need not be exclusively to the person, it also admits harm to the goods.
However, the definite answer can be found in the Supreme Court ruling of 29 July 2013, which confirms what this Court had already ruled by means of other judgments (see STS 21 October 2005 and STS 4 October 2002).
Here are the facts of the judgment: Zincobre (principal) ordered from Difamasa (contractor) machinery that was intended for a project in Peru. They entered into a contract that included a penalty clause in case of infringement and it established a specific date of delivery. Nevertheless, one year later, the parties agreed to modify the contract by removing the penalty clause and establishing a different delivery date, as well as to include a waiver of actions for claims against the contractor.
Once the payment term had expired, the contractor sued Zincobre claiming the payment of the agreed price and collection of the rest of the machinery manufactured. However, the contractor counterclaimed alleging non-performance in the delivery date established originally and claimed the annulment of the modification of the contract, as it had been signed under threat of the non-delivery of the machinery.
In this case of modification of contract, our Supreme Court considered that one of the parties had accepted the terms of the modification -which were detrimental only to it- due to the economic pressure applied to it and, therefore, the modification was annulled, since the consent was vitiated by the economic intimidation suffered.
In the above-mentioned judgment, it shall be highlighted the updated interpretation of the concept of intimidation. See,
“The current idea of intimidation has the same meaning but extends to commercial and economic relations, which can cause far more far-reaching damage than the imminent and serious evil that the nineteenth-century legislator thought about. Thus, the requirement of a declaration or, otherwise, a harm (damage) that cannot be avoided (imminent) and that is important (serious) integrates the current concept of intimidation.”, (…)
“It must insist on the jurisprudential doctrine that is now reiterated, which clarifies-complementing it- the rule on intimidation, in the sense that it includes the coercion of commercial and economic damage if the business that the party claims is not held; colloquially, it is “blackmail” and this is included in the concept of intimidation, of article 1267 of the Civil Code.“
This criteria was also used by the Court of Appeal of Barcelona in its judgment of 29 January 2014, in which it was considered that some liquidation contracts that were detrimental to only one of the parties could be annulled, since it was considered that “…they were accepted by the plaintiff under intimidation and economic coercion given the situation of necessity in which the defendants had placed the plaintiff due to repeated delays in payments“.
Besides the above, case law requires to fulfill certain conditions, so that consent is understood to have been vitiated and the effects of Article 1301 CC are triggered (for example, the STS of 20 February 2012, which demanded an “unfair or unlawful threat, rational and well-founded fear, imminent and serious harm, and a causal link between the threat and the consent given”). However, the doctrine has fitted these requirements into two points (see “The renegotiation of contracts under threat (A commentary on the STS of 29 July 2013)” DEL OLMO GARCÍA, P.), which are:
(a) Threat of serious and imminent harm. The absence of reasonable alternatives.
(b) The unfairness of the threat.
Regarding the first requisite (a) that the harm must be serious means that it is a harm of a certain entity and, as pointed out in comparative law, it is a harm greater than the one which would arise from contracting in the circumstances proposed by the author of the threat (voluntas coacta tamen voluntas est). In other words, the terms of the contract were accepted, to avoid a greater harm. In the case of the STS of July 29, 2013, it is evident that Zincobre only accepted the modification to avoid “greater delays” in the project being executed in Peru for which it needed the contracted machinery (this delay would have generated a greater evil/harm).
On the other hand, it is required the harm to be imminent, which means proximate and difficult to avoid, i.e. that from the harm that is approaching, in case of not acceptance of the contract, it is not easy to escape, so that the acceptor has no other reasonable alternative but to assume the terms. In this case, if Zincobre did not sign such a modification, the material to be loaded on the chartered plane would have not been delivered in the contracted date, considering the fact that the machinery was in Defamasa’s hands, so Zincobre had no other reasonable choice but to sign the aforementioned modification of the contract.
Let’s proceed to explain the second of the requirements (b), that the threat is unfair or illegal. Thus, the threat may be illicit in itself or, not being so, be unfair. As the Supreme Court has rightly stated, “a harm that depends on the exercise of a legitimate right or power is not unjust”, as long as “the exercise of the right that is announced is correct and not abusive”. Hence, in Zincobre’s case, threatening with a breach of contract (without a substantial change in circumstances) is to announce an unjust harm.
In this sense, DE CASTRO pointed out that “the threat is unlawful when, although legally justified, it is used to pursue an undue declaration of intent; thus, for example, if the creditor threatens execution or bankruptcy if the debtor does not sell him the property (even if not for a negligible price)” (DE CASTRO, F., “The Legal Business” Legal Studies Nacional Institute, Madrid, 1971, p. 145).
Consequently, as it has been shown, doctrine and case law have offered a broader concept of intimidation than the one introduced by the legislator in 1889, in order to adapt it to current needs, since the threat of suffering economic harm can be even more serious than the threat understood in its strict sense; otherwise, the contracting party, who had no choice but to accept the terms imposed, would be completely unprotected by our legal system. All of this will apply as long as the requirements set out above are met.
Once the existence of the invalidating intimidation of consent has been declared, the effects of Art. 1301 CC will be triggered; these are those of annullability (ex nunc) of the clause or contract in question.
Arizon Abogados S.L.P