Spanish Supreme Court rules that refusing to sell a pledge over shares may shift the risk to the bank

The Spanish Supreme Court, in its judgment 1207/2026 of 20 July (ECLI:ES:TS:2026:3188), addresses a key issue regarding security interests: what happens when the bank, exercising a right of its own, refuses to sell the pledged shares even though their value would have been sufficient to repay the loan in full? 

The answer is clear: the bank bears the risk of their subsequent depreciation and write-off.

The issue in a nutshell

The case is based on a straightforward chronological sequence:

• 2009: a company subscribed to preference shares issued by a bank for €800,000, which were subsequently exchanged for subordinated bonds mandatorily convertible into shares and, later, for shares in the bank itself, these shares being pledged as security for a loan of €900,000;
• 2015: the company ordered the sale of the pledged shares (valued at €881,172.31) to repay the loan, the outstanding principal of which was €813,620.79. The bank did not execute the order and proposed a temporary amendment of the interest rate;
• following the resolution of the above-mentioned bank and its acquisition by another bank for one euro: the shares were written off in their entirety.

In view of these events, the company brought legal proceedings seeking, primarily, a declaration that acquired bank had breached its contractual obligations in its portfolio management duties and, in the alternative, a finding of liability under Article 1,867 of the Civil Code for the loss of the shares pledged to secure the loan, due to causes attributable to the creditor.

The court ordered the bank to pay €881,172.31 and the applicable interest, a decision which was upheld on appeal. The Supreme Court dismissed the appeals lodged by the acquirer bank.

Established case law: refusing to sell comes at a price

The Supreme Court recalls, on the basis of its judgment 444/2014 of 3 September (ECLI:ES:TS:2014:3741), that the bank has discretionary power, if so agreed, to refuse the order to sell, as this constitutes the exercise of its own right which cannot be characterised as an act contrary to securities market regulations.

However, the court introduces a crucial distinction. In the 2014 case, the sale would have resulted in only a partial repayment of the loan, and the intention was to replace the pledged asset with other securities, which justified the refusal. In the case now decided, the sale of the shares would have fully repaid the loan and extinguished the pledge itself.

This difference is key: if the value of the shares was sufficient to settle the loan, the bank even when  exercising its own right to refuse the sale, cannot then wash its hands of the loss. The risk then falls to the bank.

Implications for the sector

The ruling has direct consequences for the debt market and financing transactions, such as:

• refusing the sale has direct financial consequences: where the value of the pledged shares is sufficient to repay the loan in full and extinguish the security, rejecting the sale order transfers the risk of future loss on those securities to the bank; and
• reviewing security agreements: institutions must review these agreements to precisely define the circumstances in which they may refuse the debtor’s order to sell.

Osborne Clarke comment

The judgment resolves, for the first time, the conflict between provincial courts regarding the scope of the secured creditor’s liability in cases of loss of pledged shares. 

The ruling is clear: the bank’s discretionary power to refuse the sale is subject to limits. Where the value of the shares would have been sufficient to repay the loan in full, the exercise of that power shifts the risk of subsequent loss back to the bank.

For financial institutions, this ruling suggests that they should review both their internal protocols for managing security interests in listed securities and the wording of their pledge agreements, precisely defining the circumstances in which they may refuse the debtor’s order to sell and the legal consequences of such a refusal.

Osborne Clarke's team can help you review your pledge agreements and security management protocols. Please contact us to discuss further.