The Sale with Repurchase Clause 67
Abstract
The sale with repurchase clause was
regulated in 1864 by the Civil Code, within
the meaning of articles 1371-1387, as
a variety of sale affected by a cancellation
condition. The sale with repurchase clause
was frequently used in practice in order
to breach the public provisions of article
1689 of the Romanian Civil Code, on
mortgage matters. Taking into consideration
that the sale with repurchase clause
was actually a way to breach the provisions
of article 1689 of the Romanian Civil
Code, giving birth to a lot of abuses on
the part of the creditors, the Romanian
legislator decided to prohibit this type of
sale. We also consider that, de lege ferenda,
the implementation of a new prohibition
law of the sale with repurchase clause is
both necessary and useful.
Keywords: Sale with repurchase
clause – Compulsory sale by mortgage.
* Senior Lecturer, Ph. D. , “Dimitrie Cantemir“ Christian University of Bucharest,
Faculty of Law, Cluj-Napoca, Romania . E-Mail: dr_ursilie@yahoo. com
Resumen
La venta con cláusula de recompra
fue regulada por el Código Civil de 1864,
en sus artículos 1371-1387, como una
variedad de venta afectada por una condición
resolutoria. La venta con cláusula
de recompra se utiliza con frecuencia en la
práctica con el fin de violar las disposiciones
de orden público del artículo 1689 del
Código Civil rumano, en materia de hipoteca.
Teniendo en cuenta que la venta con
cláusula de recompra en realidad es una
forma de incumplimiento de las disposiciones
del artículo 1689 del Código Civil
ruman, que origena una gran cantidad de
abusos por parte de los acreedores, el legislador
rumano decidió prohibir este tipo
de venta. También consideramos que, de
lege ferenda, la aplicación de una ley nueva
de prohibición de la venta con cláusula de
recompra es necesario y útil.
Palabras clave: Venta con cláusula
de recompra - Venta obligatoria en razón de
una hipoteca.
The Sale with Repurchase Clause
[“La venta con cláusula de retrocompra”]
Ilie Urs
“Dimitrie Cantemir” Christian University, Bucharest*
Revista de Derecho
de la Pontificia Universidad Católica de Valparaíso
XXXV (Valparaíso, Chile, 2010, 2º Semestre)
[pp. 67 - 75]
68 Revista de Derecho XXXV (2º Semestre de 2010) Ilie Urs
1. Concept.
The sale with repurchase clause1 was regulated in 1864 by the Civil Code,
within the meaning of articles 1371-1387, as a variety of sale affected by a
cancellation condition2. In the sale contract, the contracting parties used
to provide for a special clause according to which the seller had the right/
was entitled to get back the item sold, within a specified timeline, by giving
the buyer back the price he had paid and the contract expenses. This special
clause, known as “repurchase clause” or “repurchase agreement”, is the
correspondent of a cancellation condition3 and must be expressly provided
for in the sale contract4.
When the seller decides to put into practice the repurchase clause, the
sale becomes instantly void (cancelled) whereas the item sold gets back to
his patrimony.
Exercising the repurchase clause is one and the same with fulfilling the
cancellation condition, producing the retroactive annulment of the sale
contract, as if it had never existed. Consequently, the repurchase is not a new
sale, going backwards; it stands for the annulment of the initial sale. In other
words, the sale with repurchase clause does not involve two successive selling
processes, but only one which becomes void in the favor of the seller5.
2. Exercising the repurchase right.
The right to repurchase is an ability which the seller can exercise or not6.
1 Etymologically, the word “repurchase” comes from the Latin word redimo, -ere,
meaning to repurchase.
2 The “cancellation condition” is a future, uncertain event, whose fulfillment produces
the retroactive annulment of the legal contracting relationship. See: Stătescu,
C. - Bârsan, C., Civil Law Treaty. General theory of Obligations (Bucharest, Publishing
House of the Academy of the Social Republic of Romania, 1981), p. 375.
