1. The legal system’s approach to obligations agreed in foreign currency. Analysis of the current regime compared with that of the repealed Civil Code. 2. Legal relationships arising before the entry into force of the Civil and Commercial Code. 3. Contingencies of the conversion of foreign currency obligations into pesos.
This subject has been the object of various regulations and interpretations throughout the history of our country, which can be clearly divided into three stages:
1.a. First stage: it begins with the institutionalization of civil law, upon the enactment of the Civil Code drafted by Vélez Sarsfield (hereinafter, the “CC”). Vélez’s long-standing work regulated this type of obligation in article 617 of that code. It provided that where the obligation had been stipulated in a currency that was not legal tender in the Republic, it should be considered an obligation to deliver a “quantity of things”. The immediate consequence of this categorization was that, in the event of non-performance, the creditor could judicially claim compensation for the damages caused and the debtor was released by paying such compensation in legal tender.
With respect to obligations established in legal tender, article 619 of the CC provided that when the obligation consisted of delivering a sum of a certain kind or quality of national currency, the obligation was fulfilled by delivering the designated kind, or another kind of national currency at the exchange rate prevailing in the place on the due date of the obligation.
It should be borne in mind that, before the enactment of his masterful work, the author of the CC had been Minister of Finance during the presidency of Bartolomé Mitre, in whose economic reality money was equivalent to a metallic coin of full content and unchanging value. This explains the inclusion of the so-called nominalist theory in the legal system of that time (replicated by the current rules). This theory means that what matters is not the exchange value of the currency but its face value. In other words, what matters is not its discharging effect but rather the value the State has given it (a debt of $1,000 is paid with $1,000, regardless of the debasement of the currency’s value due to inflation).
This approach was maintained until 1976, when, after going through different inflationary peaks, the case law of our courts discarded the nominalist theory and, applying the valorist theory, allowed the indexation or restatement of certain claims. This can be seen in the decision of the National Supreme Court of Justice in “J. V. de F. (suc.) v. PBA”. On that occasion the Supreme Court stated: “That, turning to the substance of the request in question, it should be noted that in situations governed by the principles of commutative justice, such as the present case, strict equality of the reciprocal performances must be observed according to the circumstances of the case, and since money is neither an end nor a value in itself but a means that, as a common denominator, makes it possible to measure very disparate things and actions in exchange, such equality requires that the equivalence of the reciprocal performances correspond to the reality of their values and to the purpose of each of them; an equitable situation that is altered when, as in this case, through the fault of the defaulting debtor, the nominal performance for which he is responsible has significantly decreased in real value, its purchasing power, due to the influence of factors that do not depend on the creditor”.
Following this decision, the lower courts gradually adjusted their rulings to the criterion adopted by the Supreme Court. An example is the plenary decision of the Buenos Aires Civil Court of Appeals in “L. A. S.R.L. v. Iriarte”, in 1977. Once this legal doctrine was established, a door was opened to the possibility of readjusting or indexing certain debts in the face of monetary debasement, even when this had not been contractually agreed. However, this mechanism created a vicious and dangerous circle for the economic stability of the time, producing the opposite effect to that generated by nominalism.
1.b. Second stage: After the adoption of measures that did not succeed (Plan Austral, Plan Primavera), the well-known Convertibility Law of the austral, No. 23,928, was enacted in 1991.
Among its numerous measures, which are beyond the scope of this article, this law amended the aforementioned article 617 of the CC, replacing the concept of “quantities of things” with that of “sums of money”. Although foreign currency did not have the status of legal tender (since the peso was established as such), the amendment placed both on an equal footing within the regime of obligations. This reform should not be considered merely terminological, since it moves the concept into the legal regime of monetary obligations. In this case, in the event of non-performance of the foreign currency obligation, pursuant to the aforementioned article 619, the debtor was obliged to satisfy the claim in the designated currency on its due date and, consequently, the creditor was not obliged to accept payment in another currency in force at the time of default.
