A surety bond is a contract in which one person undertakes to pay the debt of another in the event of default. Simple on the face of it, this mechanism conceals a number of risks. Order of 15 September 2021 overhauled this law, which had previously been scattered across a number of different codes.
The fundamentals of bonding
Article 2288 of the French Civil Code defines surety as "a contract by which a guarantor undertakes to pay a creditor's debt in the event of the debtor's default".
There are several types of guarantees:
- Legal or judicial
- Single or joint
- Definite or indefinite
A sub-guarantee is a contract in which a person undertakes to pay the guarantor what the debtor may owe.
The guarantee creates obligations for the guarantor alone. It is a unilateral contract. Its distinctive feature is its ancillary nature the guarantor's debt depends on the principal obligation. If the principal obligation is null and void, so is the guarantee.
Guarantees: conditions and consequences
Like any contract, a surety bond must comply with the following conditions standard validity conditions. The 2021 reform changed certain rules.
The guarantor's consent must be express. Article 2291 of the French Civil Code requires the guarantor, who is a natural person, to indicate his or her commitment, with a precise amount. Since 2021, there has been no need for a handwritten statement - guarantees can be entered into electronically.
The guaranteed debt must be precisely defined and the debtor identified. A guarantee can only be given in respect of a valid obligation.
The guarantor's capacity is essential. A minor or an adult under guardianship may not act as guarantor. The professional creditor must check that the commitment is proportionate to the income and assets of the individual guarantor.
The effects and risks of surety bonds
In the relationship between guarantor and creditorIf the guarantor fails to pay, the guarantor may not be sued before the debt is due and payable.
A simple guarantee allows the guarantor to invoke the benefit of discussion (obliging the creditor to sue the debtor first) and the benefit of division (dividing the proceedings between all the guarantors).
A joint and several guarantee deprives the guarantor of these benefits. It may be sued directly, as if it were the principal debtor.
A guarantor who has paid has two remedies against the debtor:
- Personal recourse for principal, interest and costs
- A subrogation remedy enabling it to exercise the creditor's rights
Between guarantors, the one who has paid can take action against the others, each for its share.
Security deposit protection
The legislator has strengthened the protection of guarantors:
- Annual information: before 31 March, the professional creditor must inform the individual guarantor of the amount of the debt at the previous 31 December. The creditor must also remind the guarantor of the term of the commitment or the option to terminate it.
- Information on default: the professional creditor must inform the guarantor as soon as the first payment incident is not remedied within one month.
The penalty is severe: forfeiture of the guarantee for interest and penalties accrued between the date of the incident and the date of notification.
- Duty to warn: the professional creditor must warn the guarantor when the principal debtor's commitment is unsuited to his financial capacities.
- Principle of proportionality: if the guarantee is manifestly disproportionate to the guarantor's income and assets at the time it is entered into, it will be reduced.
How to get out of a surety bond
The guarantee is extinguished by accessory or principal means.
By accessory means, the guarantor is discharged when the principal obligation is extinguished: by payment, remission of debt, prescription, novation, confusion or nullity.
By principal means, the guarantee is extinguished by the same causes as other obligations. In the case of an open-ended guarantee, the guarantor may terminate it at any time.
The guarantor is discharged when subrogation to the creditor's rights can no longer take place through the creditor's fault.
In the case of an open-ended guarantee for future debts, the guarantor may terminate the guarantee at any time. The guarantor remains liable for debts incurred prior to termination.
The heirs of a guarantor are only liable for debts incurred prior to the death of the guarantor.
To remember
A surety bond is a risky commitment that deserves careful thought. Before signing :
- Evaluate your financial capacity
- Limit your commitment in time and amount
- Keep all documents
- Check compliance with information obligations
If you have any problems, consult a lawyer to analyse possible means of defence.
Sources
- Civil Code, articles 2288 to 2320
- Order no. 2021-1192 of 15 September 2021
EN 
FR