Parallel Reasoning by Ratio Legis in Contemporary Jurisprudence. Elements for a Dialogical Approach

Abstract

Nowadays, there is a quite considerable amount of literature on the use of analogy or more generally of inferences by parallel reasoning in contemporary legal reasoning and particularly so within Common Law. These studies are often motivated by research in artificial intelligence seeking to develop suitable software-support for legal reasoning. Recently, Rahman et al. (Inferences by Parallel Reasoning in Islamic Jurisprudence. Al-Shīrāzī’s Insights into the Dialectical Constitution of Meaning and Knowledge. Springer, Dordrecht, 2019) developed a dialogical approach in the framework of Constructive Type Theory to what in Islamic Jurisprudence was called qiyās or correlational inferences. In their last chapter the authors suggested that such an approach contributes to the study of patterns of reasoning by precedent cases within contemporary Common Law. In the present paper we will further motivate the deployment of the dialogical framework developed in Rahman et al. (2019) within Civil and Common Law. After a presentation of Scott Brewer’s take on analogy within Common Law, that has striking structural similarities to reasoning by precedent case rooted in ratio legis (known in Islamic Jurisprudence as qiyās al-‘illa or correlational inference by the occasioning factor), we will illustrate the implementation of the framework with a brief discussion of some cases of legal reasoning based on Spanish Civil Law but where the accent is put in the emerging ruling rather than in the existing of a case in Common Law. Moreover, quite surprisingly, the case under study suggests that even cases of Law interpretation fit the argumentation pattern of qiyās al-‘illa. A caveat: in the present paper we will focus mainly in discussing the dynamics of the meaning constitution involved rather than in setting the rules of the underlying dialogical framework, the latter is the subject of a follow-up paper.

Appendix

9.1.1 Summary of the Supreme Court Judgment 9012/2001 (Sentencia del Tribunal Supremo –STS– 9012/2001) dated 19 November 2001. Full text is available on: http://www.poderjudicial.es/search/TS/openDocument/3a301e6cd9d857da/20031030

The cassation appeal number 2196/1996 filed before the Supreme Court challenged the dismissed judgment issued by the Second Section of the Contentious-Administrative Chamber of the National Court, dated 23 January 1996, on the contentious-administrative appeal brought by Inmobiliaria Manuel Asín, S.A. against the April 23, 1992, judgment of the Central Economic-Administrative Court (Tribunal Económico-Administrativo Central –TEAC), which, at the time, had dismissed the appeal lodged against the judgment of the Regional Court of Aragon, not giving rise to a claim filed against the settlement of 14,901,015 pesetas for the concept of Tax on Documented Legal Acts (Impuesto de Actos Jurídicos Documentados –IAJD). This amount was ordered on the occasion of a mortgage loan of 1,702,000,000 pesetas that had been granted by the Caja de Ahorros y Monte de Piedad de Zaragoza, Aragón y Rioja (Ibercaja) which had been implemented by a public deed on May 4, 1989.

The appellant party submits its cassation appeal and articulates its reasons from the common point that in a mortgage loan there are two independent legal conventions or businesses (the loan and the mortgage), which require differentiated tax treatment, but which demand a joint exam.

The first instance judgment emphasises the inapplicability to this case of the tax exemption recognized in art. 48.I.B.19 of the Consolidated Text of the Law of Tax on Property Transfer and Documented Legal Acts (texto refundido de la Ley del Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados –LITPAJD, in short, ITPAJD) enacted on December 30, 1980. This judgment also omits any reference to the analysis of the problem of the duality of conventions, which the appellant party claimed as a fundamental argument of its contestation, and of the need, which was also argued, of a differentiated treatment of that situation for tax purposes. In fact, the judgment of the first instance is limited to an appointment of the judgments of this Chamber that reflected the doctrine of the inapplicability of the above mentioned exemption, although without transcribing, even briefly, its argumentation for inapplicability and therefore, it maintained the affirmation that the taxpayer, in a deed of a mortgage loan, is the beneficiary of the main legal business, that is, the borrower.

