FIVE KEYS TO ICO LOANS

1.- THE REASON FOR THE ICO LOANS WAS TO HELP COMPANIES IN THE ECONOMIC CRISIS CAUSED BY COVID, AND IT BECAME EFFECTIVE WITH THE 80/20 LINE OF GUARANTEES.

            The origin of the ICO loans is to be found in the complicated economic situation that the Covid-19 pandemic generated in the business fabric. In view of the financial tensions caused by the health crisis, it became necessary to approve a State Guarantee Line by means of Royal Decree-Law 8/2020, of March 17, with the aim of implementing urgent and extraordinary measures to face the economic and social impact of COVID-19.

            The preamble of the aforementioned RD-Law already stated that: “(…) this regulation foresees the approval of a line of guarantees on behalf of the State for companies and self-employed of up to 100. 100 billion, covering both the renewal of loans and new financing by credit institutions, financial credit institutions, electronic money institutions and payment institutions, to meet their needs arising, among others, from the management of invoices, the need for working capital or other liquidity needs, including those arising from the maturity of financial or tax obligations, to facilitate the maintenance of employment and mitigate the economic effects of COVID-19 (…)”.

Both the government and the banks publicised this line of guarantees as a measure consisting of an ICO guarantee of 80% of the credit requested, with the company and/or its guarantors having to pay the remaining 20%.

2.- Legitimate expectations. –

The banks, as architects of the financial project, suggested to the entrepreneurs that they should take out this type of loan as the best way to overcome the situation. For their part, the debtors, guarantors or joint guarantors, who were in a ‘state of economic need’, had the ‘legitimate expectation’ when contracting the product that they would be guarantors for 20% of the debt in the event of non-payment (publicity offered on the basis of article 29 of Royal Decree-Law 8/2020 of 17 March).

However, institutions are making judicial demands to enforce over-guarantees, in trials of various kinds such as payment orders or even the enforcement of non-judicial titles. And this without forgetting the insolvency of many of the companies where they have insinuated the credit and have recovered the state guarantee.

Such was this legitimate expectation that there are even clauses in some of the policies that establish a condition precedent: ‘The granting or extension of the grace period, as appropriate, and the extension of the term agreed herein is subject to the Condition Suspensive that the ICO confirms to Banco Santander, the extension of the guarantee, as well as that the borrower complies with the limits established in the regulations on State Aid to the European Union, and consequently, that the cost of the guarantee of the Ministry of Economic Affairs and Digital Transformation, does not suffer modification, and therefore the cost of the loan operation here novated is not increased.’

This led entrepreneurs to believe that they would be liable if their loans were not accepted by the Instituto de Crédito Oficial. In which case, they would only have to pay 20%.

3. – Contractual imbalance.

The interpretation of contracts must take into account the real intention of the parties and good faith, not only the literal meaning, especially in the case of ambiguity or lack of transparency (arts. 1258 and 1281 CC; AP Cadiz, Sentence 51/2020; AP Valencia, Sentence 851/2018).

The imposition of 100% joint and several liability without clear and specific information constitutes a surprising clause contrary to good faith, which can be excluded or limited by the courts (SC, Plenary, 03/06/2016). Consequently, its liability should be limited to 20% of the debt, in accordance with its original understanding, the information received and the raison d’être or reason why the legislator enacted the so-called Covid line of guarantees.

The contract cannot be interpreted in such a way as to impose obligations on the guarantor that are not contemplated or not expressly consented to, and the least burdensome interpretation should be preferred in case of doubt (arts. 1283 and 1284 CC).

Therefore, if the pre-contractual conduct, advertising or representations of the financial institution gave rise to a reasonable expectation that its liability was limited to 20%, good faith requires respecting that expectation by integrating the contract in that sense.

4. – Existence of a General Condition of Employment. Control of incorporation.

What is indisputable is that my client signed the ICO guarantee contract in the belief, induced by the information offered in various official and private channels, that his liability was limited to 20% of the debt, and considering that the financial institution now demands joint and several liability for 100%, without fear of error, we declare that we are faced with a clear case of a possible breach of consent due to essential and excusable error.

The demands for additional and disproportionate guarantees that violate Royal Decree-Law 8/2020, of 17 March, lead to the distortion of this legislative tool to alleviate the effects of a devastating socio-economic crisis. And as a result, the juxtaposed guarantee is abusive in nature and is charged to the customer who is the guarantor of the operation. In addition, the process of forming consent in the days of covid was carried out as a single act, i.e. in the same notary’s office. There was hardly any prior information beyond a telephone call advertising the benefits of the covid guarantee, but without any prior documents, let alone personal visits, which were forbidden.

5.- Nullity due to defective provision of services by the entity, disloyalty, bad faith and conflict of interests.

The failure of the predisposer to comply with the special contractual duties incumbent on it, based on the normative function of the principles of good faith and contractual balance, constitutes the basis for exercising the action for nullity of the abusive clause of the joint and several surety included in the general conditions of the contract. This is established in the case law of the Supreme Court, such as in judgments 367/2016, 30/2017 and 303/2019, which allow the nullity or exclusion of said clause, in line with the Principles of European Contract Law and the principle of non-bindingness provided for in Article 6.1 of Directive 93/13/EEC.

This measure represents the response of the Spanish legal system to control the substance of the breach of the regulatory framework governing the material application of the principles and Articles 1255, 7.1 and 1258 of the Civil Code, as well as Article 57 of the Commercial Code. Scientific doctrine agrees that, given the ancillary nature of the surety as a guarantee, it is a sanction of partial ineffectiveness of the contract that does not affect the rest of the clauses that respect these principles. Therefore, the adhering professional may request the nullity of the joint and several surety clause in the proportion that exceeds the public guarantee of the ICO guarantee line, leaving the validity in force with respect to 20% or 30% of the capital loaned, as the case may be.

The special duties of information and preservation of the fair contractual balance are exclusive obligations of the predisposer, so that only the predisposer can be required to fulfil them, given the particular nature and structure of this type of contract. As for the diligence of the adhering contracting party, it cannot be assessed under the traditional scheme of a negotiated contract, since the unfair term was imposed unilaterally, with no real possibility of negotiation, limiting the adhering party to accepting or rejecting the only possible contract.

For this reason, it is worth assessing the existence of a conflict of interest in the offer of ICO loans by banks, which has a clear legal basis in the sectoral regulations, the Civil Code and the principles of transparency and good faith. The actions of banks that prioritise the guarantee of their capital to the detriment of the borrower may be subject to judicial and administrative claims, and must be corrected through effective control and supervision mechanisms by both the ICO and the financial authorities.