3 See: Malaurie, Ph. - Aynes, L. - Gautier, P.-Y., Droit civil. Les contrats speciaux
(Wolters Kluwer Publishing House 2009), p. 52 (the authors claim that the sale
with repurchase clause is based on a cancellation condition). See: Hamangiu, C. -
Rosetti-Bâlănescu, I. - Băicoianu, Al., Treaty on the Romanian Civil Law (Bucharest,
All Publishing House, 1997), II, p. 571.
4 The Romanian traditional legal literature indicates that “the ability to repurchase”
of the seller is exclusively an express cancellation condition which can only be stipulated
on the date of the sale. Should the repurchase clause be stipulated in a separate,
future document, the sale would be just a common selling act, whereas the repurchase
would stand for a re-sale, namely a new sale, separate from the initial sale. See: Hamangiu,
C.- Georgean, N., The Civil Code with Explanations (Bucharest, Alcalay
Publishing House, 1932), III, p. 716.
5 See: Alexandresco, D., Principles of the Romanian Civil Law (Bucureşti, Book
House of the Royal Court F. Gobl Publishing House, 1926), VII, p. 258.
6 See: Chirică, D., Treaty on the Civil Law. Special Contracts, I: Sale and Exchange
The Sale with Repurchase Clause 69
Should the seller exercise it, the sale is retroactively cancelled, since the date
the contract was entered into. The seller becomes again the owner of the sold
item, whereas the subsequent sales agreed upon by the buyer in the meantime
are cancelled (“resoluto jure dantis resolvitur jus accipientis”).
Should the seller fail to exercise the repurchase right on the date
established by law or agreed upon by the contracting parties, the right of the
buyer becomes retroactively effective whereas the buyer becomes the final
owner of the item bought on the date the sale was concluded. Accordingly,
the conveyances agreed upon in the meantime by the buyer also become
effective.
Concerning the way to exercise the ability to repurchase, most of the
authors share the same opinion: should the seller want to put it into practice,
he must make an offer of payment to the buyer7 by which he returns the
repurchase price and the contract expenses. It is commonly decided that
this is the only way by which the seller has seriously expressed his intent to
get back the item he sold. The mere verbal expression of his willingness to
do so is not enough to exercise the repurchase right8.
In earlier times, the seller could exercise his right to repurchase not only
against the buyer, but also against the subsequent buyers of the sold item,
even though the repurchase agreement had not been stipulated in their
contract (article 1370 the Romanian Civil Code). This was possible because,
considering that he had a right subject to the cancellation condition, the
buyer was unable to convey more property rights than he actually owned
(“nemo dat quod non habet”)9.
Apart from the seller, his heirs or creditors could also exercise the right
to repurchase.
(Bucharest, C. H. Beck Publishing House, 2008), p. 296.
7 “An offer of payment” is a procedure which the debtor legally uses if the creditor
refuses to receive the money he is entitled to. Firstly, the debtor sends the creditor a
reminder (notification) by means of a bailiff, asking him to receive the money. The
notification should include the place, time and hour when the payment is gong to be
made. Should the creditor receive the money, the bailiff draws up the minutes stating
that the debtor is free of obligations. On the other hand, should the creditor fail to
receive the money or be present, the bailiff draws up the minutes stating the way things
turned out, whereas the debtor deposits the money owned at C. E. C. Bank. The offer
of payment, followed by the money transfer at C. E. C. Bank, releases the debtor from
his responsibilities as if he had paid the money directly to de creditor.
8 See: Hamangiu, C. - Rosetti-Bălănescu, I. - Băicoianu, Al., cit. (n. 3),
pp. 573-574.
9 See: Alexandresco, D., Theoretical and Practical Explanation of the Romanian
Civil Law (Iaşi, National Book House, 1905), VIII, p. 778.
70 Revista de Derecho XXXV (2º Semestre de 2010) Ilie Urs
3. The deadline established for exercising the repurchase right.
According to article 1373 of the Romanian Civil Code (now repealed),
the seller could exercise the right to repurchase within 5 years since the sale.