The Supreme Court Judgment 9012/2001 (STS 9012/2001) maintains that:

(…) it is true that the traditional interpretation of this Chamber [3^rd Chamber of the Supreme Court of Spain] has always accepted the premise that the taxable event, mortgage loan, was and is unique, and therefore, the conclusion of its subjection to AJD is, nowadays, coherent, whatever the legislative tendencies that, may be in the near future, could consecrate mortgage loan exemption in this particular tax—. (p. 3, para. 2)¹³

and that:

In any case, the unity of the taxable event related to the loan produces the consequence that the only possible beneficiary is the borrower, in accordance with the provision in art. 8°.d) in relation to 15.1 of the 1980 and 1993 ITPAJD Consolidated Text, and also in relation to art. 18 of its 1981 Regulations, now art. 25 of the current Regulations (enacted on May 29, 1995) which refers already to the constitution of, among others, mortgage rights as guarantee of its loan and not to that of loans guaranteed by a mortgage. (p. 3, para. 3)¹⁴

The Supreme Court Judgment, therefore, dismissed the appeal.

9.1.2 Summary of the Supreme Court Judgment 7141/2006 (Sentencia del Tribunal Supremo –STS– 7141/2006) dated 31 October 2006. Full Text is Available on: http://www.poderjudicial.es/search/AN/openDocument/12ebfb21e3676207/20061214

Cassation appeal number 4593/2001 brought by Establecimientos Industriales y Servicios, S.A. (EISSA, S.A.), against the judgment of the Contentious-Administrative Chamber of the National Court issued in the appeal of the aforesaid jurisdictional order brought by the forenamed commercial entity against the decision of the Central Economic-Administrative Court dated 21 October 1998, which dismissed the appeal raised against the decision of the Regional Court of Catalonia on April 9, 1997, that denied the request for the return of undue income of 49,500,000 pesetas as Documented Legal Acts.

On June 12, 1992, the Caixa d’Estalvis i Pensions de Barcelona (La Caixa) opened a credit account in favour of EISSA, S.A., up to a maximum amount of 5,500,000,000 pesetas. This credit account was guaranteed by a mortgage over an estate owned by company INMA, S.A. to warrant the resulting balance of the account that La Caixa accredited, up to 5,500,000,000 pesetas, of the amounts exceeding the limit granted as a result of interest debts, of late payment interest, as well as a sum for expenses and costs, for a total amount of 9,900,000,000 pesetas. As the estate was valued at 1,169,050,000 pesetas in case of auction, EISSA, S.A. was asked to establish a joint liability clause as guarantee of the credit by Mr Enrique, Mr Jon, Mr Sebastián and the commercial entities INMA, S.A., HIDRODATA, S.A. and Molinos Hidráulicos, S.A. This deed was accompanied by a self-settlement for Documented Legal Acts on a tax base of 9,900,000,000 pesetas. At a rate of 0.50 percent, the debt deposited was 49,500,000 pesetas.

In 1993, EISSA, S.A. impugned the self-settlement and requested the return of the amount deposited, considering the exemption provided in art. 48.I.B.19 of the Consolidated Text of the Law of Tax on Property Transfer and Documented Legal Acts (ITPAJD) enacted on December 30, 1980. This claim was denied by agreement, notified on July 27, 1995.

On July 31, 1995, an economic-administrative claim was filed against the previous agreement, claiming the provenance of the exemption invoked in the process, reason why the refund of the amount deposited was requested; besides, it was pointed out that the tax base taken into consideration was not correct, as it should only be either the value of the mortgaged property, or that of the credit. The Regional Court of Catalonia issued a judgment on April 9, 1997, dismissing the claim because the alleged exemption was considered not applicable, and the tax base set by the financial entity for the self-settlement was considered right.

EISSA, S.A. filed an appeal against the aforementioned judgment of the Economic-Administrative Regional Court of Catalonia (Tribunal Económico-Administrativo Regional –TEAR– de Cataluña), insisting on the allegations made in the first instance, and on the contravention of the Sixth Directive (Sixth European Economic Community Council Directive of 17 May 1977) by requiring another tax, in addition to VAT, for the same operation. The Central Economic Administrative Court (TEAC), in a judgment dated 21 October 1998, agreed to dismiss this appeal and confirm the contested judgement.

The Chamber of this Jurisdiction (contentious-administrative) of the National Court issued a judgment dismissing the appeal and confirming the judgment of the TEAC for complying with the legal system on February 27, 2001.

The juridical representation of EISSA, S.A. brought a cassation appeal to the Supreme Court, requesting for a judgment to quash the one previous one –declaring it null and void–, a declaration of the inadmissibility of taxation for Documented Legal Acts of the deed of credit opening with mortgage guarantee, in recognition of a particular legal situation, and to agree to the return of the unduly deposited for such concept, plus the delay interests, or otherwise, at least a declaration that the maximum taxable base cannot exceed the value of the mortgaged that guarantees the credit.

