The guarantor paradox and the crisis of legal entities: a comment to the Ruling by the Supreme Court of 12 November 2020 in memory of Don Federico de Castro

Abstract

Ruling by the Supreme Court 600/2020, of 12 November, declares the extinction of a guarantee related to a loan secured in turn with a first-ranking mortgage. It deems that the request for cancellation of such mortgage filed by the creditor after being awarded the property by enforcing the second-ranking mortgage hindered the guarantors’ subrogation right. To reach such conclusion, it performs an innovative construction of the guarantor’s subrogation rights and of article 1852 of the Civil code, whereby it accepts «owner’s mortgages» under Spanish law for the first time. In this paper, we carry out a constructive criticism of this Ruling which, in our view, presents us with a paradox. We analyze its merits and the reasons why it deviates from the previous case law on the matter. Lastly, we set out why, in our opinion, this Ruling is a symptom of the crisis of legal entities in modern corporations´ law.