This law firmly enshrined the nominalist principle and established a prohibition on the use of monetary adjustment clauses, repealing any rule providing for the indexation of a claim and invalidating any contractual clause providing for readjustment.
Special mention should be made of the enactment of Law 25,561 which, in a context of economic emergency, repealed the convertibility regime established by the aforementioned Law 23,928, radically changing the economic scenario and establishing criteria under which all foreign currency obligations existing at the time the law was enacted were converted into pesos, while maintaining the regime in force until then for obligations arising after its enactment.
1.c. Third stage: it begins with the entry into force of the National Civil and Commercial Code (hereinafter, the “CCCN”), enacted under Law No. 26,994 in 2015.
The new legal system regulates this type of obligation in its article 765, which reads: “The obligation is to deliver money if the debtor owes a certain quantity of currency, determined or determinable, at the time the obligation is created. If the act creating the obligation stipulated the delivery of a currency that is not legal tender in the Republic, the obligation must be considered an obligation to deliver quantities of things and the debtor may be released by delivering the equivalent in legal tender“.
The provision under analysis has been criticized for its confusing wording. On the one hand, it establishes that if an obligation to deliver currency that is not legal tender was created, it will be understood as an obligation to deliver quantities of things (a category that was repealed and replaced by generic obligations). This, in turn, conflicts with article 766 of the same code, which provides that the debtor must deliver the corresponding quantity of the designated kind. At the same time, the final part of article 765 establishes that the debtor may be released by delivering the equivalent in legal tender. Prima facie, as Dr. Bueres points out, there is a clear inclination to convert all non-monetary obligations into pesos (it should be noted that only legal tender is considered money).
Although the preliminary draft of the Code proposed regulating it differently, giving it the same treatment as obligations to deliver money, it was subsequently modified and the result was entirely different.
It can be observed that the new applicable rules establish that it is the debtor who may choose to be released from the obligation undertaken in foreign currency by delivering the equivalent in the country’s legal tender. Hence, unlike under the previous code, it is not necessary to be in default and bear the costs of a damages action; rather, the debtor itself may exercise this option. It is worth mentioning that, since it is an option, it is entirely valid to contractually agree on the exchange rate (provided it is lawful under the foreign exchange market rules in force at the relevant time and at the time of payment). Moreover, this option has been viewed in such a way that most civil law scholars agree that it may be entirely waived, even in adhesion or consumer contracts, in which it would not necessarily be considered an abusive clause (see the Conclusions of the “XXV National Conference on Civil Law”).
Any differences arising from the application of these rules must be weighed in each particular case, with the reasoned reasonableness required by article 3 of the new code.
With the entry into force of the new legal system, the question may arise as to which law applies. One such case is that of contracts whose obligations arose before the new code came into force. These are cases in which the parties reached an agreement at a given time, when the law they knew respected the principle of identity and integrity of payment. The creditor was certain that, except for measures amounting to the much-feared hardship, it would receive U.S. dollar banknotes, for example, from the debtor.
In this situation, article 7 of the CCCN would apply, which provides that “…[n]ew default rules do not apply to contracts in the course of performance, except for rules more favorable to the consumer in consumer relationships”.
This rule is based on a normative hierarchy in which default rules rank below the autonomy of the parties’ will, to such an extent that the clauses stipulated in contracts must be respected, as the public interest is not at stake. Although default rules form part of the contract, they in no way replace its terms (as would be the case with mandatory rules).
