Surety plays a major role in our economy. This personal surety enables a creditor to obtain a commitment from a third party to guarantee the debt of a defaulting debtor. The mechanism seems simple, but its characteristics deserve attention. For more information, visit understand in detail the mechanisms and pitfalls of surety bondsThis article provides an essential contextualisation of its specific characteristics.
The reform of sureties of 15 September 2021 has radically changed the rules governing surety bonds. It is now time to examine its essential features.
I. The accessory nature of the guarantee
Accessoriety is the very essence of surety bonds. This means that the security depends on the principal obligation that it guarantees.
"A suretyship is a contract by which a guarantor undertakes to pay the debtor's debt to the creditor in the event of the debtor's default" (article 2288 of the French Civil Code). This legal definition reveals the ancillary nature of surety: the guarantor undertakes to pay another person's debt.
There are many practical consequences:
- The nullity of the principal obligation entails the nullity of the guarantee
- The amount of the guarantee cannot exceed the amount of the principal debt
- The guarantor may raise the principal debtor's objections against the creditor
This dependence of the guarantor's undertaking on the principal debt distinguishes it from other personal sureties such as autonomous guarantees.
There are, however, limits to accessoriality. In insolvency proceedings, certain aspects of accessoriality are set aside. The guarantor may remain liable despite the discounts granted to the principal debtor.
II. The unilateral nature of guarantees
Guarantees are traditionally unilateral contracts. Only the guarantor makes a commitment. The creditor simply accepts this undertaking without making any reciprocal commitment. This form is only one of many forms of guarantee whether simple, joint, civil or commercial.
This qualification has concrete effects:
- The surety bond must comply with the handwritten requirements set out in Article 1376 of the Civil Code
- The formal requirements of Article 1375 (drafting in duplicate) do not apply.
- The guarantor cannot invoke the defence of non-performance
Over time, case law has imposed various obligations on the creditor: annual information, information on payment incidents, warnings. These duties attenuate unilateralism without calling into question the principle. The Cour de cassation confirms that these are legal, not contractual, obligations.
The parties are free to enter into a synallagmatic guarantee with reciprocal obligations. The creditor may undertake to grant a deferment of payment, reduce the interest rate or release another security.
III. The question of onerousness
Is a surety bond free or onerous? The question is divisive.
It seems difficult to classify a guarantee as an act for valuable consideration, since the guarantor generally receives no consideration from the creditor.
Conversely, describing it as a gratuitous act poses a problem. The guarantor often has no liberal intention towards the creditor. Instead, they seek to do a favour for the principal debtor, who is a third party to the contract.
Some authors suggest that surety bonds should be described as neutral acts, neither onerous nor gratuitous.
Case law avoids applying the rules specific to gratuitous acts to guarantees. The Court of Cassation has refused to include surety bonds among the gratuitous acts covered by article 1422 of the Civil Code, for which the consent of both spouses is required.
Paid guarantees (bank guarantees) remain unilateral because the remuneration is paid by the debtor, a third party to the contract, and not by the creditor.
IV. Solemnity of the guarantee
Surety bonds have long been consensual contracts. Its formation did not require any particular form.
The reform of 15 September 2021 has changed all that. To understand theimpact of these recent orders on the law governing surety bonds, article 2297 of the Civil Code now requires, on pain of nullity, that the guarantor, a natural person, affix a statement expressing several elements:
- His capacity as guarantor
- Its undertaking to pay the debt in the event of default by the debtor
- The amount in principal and incidentals, in words and figures
- Waiver of the benefits of discussion or division, where applicable
These requirements mark the transition from a consensual contract to a solemn one.
Unlike previous texts, article 2297 does not provide a mandatory model. It simply indicates the content that the notice must have. This flexibility should limit the disputes that have arisen in the past over the conformity of notices to the legal model.
The statement no longer has to be handwritten, which means that guarantees can now be signed electronically. One question remains unanswered: are notarised guarantees or guarantees countersigned by a lawyer subject to this requirement?
Failure to comply with these formalities is punishable by relative nullity, which can only be invoked by the guarantor.
Guarantees can be transformed and adapted. These characteristics make surety bonds both useful and complex. For in-depth legal advice on the nature and implications of the characteristics of surety bonds in your specific situation, our lawyers specialising in surety bonds offer you expert support.
Sources
- Civil Code, articles 2288 to 2320
- Order no. 2021-1192 of 15 September 2021 reforming the law on securities
- G. Piette, "Droit des sûretés", 15th edition, 2021, Gualino
- P. Simler, "Cautionnement, garanties autonomes, garanties indemnitaires", 5th edition, 2015, LexisNexis
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