The surety is an agreement whereby someone guarantees a commitment and thereby undertakes towards a creditor to comply with that undertaking if the debtor does not himself comply with it (art. 2011 Dutch Civil Code).
The guarantee is a consensual, unilateral and additional agreement that is concluded in principle ‘for free’:
- Consensual: The bail arises from the mere consent of the parties. To protect the deposit to some extent, the guarantee must have been explicitly entered into; bail is not suspected and can therefore not be tacitly entered (art. 2015 BW).
- Unilateral: The guarantor is the only party to the bail and undertakes the commitment.
- Additional: The guarantee is always linked to what the principal debtor owes the creditor. This implies that the bail cannot be entered into for more than what the principal debtor owes, nor under more burdensome conditions. If this is the case, the guarantee can be reduced to what is included in the main commitment (art. 2013 Dutch Civil Code). The guarantee can also only exist for a valid main commitment (Article 2012, paragraph 1 of the Dutch Civil Code). Nevertheless, a relatively void undertaking can be guaranteed, being an undertaking that could be annulled by an objection that only concerns the person personally, for example in the case of a minor (art. 2012 paragraph 2 BW).
- For free: The bail was initially a contract that was entered into ‘for free’. Nowadays, however, more and more is being asked for a consideration in exchange for a guarantee. For example, guarantee agreements (such as a bank guarantee) mainly apply to credit agreements and always against payment. So there is talk of the bail becoming more businesslike. In the context of guarantees, there are also mechanisms that have a certain form of independence (such as, for example, a ‘guarantee (on first request)’, whereby the additional nature of the guarantee disappears.
The validity of a guarantee must meet the four elements that apply to each agreement, namely permission, ability, valid object and lawful cause.
Types of bail
The conventional, legal and judicial deposit
The conventional surety is a security contract that is concluded at the request of the creditor. After all, the creditor only wishes to conclude an agreement with the principal debtor, on the condition that this debtor can provide additional security in the form of a guarantee (art. 2014 BW).
One speaks of a legal or judicial surety, when the law (for example in the case of usufruct) or a judicial decision (For example, enforceability in the case of stock with surety) obliges to look for a surety. In such cases, the guarantor must be capable of entering into contracts, he must be sufficiently well-rested to fulfill the obligation, and he must be domiciled within the jurisdiction of the court of appeal where the guarantee must take place (art. 2040 and 2018-2020 BW). If the debtor cannot find a guarantee, he is entitled to give sufficient pledge instead (art. 2041 BW). If no guarantee is provided, the insured right will be temporarily suspended (see Article 601 of the Dutch Civil Code in the event of usufruct and Article 1346 of the Dutch Civil Code in the case of enforceability with regard to stock and obligation to guarantee).
The same regulation applies to legal and judicial guarantees as to conventional guarantees. Only the guarantors do not enjoy the privilege of enforcement (art. 2042 BW)
The civil and commercial deposit
If the principal obligation guaranteed by the guarantor is of a civil nature, then the bail is of a civil nature. On the other hand, if the main commitment is of a commercial nature, then the guarantee is also.
The free deposit
The free bail is the act by which a natural person insures a principal debt free of charge in favor of a creditor. The free nature of the guarantee relates to the absence of any economic advantage, either directly or indirectly, that the guarantee can enjoy thanks to the guarantee (art. 2043bis a) BW). The classic example of a free bail is that of parents who voluntarily stand surety for their children. The manager of a company that acts as a guarantor for a debt of his company is not free of charge.
In the case of a bail free of charge, this bail shall be void if a bail has been concluded, the amount of which is apparently disproportionate to the repayment possibilities of the guarantor, whereby this possibility must be assessed in the light of movable and immovable property income of the latter (art. 2043sexies §2 BW). The amount for which you are required to act as a guarantor must therefore be proportionate to your repayment options.
In addition, the free deposit is also legally released in a number of cases if certain conditions are met (see art. 80 Bankruptcy Act if one has provided a free deposit for a bankrupt and Art. 1675 / 16bis Ger.W. if one has given itself a free deposit for someone who is in a collective debt settlement procedure).