The contracting parties could also establish a shorter period of time; in this
case, the seller could only exercise his right to repurchase within the specified
time. In case the contracting parties would provide for a longer period of
time than 5 years, the clause was not cancelled, but the term was reduced to
the legal maximum period of time of 5 years. In case the contracting parties
would establish no term, it was commonly assumed that the repurchase right
could be exercised within 5 years since the sale, that is the parties adopted
the legal term10.
The deadline established to exercise the repurchase right is predefined,
not being subject to termination or suspension11.
4. The origin of the institution.
The sale with repurchase clause is rooted in the Roman Law where the
repurchase agreement used to be known as pactum de retroemendo et de retrovendento12.
It was regulated in older legislations in Romania, respectively
in Calimach Code (article 1439 et seq.).
5. The utility of the institution.
At the time, when the Calimach Code was implemented and even after
the Romanian Civil Code entered into force in 1864, the sale with repurchase
clause was thought to be useful in practice. Before the organization
of the modern mortgage system13, it was seen as a credit instrument. Thus,
some people urgently needed money (cash), that’s why they used to sell
their assets, providing for the repurchase clause, hoping that they would be
able to gather the necessary money to regain the property right of the sold
items within the 5-year legal term or ´within the term agreed upon by the
contracting parties.
On the other hand, the buyer hoped that the seller would not be financially
able to repurchase the item(s) which, under such circumstances, was/
were to become his own for good.
10 See: Hamngiu, C. - Rosetti-Bălănescu, I. - Băicoianu, Al., cit.(n. 3) , p.
572.
11 See: Planiol, M. - Ripert, G. - Hamel, J. Traite pratique de droit civil francais
(Paris, LGDJ., 1956), X, p. 227, no. 189.
12 See: Nicolae, A. - Crăciun, N., Opinions on the Present Validity of the Sale
Contract with Repurchase Clause, in “Dreptul” Magazine, 3 (2001), pp. 17-26.
13 Ibid., p. 18.
The Sale with Repurchase Clause 71
6. Re-routing the sale with repurchase clause from its legally regulated
goal.
The sale with repurchase clause was frequently used in practice in order
to breach the public provisions of article 1689 of the Romanian Civil Code,
on mortgage matters.
According to article 1689, should the debtor fail to fulfill his obligation
when the time is due, the creditor may not keep the item that the debtor
offered him as mortgage, nor may he use it; in this case, the sale by means
of a bailiff is compulsory; any contract provision stipulating that the creditor
should become the owner or user of the mortgage item, disregarding
the formalities under the law (pignorative contract), becomes ineffective.
Consequently, in order to recover the debts, the creditor shall go through
the forced execution procedure, as provided by the law.
The interdiction within article 1689 of the Romanian Civil Code has been
eluded via the sale with repurchase clause as follows: the contracting parties
used to perform a simulated operation in which the creditor played the role
of the “buyer” and the debtor played the role of the “seller” stipulating the
repurchase clause (agreement).
For instance, a creditor gave his debtor a loan at a high rate of interest14
(this loan contract was the real, authentic legal agreement concluded by the
parties), asking as a guarantee for getting back his money an asset whose
value significantly exceeded that of the loan; as he was in urgent need of
money, the debtor had no other choice but to bring the asset and sign a sale
contract with repurchase clause (this was the apparent, simulated contract).
The price specified in the apparent sale contract with repurchase clause was
much higher than the loan itself (in reality, the price stood for the amount
of money received by the debtor in the form of the loan plus the interest
incurred). Considering that, within the period of time established by law
or agreed upon by the parties, the debtor (“seller”) did not exercise his right
to repurchase the item in exchange of the price agreed upon, the creditor
(“buyer”) became the final owner of the item without having to follow the
forced execution procedure, thus gaining a great advantage. At that time, in
most of the cases, the price specified in the sale contract was so high that the
“seller” was hardly in capacity to exercise the right to repurchase.