“It is not appropriate to apply the new amendments that the Civil and Commercial Code may have introduced in this area when, if the provisions contained in that Code were applied, the principle of non-retroactivity of laws enshrined in article 7 of the same code would be affected, since otherwise the effects of a legal relationship that had already occurred before the new Code came into force would be altered, reopening a legal relationship or situation already established with its own legal effects in the past, and attributing to legal acts effects they did not previously have, by linking those acts to a period of time prior to the entry into force of the Law”. (See CNCom., Chamber B, “P. S.A. v. E. P. A. S.R.L. s/ Ordinario”, 04/09/2019)
In practical terms, in the case of a contract entered into before the entry into force of the CCCN, providing for the delivery of foreign currency, reference must be made to the rules in force at the time of contracting. Since at that time there was no possibility of expressly waiving the payment-by-equivalent provision, it could hardly be imposed on the parties. Should the case arise, the obligation will only be extinguished by delivering the sums in the designated currency.
“Contracts must be entered into, interpreted and performed in good faith (art. 1198 of the Civil Code) and in accordance with what the parties plausibly understood or could have understood, acting with care and foresight, so that, rather than the literal meaning of the words used, attention must be paid to the common intention of the contracting parties, for which it is necessary to assess the particular circumstances surrounding the stipulation (its background and subsequent conduct) in order to reconstruct the business context that gave rise to the expression of common will in the terms to be interpreted (art. 386 of the CPCCN)“. (CNCom., Chamber B, “P. S.A. v. E. P. A. S.R.L. s/ Ordinario”, 04/09/2019)
“The guiding principle of good faith enshrined in art. 961 for contracts and in art. 9 in general for the exercise of all rights in the Civil and Commercial Code, and in art. 1198 of the 1871 Civil Code, would be seriously undermined if a form of payment is agreed as the essential object of the contract and then an attempt is made to modify it by alleging an impossibility of performance that the court considers does not exist and by applying a form of equivalence that is far from real.” (CNCiv., Chamber F, “F., M. R. v. A., C.A. et al. s/ consignación”. “L., T. Y O. v. F., M. R. s/ ejecución hipotecaria”, 08/25/2015).
Notwithstanding the foregoing, we are aware of the complex reality currently existing in our country when attempting to acquire foreign currency. This situation, contrasted with what was said above regarding the application of the rules of the CC, would in principle lead to an impossibility of performing such obligations, by invoking the theory of hardship or the act of the sovereign. Although case law on these scenarios is not uniform, there are decisions highlighting the possibility of obtaining foreign currency, and specifically U.S. dollars, through other types of foreign exchange and stock market transactions that allow individuals, through the acquisition of certain bonds, to acquire the dollars needed to pay the obligation assumed (see CNCiv. “A., J.A. et al. v. P. M. S.A. s/ Ejecución hipotecaria”, 2015).
As stated above, the current legal system considers these obligations to be generic, while granting the debtor three options: the first is to choose to deliver the equivalent in legal tender (without this implying a novation of the obligation).
The second consists of being able to waive the aforementioned prerogative, undertaking to deliver the specified currency, while facing the various economic restrictions prevailing for this type of transaction.
“…We understand that the particular form of discharge arising from art. 765 of the Civil and Commercial Code is not a public policy provision, since it may be waived by the debtor expressly or implicitly through an agreement requiring payment in a certain currency that is not legal tender.” (CaCivComyLab. of Venado Tuerto, “L., T. E. v. K., H. D. s/ Ejec. Hip.”, 08/13/2018)
Along the same lines: “Given that the Civil and Commercial Code allows obligations in foreign currency for certain nominate contracts, an interpretive effort aimed at a harmonious and coherent interpretation of that code can only conclude that the rule in art. 765 is not mandatory, much less a matter of public policy; therefore, there is no obstacle to the parties, in the exercise of their autonomy, agreeing that the debtor must deliver the quantity corresponding to the designated currency.” (CaCivCom. of Junín, D.P., M.C. et al. v. C., C. J. s/ cumplimiento de contratos, 02/14/2017).
