Court Division Rules Debts in US Dollars Must be Paid at So-Called “Solidarity Dollar” Rates

In the case of O.M., G.M c. S., M.C.s/ordinario, Division D of the Argentine Commercial Court of Appeals set an important precedent on how to calculate the rate at which a debtor can convert a previously agreed amount of money to foreign currency, under the terms of Section 765 of the Argentine Civil and Commercial Code (the “CCCN” after its acronym in Spanish).

To that effect, the Court took into account the current restrictions to the purchase of foreign currency established by Argentina’s economic and banking authorities and the existing gap between the price of the dollar in the official market and that in other legal mechanisms for the purchase of foreign currency that are available to the public (i.e. the “MEP dollar” or “Blue Chip Swap”).

In the case at law, a real estate broker sought to collect fees in dollars. The Court majority decided to grant the claim for the amount of Argentine pesos needed to acquire said dollars at the official rate established by the Banco de la Nación Argentina (i.e. the seller's rate) on the actual payment date plus (i) 30% in PAIS tax and (ii) 35% in income tax.

The Court majority based its decision on the following arguments: (i) that there is an official exchange market and its use for the conversion of a debt into foreign currency is justified; (ii) that the State cannot condone an internal foreign exchange market, exchange control or control of foreign currency that is suspected of unfairness; and (iii) that Section 765 of the CCCN allows the debtor to be released by delivering legally valid currency at the official exchange rate.

For his part, Judge Vassallo, adhering to the majority on the main issue but not on how dollars are to be converted into legal currency, sustained that the exchange rate in the majority vote is inconsistent with the provisions in the agreement between the parties because the debt was assumed in dollar “bills” and that, in addition to the provisions of Article 765 of the Civil and Commercial Code, the plaintiff, by suing, agreed to receive his compensation in pesos albeit calculated at the free-market seller rate.

In effect, Judge Vasallo understood that the exchange rate calculated by the majority vote breaches the legal mandate that requires the debtor to pay an equivalent amount in legal currency (Article 765 of the CCCN) as well as the provisions agreed upon by the parties stipulating payments in “dollar bills,” and even the plaintiff's admission to receive his commission in legal tender at the free-market rate.

Thus, he concluded: (i) that the debtor must pay an “equivalent [amount] in legal currency,” which means the amount of pesos needed to acquire the number of “bills” owed, and that Section 765 provides that if the foreign currency is not paid as agreed in terms of kind and amount, an alternative performance can only be accepted if the creditor is given the amount of pesos needed to obtain the substituted good; and (ii) that this can only be done by following a legal procedure that allows the acquisition of the amount of dollar “bills” needed at the free-market rate.

Finally, Judge Vasallo held that the conversion rate to be used in the case at law is that current on the date of the ruling of the so-called “MEP or Bolsa dollar”" (“Stock Exchange dollar”), since its price derives from the purchase and sale of securities (with the specific regulations that have been fixed), at market values and without affecting public reserves.