The Supreme Court dismissed this cassation appeal for considering this operation as a dual business: a loan (main business) and a mortgage (subsidiary business). As a loan it has to be fully taxed, and as a mortgage it has to be taxed as a mortgage loan, considering in this case that the mortgage is subject to the loan. Being the loan the main business, the tax base for all concepts (both loan and mortgage taxes) is that of the loan and not that of the good that guarantees the loan. The judgment also pointed out that the taxpayer is always the beneficiary of the main legal business, that is, the borrower.

9.1.2.1 Reasoning Behind the Dismissal of Appeals

As mentioned in the analysis of the Judgment 9012/2001, the rationale for the dismissal of the appeals is that:

(…) the traditional interpretation of this Chamber [3^rd Chamber of the Supreme Court of Spain] has always accepted the premise that the taxable event, mortgage loan, was and is unique, and therefore, the conclusion of its subjection to AJD is, nowadays, coherent, whatever the legislative tendencies that, may be in the near future, could consecrate mortgage loan exemption in this particular tax—. (p. 3, para. 2. See footnote 13 for the original text)

and therefore, “(…) the unity of the taxable event related to the loan produces the consequence that the only possible beneficiary [taxpayer] is the borrower—” (p. 3, para. 3. See footnote 14 for the original text).

The jurisprudence of this Chamber [3^rd Chamber of the Supreme Court of Spain] has repeatedly understood that article 29 (art. 30 in the ITPAJD of 1980) of the 1993 ITPAJD Consolidated Text and article 68 of its 1995 Regulations indicates that, for notarial documents affected by IAJD, “(…) “the beneficiary is the purchaser of the good or of the right and, failing that, the persons who request notarial documents, or those in whose interest the documents are issued”—”¹⁵ (quoted in the STS 7141/2006, p. 3, para. 3). The purchaser of the good or of the right can only be the borrower, not because of an argument such as the unity of the taxable event related to the loan, as occurs in the modality of onerous transfers –art. 8°.d) in relation with art. 15.1 of the 1980 and 1993 ITPAJD Consolidated Text, and also in relation with art. 25 of the 1995 Regulations (art. 18 in the Regulations of 1981), but because the right referred to in the precept is the loan reflected in the notarial document, even if it is guaranteed with a mortgage and its registration in the Property Registry is the constituent element of guarantee. In conclusion, art. 31 of the 1980 and 1993 ITPAJD Consolidated Text demands, among others, the requirement that the deeds or notarial acts which contain acts or contracts inscribable in the Property Registry they pay inseparably for both, the loan and the mortgage.

9.1.3 Summary of the Supreme Court Judgment 3422/2018 (Sentencia del Tribunal Supremo –STS– 3422/2018) dated 16 October 2018. Full text is available on: http://www.poderjudicial.es/search/openDocument/979d8e2ccabb7187

Cassation appeal number 5350/2017 brought by the Empresa Municipal de la Vivienda de Rivas-Vaciamadrid, S.A. (the Municipal Housing Company of Rivas-Vaciamadrid), against the judgment of the Contentious-Administrative Chamber (Fourth Section) of the Supreme Court of Justice of the Community of Madrid on June 19, 2017, issued in an ordinary procedure no. 501/2016, on the settlement of the tax on Documented Legal Acts of a public deed of formalization of a mortgage loan on several dwellings.

The Empresa Municipal de la Vivienda de Rivas-Vaciamadrid, S.A. (EMVRivas, S.A.) filed a tax exempt self-settlement for Documented Legal Acts regarding the public deed of constitution of a mortgage loan. As basis for the exemption, it invoked to article 45.I.B.12 of the 1993 ITPAJD Consolidated Text.

Once the Technical Office for Tax Inspection of the Community of Madrid confirmed that the useful size of the dwellings for which the loan was formalized was less than 90 square meters, the settlement of the taxes for the concept of Documented Legal Acts regarding the mortgage liability of the aforementioned dwellings was charged.

A contentious-administrative appeal was brought by the same party before the Madrid Chamber, in which, in addition to the tax exemption, the quashing of the charged settlement was requested. This appeal was founded on the fact that the borrower is considered not liable for the tax on Documented Legal Acts because they are not the beneficiary of this business. The Economic-Administrative Regional Court (TEAR) of Madrid rejected the economic-administrative appeal brought by the interested party (in which only the origin of the exemption was defended).

The procedural representation of the plaintiff prepared a cassation appeal in which infringed norms were identified in article 45.I.B.12 of the 1993 ITPAJD Consolidated Text. In their formal claim document, they also claimed the illegality of article 68, paragraph 2, of the 1995 ITPAJD Regulations.

