Self-contracting

Self-contracting (Autocontratación) is a topic that has been extensively reviewed by the DGRN (General Direction of Register and Notary) and by case law

The Spanish Supreme Court defines self-contracting as follows:

(…) Situation that occurs when, there is only one subject’s will, that makes two legal manifestations, economically opposed (…)

Self-contracting is prohibited under article 1459.2 of the Civil Code:

Art. 1459: The following persons may not acquire things by purchase, even if it is in a public or judicial auction, by themselves or using any intermediary:

2 Attorneys, in respect of the property whose administration or disposal is entrusted to them.

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This prohibition prevents the enrichment of the empowered person, on detriment of the one granting the power.

But from this prohibition, case law concludes the validity of self-contracting when there is no conflict of interest present:

– Because there is not conflict of interest in the specific self-contracting.

– Because the grantor of the PoA allows it, either with a previous license or by ratifying the business.

– Or because there are legal provisions resolving self-contracting conflicts may those arose.

Authorization for Self-contracting

These are examples in which self-contracting is admissible:

a.- Lucrative businesses only for one party which are stipulated in favor of the represented party. (As for example, donations)

b.- Contracts in favor of a third party that does not require the third-party approval, acceptance or intervention.

c.- Legal acts which only involve the fulfilment of a previous obligation or only implies execution.

d.- Contracts with the previous authorization to the representative for self-contracting.

If the grantor authorizes the agent to contract even if self-contracting concurs, then the conflict of interest disappears. The legal transaction must be valid. This was confirmed by the following resolutions:

Supreme Court’s resolution February 19th 2001:

The sentence appealed simply applies article 6. 3.º CC, which this Court cannot accept in coherence with its doctrine that the principal can previously authorize the self-contracting or subsequently ratify what the principal has done. If the rule is imperative (Article 6 (3) presupposes no other), it does not make sense that through that authorization or ratification it could be rendered ineffective; or Article 1459(2) is a mandatory rule or is dispositive, what is inadmissible is that it is one thing and at the same time its opposite. Furthermore, the legislator itself demonstrates that it is not of a mandatory nature, by allowing in article 267 of the Commercial Code the so-called “self-entry” of the commission agent.

Consequently, since the representative is authorized to enter into self-contracting or to conduct business even in the event of a conflict of interest with the principal, the business conducted by way of self-contracting is, in principle, valid.

DGRN’s resolution May 14th 1998:

It is generally accepted that self-contracting is feasible when the risk is assumed by the principal or the powers conferred are so precise that they exclude it. The first case will occur when the potential victim has consented or authorized his representative to self-contract or act as a multiple representative, a clear example of this in the commercial field is the license to the commission agent which excludes the prohibition of self-entry in Article 267 of the Commercial Code.

Abuse of power under self-contracting representation

There is abuse of power of self-representation when it is used for a different purpose than the one granted.

In this sense, the DGRN’s resolution of November 8th 2004:

Naturally, the above does not imply that the fact of having granted such a dispensation prevents that the principal (…) can react to the possible abuse committed by his representative in the self-contract, since the latter has opened the judicial channel to challenge the abusive business that his proxy may have arranged, since the dispensation cannot be interpreted as an early waiver of the exercise of the corresponding actions.

When an abusive exercise of power can be appreciated?

This question is referred Supremes’ court resolution of June 30^th 2009:

There is an incorrect use of the power of attorney for overreaching, in accordance with Article 1714 of the Civil Code, since the powers granted to the agent to carry out legal transactions on behalf of the principal originate from the declaration of will that comes from the principal, to which the agent must adapt and adjust, which does not authorize the agent to overreach to carry out business with third parties that were not foreseen, nor wanted and therefore authorized by the person who granted the power of attorney.

(…)

Whether or not the grantor’s power exceeds its limits must be determined not automatically and submissively by reference to the literal nature of the power, but primarily by reference to the grantor’s intention and will in relation to the purpose for which the power was granted and the circumstances surrounding it.

(…)

Of particular importance is not only the need for the agent to act generally in accordance with the principle of good faith (Article 7 of the Civil Code) in the exercise of the rights conferred on him by the mandate, but also to observe the general obligation laid down in Article 1258 of the Civil Code, according to which the contracting party must, in his actions, be subject to the very nature of the contract in relation to the requirements of accommodation with the postulates of good faith, usage and the law.

Conclusions

• Self-contracting is generally allowed as long as it does not involve a conflict of interest.
• There is not conflict of interest (among others) if the grantor authorizes the contract.
• Self-contracting contracts will be fully valid if they do not include the exercise of abusive power by the representative.
• There is abuse of powers when, unforeseen, unwanted and unauthorized actions are carried out by the representative.

If this article has been of interest, we also suggest you to read the following article published on our website: The legal action for performance of obligations in Spanish Law.