The developer misappropriation of funds in the Spanish criminal law

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14 Jul 2008 12:00 AM by spanishsolicitor Star rating in Murcia. 140 posts Send private message

spanishsolicitor´s avatar
Although criminal  law is complex and behavior that you think ought to be criminal could turn out not to be, we have in our Criminal Code and in many sentences quite a lot of examples about how Spanish law deals with developers refusing to pay funds back to buyers, when they don' t hand over houses in time.

Section 252 of the Spanish Criminal Code provides that a person who to the detriment of another misappropriates  or embezzles  money or all other property real or personal  received in deposit, custody or administration or by another obligation of return will be punished by imprisonment of up to six  years.

This section affects all  developers selling off-plan and receiving  monies before completion because they all are under an obligation to retain and deal with this funds in the way stated in section 1.2 of 57/1968 Act.

Section 1.2
All developers who sell  off-plan and receive any payment from buyers must deposit the funds into an  special account separately  of any other funds belonging to them. Such funds may be used only for payments linked to building costs.

By law the developer is not free to administer the funds received in relation to a development, he is a depositary and if he  wishes to draw from the guarantee account must be aware of  the compulsory use that is stated in Law.

Even if the developer were acquitted by a criminal court it doesn't mean he is not obligated to refund the monies since subsequently  a civil court could  declare the civil liability.
Our courts don't agree about if it is sufficient in order to qualify the offence to use the funds in unrelated development costs or if it is necessary animus lucrandi or intention of profiting.
We can distinguish between misappropriation strictu sensu which implies adding the funds to the defendant personal assets and dealing with the funds detrimenting the interests of depositors

Some judgements of our Superior Court  to illustrate this issue

SSTS  17  22 Oct 1998  'It is not required the benefit of the criminal but the economical detriment to the plaintiff'

SS. 30.11.89, 7.2  and 30.3.91, 10.2, 11.6  and 2.8.92, 16.4 and  2.11.93, 14.3 and 5.11.94, 1123/95 of 11.10, 715/96 of 18.10, 896/97 of 20.6, 955/97 of 1.7, and of 19.1.98
SS. 3-4-98, 17-10-98 and 840/2000 12-05) (STS  2-11-01 .  SS. T.S.  3-04  and 17-10-1998, 12-05 and  21-07-00


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14 Jul 2008 11:33 AM by johnmfranci5 Star rating. 107 posts Send private message

This law sounds great.

However why isi t  then completelty ignored by Companies like Aifos ?

If it was rigourously applied then Aifos and builders like them would not continue to do it ?

This message was last edited by johnmfranci5 on 7/14/2008.

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14 Jul 2008 12:13 PM by spanishsolicitor Star rating in Murcia. 140 posts Send private message

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I know AIFOS case just reading in the news so I can't give an opinion, what I want is to point out that this particular offence is stated clearly and succinctly in the Spanish criminal code. It is a fundamental principle of Spanish law that is the duty of the prosecution to prove the guilt of the defendant and it is also clear that the prosecution must convince magistrates that the defendant is guilty 'beyond a reasonable doubt' but the rules of evidence in criminal cases are sometimes too heavily biased in favour of the accused


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14 Jul 2008 9:43 PM by johnmfranci5 Star rating. 107 posts Send private message

For the benefit of us all could you give a few examples of this actually happening ?

It would be interesting to se if any Directors of any Major Developer had ever been imprisoned
in recent years for this ?

I can only repeat that common sense tells you that if this law was applied then they would not do it !!

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14 Jul 2008 11:56 PM by fultond Star rating in Haywards Heath & Tor.... 242 posts Send private message

I agree. The good times have prevailed for too long. It will be interesting to see if there is a watershed, and suddenly the culprits start to pay for their deceit and dishonesty. I think the threats has been too few and far between to really worry these perpetrators.


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15 Jul 2008 9:12 AM by spanishsolicitor Star rating in Murcia. 140 posts Send private message

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The strange numbers that I referred at the end of my post are all binding precedents  of our High Tribunal 'Tribunal Supremo' finding developers guilty. Law Reports.
There are hundreds of judgments acquitting developers but also there are many convicted developers.
The point is to prove that the monies have not been used in construction expenses and to demonstrate that the developer made a profit with clients funds.
I'd like to stress that in criminal proceedings you have the support of the public prosecutor and a very important advantage what is unlike the torts proceedings the liability affects the developers personal assets. Nowadays with loads  of Real Estate Companies going to bankrupt , the money has disappeared from the companies so the civil proceedings most of the times are helpless


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