In some other instances, the contracting parties (“the seller” and “the
buyer”) would sign a sale contract with repurchase clause, secretly aiming
14 The “interest established by the money lender” is an illegal conventional interest
required by the creditor, whose value significantly exceeds the legally established maximum
interest.
72 Revista de Derecho XXXV (2º Semestre de 2010) Ilie Urs
to guarantee the repayment of an interest-based loan taken from a money
lender and given by the “buyer” to a third party15.
Taking into consideration that the sale with repurchase clause was
actually a way to breach the provisions of article 1689 of the Romanian
Civil Code, giving birth to a lot of abuses on the part of the creditors, the
Romanian legislator decided to prohibit this type of sale. Consequently,
within the meaning of article 4 of Act 61/1931 against the interest paid
to a money lender16, the sale contracts with repurchase clause were taken
out of force, whereas the provisions of articles 1371-1387 of the Civil Code
were repealed17.
Such annulment meant to prevent the money lenders´ practices under
which creditors used to take away (“buy”) from their debtors items of a
value much higher than that of the respective loan and subsequently keep
them as their own when payment was due, in case the debtors failed to fulfill
their obligation.
7. The abrogation of the legal provisions which prohibited the sale with
repurchase clause and its consequences at present.
The Act against the interest paid to a money lender of 2 April 1931 was
repealed by the Decree 1700 of 5 May 193818 on the establishment of legal
interest and the elimination of interest paid to money lenders; however, the
provisions of article 4 of the repealed Act, prohibiting the sale with repurchase
clause, were introduced in article 13 of the new Act.
Decree1700 of 5 May 1938 was repealed by Decree 311/1954 which no
longer included an express provision prohibiting the sale with repurchase
clause. Nevertheless, for a long period of time (1954-2000), the case-law
failed to take into consideration this aspect and unrighteously considered
as void the sale with repurchase clause19.
15 For certain legal aspects, see: Niculescu, M., Opinions on how to Guarantee
Loans Based on Interest Paid to Money Lenders, in Studia Universitatis Babeş-Bolyai
Magazine, 1 (2000), p. 88-89 et seq.
16 Act 61/1931 against the interest paid to money lenders was published in the OJ
of Romania, part I, no. 77 of 2 April 1931. According to article 4 of this Act: “The sale
contracts with repurchase and anticrisis clause concluded between parties after the enforcement
of this Act, shall be void, whereas the provisions of Articles 1371-1387 of the Civil
Code and of Articles 1697-1703 of the Civil Code shall be repealed”.
17 See: Mureşan, M., Civil Code. Special Contracts. Academic Course (Cluj-Napoca,
Cordial Lex Publishing House, 1999), p. 55.
18 Published in the OJ of Romania, part I, no. 102 of 5 May 1938.
19 Chirică, D., Civil Code. Special Contracts (Bucharest, Lumina Lex Publishing
House, 1997), pp. 58-59; Mureşan, M., cit. (n. 17), p. 54-56; Deak, F., Treaty on
Civil Code. Special Contracts (Bucharest, Universul Juridic Publishing House, 2001),
The Sale with Repurchase Clause 73
Starting with 2000, Court Houses20 and the Romanian legal literature21
righteously agreed that the sale with repurchase clause is now a valid convention,
as it is no longer expressly prohibited by law.
The sale contract with repurchase clause shall be governed by the general
rules applicable to all conventions and it can only be declared void under the
common law (for example, out of illicit or immoral causes)22.
8. Conclusions and “de lege ferenda” proposals (in English “what the law
should be”).
Following the abrogation of the legal provisions prohibiting the sale
with repurchase clause, it is essential to know what the status of this type
of sale is at present.
It is commonly agreed that the abrogation of the legal provisions prohibiting
the sale with repurchase clause does not necessarily lead to the reenforcement
of articles 1371-1387 of the Romanian Civil Code, which were
previously repealed23. Considering that it is no longer expressly prohibited by
law, we believe that the parties can at any time enter into a sale convention
with repurchase clause. As it appears in the Romanian legal literature, the
validity of such a convention shall be analyzed depending on the general
conditions of validity of the legal instrument24.
