Bank debts in times of Covid-19

covid 19 and bank debt

As well as bringing unprecedented health challenges, Covid-19 has also forced considerable economic hardship on individuals. Lack of economic activity due to lockdown and, by extension, a big drop in revenue have meant that many people and companies are unable to meet their loan commitments.

A recent ruling by a Madrid court opens the door to a postponement in loan payments due to the application of the Rebus Sic Stantibus doctrine.

Things standing thus

Rebus Sic Stantibus means “things standing thus” in Latin and exists as a doctrine in law. A legal contract may be adapted or terminated under its terms if there has been a fundamental change in circumstances. The current pandemic more than fulfills the conditions for “exceptional circumstances.”

As a result, contractual relationships can be adapted and/or ended if their continuity cannot be maintained. The doctrine is applied to balance the benefits for each party in a contract. It allows for the fact that neither party could have predicted the new circumstances at the beginning of their relationship. And importantly, applying Rebus Sic Stantibus means that situations considered as ‘abusive’ are avoided.

Read more about Covid-19 support for refinancing agreements.

Madrid court applies the doctrine

The circumstances caused by covid-19 are clearly unprecedented, and no one could have imagined them just a few months ago. It is, therefore, no surprise that a Madrid court has ruled that a loan taken out by a company can be postponed.

The sentence prohibits the bank from resolving the contract, demanding repayment, or executing the guarantees.

The court considers it proven that the Covid-19 pandemic and its economic consequences were not a foreseeable event when the company took out the loan.

The sentence also recognises that the pandemic has had a major impact on the company’s ability to repay the loan and meet its obligations.

In this particular case, the application of the Rebus Sic Stantibus doctrine absolves the company from its obligations at the moment. The court has given the company a year’s postponement for repayment of the loan.

Have a mortgage or loan with a Spanish bank? Please read our guide to the new covid-19 conditions.

Benefits for borrowers

The recent ruling opens the door to some relief for borrowers, both individuals and companies, in the light of the economic difficulties created by Covid-19.

Consumers now have a clear path ahead to defend their rights and interests in the current adverse circumstances.

The sentence also obliges banks to accept deferral of loan repayments and assume the debt until a future payment by the client. At Costaluz Lawyers, we believe the latest ruling is a clear case of Rebus Sic Stantibus and welcome it as a victory for consumers.

Consult the experts

We have years of experience in dealing with Spanish banks. As a result, our team has exceptional negotiating skills and a strong track record of defending our clients’ interests.

If you have a problem with a bank, get in touch for a free consultation to find out how we can help.

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