By a bond, a third party (called “the guarantor”) undertakes to pay on behalf of the principal debtor the obligations arising from a contract if the latter fails to honor his debt resulting from the contract concluded with his creditor.
It can be any type of debt, such as a debt resulting from a lease contract, a bank debt, a consumer credit, (etc…). Article 2013 of the Civil Code provides that the bond can not be greater than the debt of the principal debtor, nor be contracted on more expensive terms.
It follows that the bond can be given for only part of the debt, respectively, under less onerous conditions. However, as the guarantee is not presumed, when the call for guarantee (request guarantor), the surety must verify that it is still required. Reference will also be made below to French case law since the legal genesis is the same in the Grand Duchy of Luxembourg as in France, even if, for the formalism, certain differences exist.
Fixed-term bond of surety
A fixed-term guarantee can not in principle be denounced, except for the parties to provide expressly in the writing a term extinguishing.
For example, an officer of a corporation may expect to be a guarantor of a debt of the corporation until “the termination of his engagement and only during the period of exercise of his stewardship.”
In addition, a bond given to guarantee the performance of a fixed-term contract is not required if the contractual relationship between the creditor and the principal debtor is extended and new obligations are added (Commercial Court, April 3, 2013).).
There is therefore a distinction to be made between simply extending the term of the principal obligation guaranteed and novation The mere extension of the term of the contract gives additional time to the principal debtor, and therefore to the surety.
On the other hand, if there is novation, that is to say setting new terms and conditions, the bond will be released, whereas in case of novation, an obligation is extinguished and replaced by a new obligation.
Example: Mr. X enters into a loan agreement for four years. A bond is signed by which the guarantor agrees to guarantee the execution of the contract by Mr. X for the benefit of the lender.
At the end of the loan, if the principal debtor has not repaid, the surety may be called in payment in his place and place.
If the lender grants Mr. X (the principal debtor) an additional six months, the bond will also be held beyond the originally agreed four-year term since the six-month extension only extends the term of the contract..
Attention, the lender can provide, in the deed of guarantee, that at the end of the contract with Mr. X, the modalities can be modified under conditions which will then have to be specified.
The guarantor may protect himself, for example, by providing in the guarantee deed that any extensions may not be enforceable against him. To do this, the bond must then expressly provide for it.
In law, this amounts to distinguishing the obligation to cover the obligation to pay.
The obligation to hedge and the obligation to pay
Thus, the guaranty covers the debts of the principal debtor which appear between the date of the commitment and the expiry of the contract (obligation of cover) but it remains obliged to pay the debts which it expressly guaranteed after the end of the guarantee, if the principal debtor does not pay or until the debtor has paid (obligation to pay).
Example: Mr X endorses the loan of EUR 1,000.- with interest from one of his friends, the principal debtor, for a period of three years (fixed-term guarantee for three years)
At the end of the three years, Mr X is debtor of EUR 1,000.- (plus accessories) but will be liable to the creditor beyond the due date, for the duration of the limitation period applicable for recovery if the amount has not been repaid by the principal debtor.
On the other hand, if the principal debt generates additional costs, after the term of the bond, Mr. X will not be held of these additional expenses.
In other words, the surety is required, after the expiry of the bond, debts born during the period of the bond, even if they became due after the end of the suretyship contract (it is however always possible to exclude this case by specifying it in the contract).
As a result, after the guarantee contract has expired, the surety remains obliged to guarantee (obligation of payment):
- Debts that arose and became due between the signing of the deed of guarantee and the end of the act of suretyship;
- The debts that arose between the signing of the deed of guarantee and the end of the deed of guarantee and which became due after the end of the suretyship.
On the other hand, after the expiration of the guarantee contract, the surety is not obliged to guarantee other debts (which are not guaranteed in the guarantee contract) which arise only after the end of the suretyship (obligation of guarantee). blanket).
” The guarantee clause guaranteeing an 8-year loan, which provides that the bond is limited to four years from the disbursement of funds, has the sole effect of limiting the guarantee of the bond to the time agreed by the parties and not to require the creditor to bring proceedings against him within the same period. When the duration of the commitment is limited, the creditor can therefore continue the bond until the expiry of the limitation period (10 years for traders and 30 years for civilians) which begins to run from the day when the obligation principal is due .
The act of guarantee of indefinite duration and bond of a contract with successive executions
Things get complicated when the bond is given for a bank account, for example, which has an unlimited life span. It will then be important for the guarantor, over time, not to forget this commitment made.
On the other hand, the guarantor has the possibility of denouncing his deposit. As a result of the hedging obligation, it will be bound and obliged to repay the debtor amount on the day the bond is denounced if the account has not been credited in the meantime.
On the other hand, if the debit of the bank account becomes more important after the denunciation of the guarantee, it will not be theoretically not held of the difference.
For a current account, for example, the hedging obligation will be extinguished on the due date specified in the deed of guarantee in the event of a fixed-term guarantee, respectively on the date of termination in the event of a bond of indefinite duration.
The deposit is then held up to the amount of the provisional balance on the day of the term, minus the subsequent credit discounts which are deducted from this balance (Cassation, 19 October 1998, Versailles).
In a contract of successive executions, such as for example a lease contract, if in the deed of guarantee a duration shorter than that of the lease contract is fixed, this would mean that the obligation to pay relates only to the obligation to hedging at the terms of rents prior to the expiry of the term fixed in the deed of guarantee.
Conversely, if the duration of the bond is greater than that of the principal contract, the Court will decide, in the absence of clear clauses, that the duration of the bonding contract exceeding the duration of the main contract then corresponds to the obligation to regulation. It was judged thus for the duration of a guarantee contract which was 60 months, while the duration of the leasing was only 48 months.
In other words, 60 months is the expiry of the obligation to pay.
In conclusion, it is therefore obvious that one should not only pay attention to the moment of the signing of a deed of guarantee but also, when the call is made of the deposit, while it is necessary to verify that the principal debtor is always legally bound.
A guarantor will be too easily inclined to believe that if she has given her bond for a limited period of time, on the day of the end of the bond, she will no longer be liable to anything, which is not the case because of the obligation. of settlement, as developed above.
On the other hand, a creditor will tend to call on a bond in excess of the commitments made (for example, for debts arising after the maturity of the deed of guarantee, which is not possible because of the hedging obligation, as developed above).
The simple solutions set out above are not so obvious since they have been the subject of numerous case law, as jurisdictions are increasingly inclined to interpret the texts in favor of the consumer or the weaker signatory party.
The conditions of application of the law and analysis will not be made in the same way depending on whether the surety is commercial or not and that the bond is used for the purposes of the commercial activity of the surety himself.
To note, a trend towards increased protection of the deposit.
A decision of the Court of Cassation of 21 January 2016 revolutionized somewhat in the sense that it considered that the creditor, bank of the principal debtor, has the obligation of information and pre-contractual advice with regard to the surety and that it is not enough for him to rely on informed consent.
The surety must be in a position to determine the nature and extent of his undertaking as surety.
In this case, however, it was a commercial bond since the guarantor was a director of companies, having committed to guarantee, for very large amounts, the debts of a company (client of the bank ) which subsequently went bankrupt.
The case, referred to the Court of Appeal, dismissed the bail but the reflection evolves.
It follows from the above that, before entering into a bond, it is necessary to define precisely the limits, particularly the temporal limits, of the guarantee in the act of guarantee.