Another issue to be considered refers to how long the right to repurchase
can be exercised. At present, the sale with repurchase clause is no longer
p. 104. As far as the legal practice is concerned, see the Supreme Court, Civil Decision
no. 964/1955, in the Collection of Decisions Cluj-Napoca Court House, 1955, p. 61-
63, civil sentence no. 1020/1999, not-published; Cluj-Napoca Court House, civil sentence
no. 8278/1999, not-published; (Cluj-Napoca Court House), civil sentence no.
9526/1999, not-published (in all these instances, the Court decided that the parties
had concluded a sale contract with repurchase clause, with the intention to guarantee
a loan based on interest paid to money lenders). Consequently, within the meaning of
Article of Act 61/1931 against the interest paid to money lenders, they decided the
absolute cancellation of those sale contracts.
20 See: Court of Appeal, Bucharest, section VI civil, Decision no. 3136/R/2000,
published in “Dreptul” Magazine, 12 (2000), p. 132-133; Court of Appeal, Cluj, civil,
Decision no. 2508/2002, in Bulletin 2002 (Bucharest, Lumina Lex Publishing House,
2003), p. 103 et seq.
21 In the legal literature, see: Nicolae A. - Crăciun, N., cit. (n. 12), p. 17-26;
Rădulescu, O. - Rădulescu, P. - Rădulescu, A., The Sale with Repurchase Agreement,
in Magazine for Commercial Law, 1 (2001), p. 44 et seq; Munteanu, I. R.,
The Sale with Repurchase Agreement, in Pandectele Române, 1 (2004), p. 242 et seq;
Chirică, D., Treaty, cit. (n. 6), p. 294.
22 See: Nicolae, A. - Crăciun, N., cit. (n. 12), p. 22
23 See: Chirică, D., Treaty, cit. (n. 6), p. 294
24 See: Nicolae, A. - Crăciun, N., cit. (n. 12), p. 25.
74 Revista de Derecho XXXV (2º Semestre de 2010) Ilie Urs
regulated under any law, whereas the former article 1373 of the Romanian
Civil Code, according to which the maximum term was 5 years, was repealed.
Under these circumstances, we consider that the right to repurchase
cannot be exercised indefinitely, as it would prejudice the principle of civil
circuit security and the stability of legal relationships. Even in the absence
of a written text, we consider that the parties can provide for a reasonable
term in their convention; should they fail to provide for a specific term, the
right to repurchase must be exercised within 3 years since the conclusion
of the contract.
We also consider that, de lege ferenda, the implementation of a new prohibition
law of the sale with repurchase clause is both necessary and useful.
To support our opinion, it is obvious that the sale with repurchase clause
is used to disguise loans at high rates of interest paid to money lenders and
to breach the compulsory provisions of article 1689 of the Civil Code. The
recent case-law proves that the sale with repurchase clause is frequently used
to mask a loan at a high rate of interest paid to money lenders25, and the
present social-economic environment in Romania favors such a practice,
under various forms. Consequently, we strongly support the implementation
of a new prohibition norm of the sale with repurchase clause or at least of a
norm strictly and accurately regulating this type of sale.
[Recibido el 10 y aprobado el 23 de septiembre de 2010].
Bibliografía
Alexandresco, D., Principles of the Romanian Civil Law (Bucureşti, Book House of
the Royal Court F. Gobl Publishing House, 1926), VII.
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(Iaşi, National Book House, 1905), VIII.
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Publishing House, 1932), III.
25 See: Cluj-Napoca Court House, civil sentence no. 1020/1999, not-published; civil
sentence no. 9526/1999, not-published; civil sentence 8278/1999, not-published.
The Sale with Repurchase Clause 75
Malaurie, Ph. - Aynes, L. - Gautier, P.-Y., Droit civil. Les contrats speciaux (Wolters
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