Regarding the issue of the beneficiary, they stated that requiring for the mortgage debtor to pay for the tax is against the protectionist regulations toward mortgage debtors that exist in the European Union. For this purpose, they recalled that the judgment of the Civil Chamber (First Section) of the Supreme Court (STS 5618/2015)¹⁶, dated 23 December 2015 (fallen on appeal 2658/2013), considered that the money-lender is not excluded from the taxes that may be accrued due to the commercial operation, but “(…) “at least in regard of the tax on Documented Legal Acts, the lender is the beneficiary for matters referring to the constitution of the right and, in any case, of the issuance of copies, records and appropriate testimonies”—” (quoted in the STS 3422/2018, p. 3, point 2)¹⁷; so, a clause in which the tax is transferred to the other party –the borrower– is abusive.

On this occasion the Supreme Court understood that the person obligated to pay the tax in such cases was the creditor, subject in whose interest the granted loan and the mortgage established as refund guarantee are publicly documented.

The Supreme Court held that loans are not registrable, according to article 2 of the Mortgage Law (Ley Hipotecaria) and article 7 of its Regulations, as they are obviously not a real right, nor does the right have the typical real significance mentioned in the second of these precepts (since they do not modify, now or in the future, several of the rights of ownership over real estate or inherent to real rights). The mortgage, on the other hand, is not only registrable, but it is also the mortgage is a real right. So much so, that article 1875 of the Civil Code strongly states that “(…) it is indispensable, for the mortgage to be validly constituted, that its concluding document be registered in the Property Registry”¹⁸; article 1280 of the Civil Code corroborates that and the Mortgage Law, in its article 130, specifies that statement when affirming that the procedure for direct execution against mortgaged goods “(…) can only be exercised as realization of a registered mortgage, on the basis of points that are contained in the title and included in its entry”¹⁹.

The fact that the mortgage is a real right of registry constitution makes it clearly the main business for tax purposes in public deeds in which mortgage loans or loans with mortgage guarantee are documented, since the only reason that makes such complex legal act be submitted to the tax on Documented Legal Acts is that it is registrable; in fact, of the two businesses that make up that act, only the mortgage is registrable.

If we still consider the loan as the main business it does not make much sense to submit to the tax a non-registrable legal business only because there is an accessory real right constituted as a guarantee of compliance with the main one.

The Supreme Court held also that:

(…) there is no doubt that the beneficiary of the document in question is no other than the creditor, because they (and only they) are qualified to exercise the (privileged) actions that the code offers to the holders of the registered rights. They are the only party interested in the registration of the mortgage (the determining element subject to the tax analysed here), since the mortgage is ineffective if it is not registered in the Property Registry [emphasis added]. (STS 3422/2018, p. 11, para. 9)²⁰

and that:

Therefore, article 68.2 of the Regulations [ITPAJD Regulations of 1995] does not have the interpretative or explanatory quality granted by the jurisprudence that we are now modifying [emphasis added]; on the contrary, it constitutes an obvious regulatory excess that makes the provision contained therein illegal. Such illegality must be declared in the judgment hereby as provided in article 27.3 of the Law of this Jurisdiction [Contentious-Administrative Jurisdiction Law]. (STS 3422/2018, p. 12, para. 1)²¹

Thus, the conclusions were:

• 1. Based on the previous reasoning, we can now answer the question that we have considered preferential, out of the two questions raised by the First Section (Civil Chamber) of this Chamber (Supreme Court). The beneficiary of a mortgage (by loan over itself or as guarantee of a loan) is the money-lender and not the borrower. Therefore, the tax on Documented Legal Acts –when the document subject to the tax is a public deed of a mortgage (by loan over itself or as guarantee of a loan)– should be paid by the lender and not by the borrower.

• 2. In order to comply with the decree of admission, the above statement needs to be completed making it explicit that such a decision involves adoption of a guideline opposite to that supported by the jurisprudence of this Chamber (Third Camber –Contentious-Administrative Chamber– of the Supreme Court) until now, as presented in the judgments (STS 9012/2001 and STS 7141/2006) among others, and therefore modifying the previous jurisprudential doctrine.

Thus, in this case, the Supreme Court understood that the settlement was charged to those who do not have the quality of beneficiary, reason why they were not the taxable person for this tax. Therefore, the cassation appeal was deemed in favour of the Empresa Municipal de la Vivienda de Rivas-Vaciamadrid, S.A. This judgment modified all the previous jurisprudence.