In addition, if a certain debt is insured, the amount of the guarantee is limited to the sum specified in the contract, plus the interest at the legal or conventional interest, but without this interest being allowed to exceed 50% of the principal. (art. 2043sexies §1 BW). An ‘all sums’ guarantee in which someone guarantees all future debts of a principal debtor towards, for example. a bank, is therefore prohibited with a free bail.
The free bail must also be the subject of a written agreement that differs from the main agreement (art. 2043quinquies §1 BW). The duration of the principal obligation must be specified in the guarantee agreement, and in the case of a guarantee for a principal obligation concluded for an indefinite period, the duration of the guarantee agreement may not exceed five years (art. 2043quinquies §2 BW).
Finally, the creditor must inform the guarantor at least once a year about the regular performance of the agreement by the debtor. He must be informed of the non-execution (art. 2043septies BW)
Incidentally, if the free guarantor should die, the obligations of the guarantor’s heirs with regard to the guarantee are limited to the inheritance that belongs to each of them (art. 2043oo BW).
Consequences of the guarantee
The guarantee is an additional commitment and therefore only takes effect if the debtor fails to perform.
If the guarantor is summoned by the creditor in payment, then the guarantor may summon the principal debtor in custody (art. 857 of the Judicial Code). This waiver of exemption is generally raised to make it easier to raise objections against the creditor attached to the principal obligation, the existence of which is generally confined to the debtor (Article 2031 (2) of the Dutch Civil Code).
The guarantor can, even before he has paid, sue the debtor in a number of cases to be compensated by him. For example if the debtor has gone bankrupt, or is in a state of apparent inability (art. 2032 BW). The guarantor can therefore demand security from the debtor.
After the guarantor has paid the creditor, the guarantor has its own claim against the debtor for repayment.
The guarantor is obliged to pay the principal debtor’s obligation towards the creditor if the latter is in default to meet this obligation. The creditor does not first have to declare the debtor liable or declare him liable for payment before he can appeal to the guarantor (art. 2011 Dutch Civil Code).
If the guarantor is addressed by the creditor, he can invoke two privileges:
- The privilege of enforcement: On the basis of this privilege, the guarantor can oblige the creditor to first seize the property of the principal debtor before seizing the property of the guarantor; the guarantor demanding the enforcement must then indicate to the creditor the assets of the debtor that can be seized (art. 2012-2023 BW)
- The privilege of splitting debts: In case there are several guarantors, each guarantor can claim that the creditor divides his claim and reduces it to the share of each guarantor (art. 2026 BW)
These privileges are of additional right, which means that parties can eliminate them contractually. If there is a joint and several guarantee, then both privileges cannot be invoked.
Relationship between guarantors
If different persons have given guarantees for the same debtor and for the same debt, the guarantor who has paid the debt will have recourse to the other guarantors, each for his share (Article 2033, paragraph 1 of the Dutch Civil Code).
Bail and consumer credit
Articles 34-37 of the Consumer Credit Law of 12 June 1991 contain a number of additional protective measures for the guarantee for credits covered by this law.
When the guarantee is established, (i) the lender must provide the guarantor with a copy of the credit contract in advance and free of charge, (ii) the lender inform the guarantor of the formation of the credit agreement, and (iii) the guarantee agreement state accurately the amount that is guaranteed.
During the contract, the guarantor must be notified of (i) any change to the credit agreement, (ii) as soon as there are two arrears or a delay of 20% in the payment of the consumer-debtor, (iii) any payment facility that the creditor granted to the consumer-debtor.
Finally, the guarantor can only be used if the debtor-consumer has been given notice of default by the creditor.
End of the guarantee
The bail is an additional contract and is therefore only canceled if the main commitment is canceled.
The bail may also be canceled in the case of:
- The creditor voluntarily accepts a property or any other property in payment of the principal debt (art. 2038 BW)
- The legal dismissal of the guarantor when, due to the fault of the creditor, he can no longer enter into the rights, mortgages and privileges of that creditor (art. 2037 BW)
- The guarantee of one of the spouses endangering the interests of the family (insofar as this nullity is claimed by the other spouse) (art. 224 §1, 4 ° BW)
Given the sometimes far-reaching financial consequences of signing a guarantee, it is advisable to seek prior advice from a lawyer. Even if you are approached as a guarantor, it is advisable to consult a lawyer to know your rights (possibly as a careless guarantor). Do not hesitate to contact us for this.