The third option is the possibility of establishing the exchange rate that will be understood as the “equivalent” of the currency in which the legal relationship was originally created, as a Solomonic way of reconciling the conversion of foreign currency obligations into pesos, the devaluation of the peso as legal tender and the impossibility of acquiring foreign currency. This is so despite some opposing views, for example: “Establishing the value of foreign currency in the country is beyond the control of private parties (CNCont. Adm. Fed., Chamber II, 09/21/1982, “C. T. v. BCRA”).
This last point, equivalence, is one of the greatest problems faced in the conversion of such obligations, and has been the subject of multiple solutions in the case law of our courts.
An example of the above is the decision of the CNCiv. in “O. M., G.M. v. S., M. C. s/ Ordinario”, judgment of 10/15/2020. In that ruling, the court of appeals concluded that the foreign currency obligation (dollars) should be paid by delivering the amount of pesos needed to acquire that sum of dollars, at the Banco de la Nación Argentina exchange rate (selling rate) on the date of actual payment, increased by 30% for the PAIS tax and the additional 35% withholding on account of income tax and personal assets tax (AFIP Resolution 4815/2020).
Another position was adopted by the National Commercial Court of Appeals of the City of Buenos Aires in repeated decisions, such as “F. R. C. v. Y., E. F. et al. s/ Ejecutivo” of 10/19/2020, or “N., J. v. L. S.R.L. s/ Ejecutivo”, judgment of 03/11/2021, where it was held that an obligation undertaken in dollars and converted into pesos could be paid at the “solidarity dollar” rate (official rate plus the 30% PAIS tax) without the income tax withholding. Namely: “…in view of the existing foreign exchange restrictions and in an effort to avoid causing harm to either party, to uphold the decision of the lower court in prudently setting the exchange rate to be applied among the various alternatives available in cases that are not specific, converting said sum into local currency at the official exchange rate at which individuals can access foreign currency in the market known under the legal regime currently in force as the “solidarity dollar” (art. 35 Law 27,541), without the additional 35% withholding on account of Income Tax and Personal Assets Tax established by the BCRA and regulated by AFIP General Resolution 4815/2020″.
Another variant in the performance of this type of obligation can be seen in the decision of the Civil and Commercial Court of Appeals of Dolores in “Z., M. C. v. L., Y. M. et al. s/ reivindicación”, judgment of 07/07/2020, where the court stated that: “It is irrefutable that the rights arising from contracts form part of the property rights of the contracting parties (arg. art. 965 CCyCN) and that for this reason they enjoy constitutional recognition (art. 17 of the National Constitution), and since art. 1 of the CCyCN provides that cases governed by the Code must be resolved in accordance with the applicable laws and in conformity with the National Constitution, it is imperative to conclude that the alternative means of discharge provided for in art. 765 CCyCN must be agreed in the contract in order to be operative in the context of contractual obligations“.
While holding that “[t]he debtor who undertook to deliver U.S. dollars will only be released by delivering U.S. dollars to the creditor, in the amount provided for when the obligation was undertaken, since payment will have its proper effect, that is, discharge, only if the quantity and currency established in the obligation are delivered”, the court did not ignore the severe restrictions on access to the foreign exchange market. It therefore ordered performance of the obligation in dollars up to the sum of USD 400 (considering that, as there were two defendants, this was the limit each could access), and ordered the remaining USD 100 to be paid in their peso equivalent at the BCRA selling dollar rate on the day before payment of the installment, plus 30% (note that here too the 35% income tax and personal assets tax withholding was excluded).
In conclusion, it can be seen that case law criteria have varied widely. The predominant approach appears to be a resolution based on a kind of “shared effort” between the parties. As noted, some courts adopt the “solidarity” dollar rate, others the “solidarity” dollar plus the 35% withholding, others an average between the official rate and the MEP rate, etc. However, given the material impossibility of accessing the foreign exchange market, we believe it is imperative to consider these contingencies when contracting in foreign currency and to agree on a type of exchange rate, thereby avoiding disparate criteria for interpreting contracts, as well as to consider other alternatives in the event that performance in the designated currency is impossible.
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