Back in 2008, the Supreme Court in Spain ruled on an interesting case: a Spanish Casino had been lending money to some gamblers (by the way, what a silly thing to do) to bet in their premises. As was expected, the gamblers p****d the money up the wall and refused to return it. The Casino, on the strength of the contract they had made their clients sign, demanded payment of the lent sums, plus interest.
The Supreme Court, in application of the established doctrine that states that contracts that breach mandatory provisions are void, declared the contract unenforceable and dismissed the Casino’s attempts to obtain an order forcing the gambler to return the funds.
The provision that had been violated specifically banned Casino’s from lending money to customers, for the purpose of gambling.
In reaching the decision, the Supreme Court stated that even if administrative laws envisage a penalty for breaches of their own laws, such trangression necessarily has an effect on the validity of the contract, which has to be declare void.
By applying this to Equity Release, it is very possible that where the ER package is declared void, claimants will not only have the right to remove the charge attached to their properties but also, claim the loan that was given to them to invest.
What remains to be seen is whether Courts of law will take into consideration breaches in regulatory mandatory provisions, where these exist (SLMH, Nykredit/Sydbank, International Property Finance Spain etc.), and apply article 1.306.2, or the tax benefit that was the main objective pursued by the contract.
In the first scenario, an Equity Release victim would be able to remove the mortgage charge from their property and claim the full loan back, before costs, losses etc., and in the second, remove the mortgage and demand the remaining balance on the loan. In both scenarios, the bank could lose tens of millions if the Courts apply, as would be expected, the following article:
Article 1.306:
If the deed which constitutes the unlawful cause should not constitute a crime or misdemeanour, the following rules shall be observed:
1. Where both contracting parties are at fault, none of them may recover what he has given pursuant to the contract, or claim the performance of what the other should have offered.
2. Where only one contracting party is at fault, he may not recover what he has given pursuant to the contract, or demand the performance of what he should have been offered. The other, who was a stranger to the unlawful cause, may claim what he has given, without the obligation to perform what he should have offered.
Ladies and Gentlemen, place your bets!!
Many thanks to erva and their investigation team, for bringing this to our attention. Of course this has been one of the main concerns from many of us, in so much that once we have proved our case in court, would we have to pay back any draw down. It would appear from this post that we would not. This would be a relief to many of us. Once again Erva a great post.
It has recently been brought to out attention from one of our members that your household insurance policy may include litigation fees. We are not sure if they relate to fees in respect of this type of litigation or if these fees are capped with an upper limit. However, please check your insurance policies to see if this is the case. if so inform your lawyer.
Yes thanks to ‘erva’ and Antonio,for keeping up our morale.I get so depressed when I think about losing my home,like all of us,which we have worked so hard for,and then I read these posts,and it gives me hope again.