Paulo Guilherme de Mendonça Lopes and Alexandre Paranhos
Introduction
The general rules that prevent the auction of a property at an extremely low price are fully applicable to the case of extrajudicial foreclosure of a property subject to fiduciary alienation, even for cases prior to Law No. 14.711/2023.
This was the conclusion of the 3rd Panel of the Brazilian Superior Court of Justice (“STJ”), that cancelled the auction of a debtor company’s property. The order was for a new auction to be held.
Background
The original wording of article 27 of Law No. 9.514/1997, which was in force at the time of the facts and judgment, was limited to stating that, at the second auction, “the highest bid will be accepted, provided it is equal to or greater than the value of the debt, expenses, insurance premiums, legal charges, including taxes”.
The rule was amended by Law 14.711/2023 which currently states in paragraph 2nd of article 27 that, in a second auction, a bid of less than half the asset’s appraised value cannot be accepted, even if it is higher than the amount of the debt.
Article 884 of the Brazilian Civil Code and article 891 of the Brazilian Civil Procedure Code already ban unjust enrichment, and in case of alienation, a price lower that 50% of the value of such alienation.
Furthermore, the rapporteur Minister Ricardo Villas Bôas Cueva pointed out that doctrine and case law had long indicated the impossibility of extrajudicial alienation at an extremely low price, based on a series of general rules.
Case law
The case involves a company that took out a loan of R$28,6 million through a public deed of credit assignment, which had a deadline for paying off the debt in 18 monthly installments. So, to obtain the R$28,6 million, the company gave the property to the creditor as security, and in case of non-payment of the debt, the creditor could auction the property. This is what happened.
The debtor company stopped fulfilling their obligations after the fourth installment, which led to the extrajudicial execution of the property, valued at R$84.4 million. At the first auction, no bid reached that amount.
At the second auction, the bid of R$33 million won, enough to pay off the outstanding balance and other charges – the cost of the auction itself, interest on the debt and other tax obligations, including the payment of the Real Estate Transfer Tax (ITBI).
The Superior Court of Justice declared the auction mentioned above to be null and ordered a new auction to be held.
Comments
This case law represents an important milestone in discussing the extrajudicial execution of property, especially since if sold at an extremely low price the auction becomes subject to nullity.
