On November 23, Decree Law 14/2020 “On the pledge and mortgage” came into force in Cuba, which modifies articles 270 to 277 and 288 of the Civil Code, and repeals Decree-Law 214 dated November 24, 2000.
The main novelties of the legal regulations are given by the modification to forms of real guarantees, which already existed in our legal system, but were rarely used, such as the pledge and the mortgage.
In the legal sphere, a “guarantee” is understood to be any mechanism that makes it possible to reinforce or facilitate the creditor’s possibilities to enforce the debt. These can be real or personal. A personal guarantee is, normally, the incorporation of a person other than the debtor, who is obliged to pay the debt in case the obligor does not do so. Among them is the guarantee or the surety.
A “real guarantee” is considered to be the mechanism that reinforces the legal position of the creditor in an obligatory relationship, through the specific affection of a good (or a group of goods) to its fulfillment, by means of the constitution of a real right.
That is, it is not a person who guarantees that the debtor will comply, but that a certain asset, or a set of assets, is directly linked to the payment of the debt, so that if the debtor does not pay, the creditor can deprive him of the taxed asset or demand its immediate sale, depending on the case.
These legal figures have their origin in Roman Law and have evolved to date with the economic and social development of humanity.
The appearance of real guarantees marks a decisive stage in the history of credit, since only they are capable of giving the creditor complete security.
News of Decree Law No. 14
In relation to the pledge, the possibility of granting it not only on movable property, but also on intangible assets, that is, rights, shares or intellectual property assets is foreseen.
In addition, it is provided that superior business management organizations, state companies, commercial companies with totally Cuban capital and foreign investment modalities may use their assets and rights as collateral, with prior authorization from the Council of Ministers.
Regarding the mortgage, its use is also extended to other economic actors. Let us remember that previously only legal persons dedicated to real estate investment and credit financial entities with authorization from the Executive Committee of the Council of Ministers were conceived as subjects.
As of the entry into force of Decree Law No. 14, superior business management organizations, companies may establish mortgages on real estate or other real rights that they have, in order to guarantee compliance with the contractual credit obligations contracted. state, mercantile companies with totally Cuban capital and the modalities of foreign investment.
In all cases, the State is granted a preferential right to acquire mortgage securities for the payment of their value, as well as preference to the mortgagee to collect when the mortgage is constituted. This aspect is complex due to the lack of a Regulation in which the procedure is clearly defined, since there are questions that do not find answers, forcing us to resort to the ancient Mortgage Law dated July 14, 1893 and its Regulations.
Real guarantees according to the Cuban legal system
The Cuban Civil Code, Law No. 59 dated July 16, 1987, in its Chapter III, Title I, Book III, Article 266 limits itself to mentioning different forms of guarantee, without making a classification on them. Thus, the real guarantees that Cuban legislation regulates are the pledge, the mortgage, the authorization of discounts, the advance and the retention.
The pledge is regulated from article 270.1 of the aforementioned code and provides that the pledge right empowers the creditor to satisfy his credit in preference to any other creditor against the value of a movable property received from the debtor.
One of the recognized doctrinal differences between the pledge and the mortgage is the transfer of possession that exists in the former in favor of the pledgee.
However, the Civil Code exceptionally authorizes, in section 2 of the aforementioned article, that the pledge can be constituted without dispossession in favor of state credit entities.
For this reason, the pledge can be classified as a pledge with dispossession, which is the normal form of constitution of this guarantee, and the pledge without dispossession, which is an exceptional form of constitution, since this form can only be established in favor of state entities .
In the case of the pledge without dispossession, the debtor can use the goods according to their destination or change their location with the consent of the creditor. However, it does not happen in the same way in the garment with dispossession. In this case, the creditor cannot use the goods that he received as a pledge and is obliged to keep them properly and to respond for their loss or damage to the debtor if he does not prove that it occurred because of the latter.
As for the form, it is regulated that it must always be done in writing. The standard also provides, in article 273, a series of elements that said document must carry such as the name and address of the parties, the description of the property, the estimate of its value expressed in money, the place where it is located, the Obligation guaranteed in pledge and finally, the term of its maturity.
It should be noted that unattachable property cannot be pledged. It is illogical to ensure a pre-existing contractual obligation with an asset that cannot subsequently be disposed of in the event that the debtor defaults.
Alienation is another right that the law grants to the creditor in the event that the debtor has not paid his credit. This operation must be carried out by public auction. After the asset is disposed of, the proceeds of the sale will be delivered to the debtor, discounting the amount of their debt and the expenses incurred.
If the pledge was established in favor of a state entity, the payment of the debt is made effective through the sale of the pledged assets to other state entities or cooperatives for the value they have at that time.
Regarding the mortgage, the Cuban Civil Code is sparing, it only limits itself to mentioning it. In its article 288 it recognizes two types of mortgage: mortgages on ships and aircraft, only stating them and leaving their regulation to subsequent special provisions.
In 2000, Decree-Law 214, dated November 23, came into force as a complementary norm to the Cuban Civil Code. This normative provision introduced into our legislation the possibility of establishing mortgages on real estate owned by companies and economic entities with their own legal personality, existing in Cuba and whose activities were aimed at the development of the country.
Despite the fact that this represented a step forward due to the lack of national legislation regarding the issue, it maintained important limitations, since only legal entities dedicated to real estate investment and credit financial entities with authorization from the Executive Committee are conceived as subjects of the Council of Ministers.
Subsequently, Decree-Law No. 289 of 2011 came into force, which regulates the granting of credit to natural persons and other banking services. In it, the pledge and the mortgage are mentioned as real guarantees to ensure compliance with the obligations. It is necessary to specify that they can only be constituted in favor of financial institutions, and on real estate, which can be: homes located in areas intended for rest and summer vacations and barren lots.
The new regulation of the pledge and the mortgage
Decree No. 14 allows a glimpse of an expansion in the use of the pledge by natural and legal persons in the framework of their economic relationships, as well as the use of the real estate mortgage in new scenarios.
All this can consolidate the credibility of the national and international economic relations of our country and can promote, in a general sense, an increase in foreign investment.
However, the road is both long and narrow. The formulation, although timely, on real guarantees in Cuba, still does not ensure the effective protection of the subjects and the contracting parties, leaving legal gaps on matters of form and content that in legal practice must be evaluated, with a view to future legislative modifications .
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