учебный год 2023 / de la Mata Munoz, Personal Security

64 Chapter 2: The contract ofguarantee

contract. This contract is different from that which has been guaranteed and it is, hence, not covered by the guarantee.

Art. 1851 Spanish CC is not applicable if the guarantor already knew about the possibility of the future extension of time at the moment of the conclusion of the contract. In this case it is thus unnecessary to ask for an express declaration of consent from the guarantor196• The Italian Supreme Court has applied the same reasoning to this matter197•

It seems clear that in Italy and Spain198 the extension of time is only seen as aggravation of the contractual conditions for the guarantor. In other neighbouring countries, by contrast, the extension of time is also seen as a possible benefit for the guarantor. The debtor, who is in financial difficulties at the due date, might be able to pay his obligation at a later time. The guarantor would be therefore discharged from his liability only because of the time extension. Based on this reasoning, the guarantor is not discharged in case of extension of time of the secured debt (art. 2039 French

d) Accessories

aa) In general

A guarantee which is agreed without special limitations ("indefinite guarantee") covers ex lege the content of the secured obligation and all its accessories. The Spanish CC explicitly establishes this provision in art. 1827 par. 2, with regard to the so-called indefinite guarantees. These are those guarantees in which the extent has only been determined by reference to the secured debt. Art. 1942 Italian CC establishes the same consequence for all guarantees "unless otherwise agreed", i.e. unless the accessories have not been expressly excluded (ex art. 1942 Italian CC). This provision is generally understood as being applicable to every guarantee for which there is no agreed maximum limit201 . Therefore the accessories are not covered by the guarantee if the parties have explicitly agreed to this point or if they have established a maximum limit for the liability of the guarantor.

196STS 8 May 1984 [RA 1984 no. 2399]. The Spanish Supreme Court has accordingly declared that art. 1851 Spanish CC is not applicable to future and conditional guarantees: STS 7 January 1981 [RA 1981 no. 3399]; STS 8 May 1984 [RA 1984 no. 2399] and STS 31 October 1984 [RA 1984 no. 5153].

197Cass. 26 February 1960 no. 350, GI, 1960, I, 1, 613. Contra: Giusti, 152.

198Also in England: Swire v. Redman (1876) 1 QBD 536 (QB).

199Art. 2039 French CC is not a mandatory provision and the parties can derogate

from it.

200 OGH 6 May 1954, OJZ 1954, 455 no. 312. 20 1 Giusti, 152 and 153.

the guarantee covers the loss of profits (lucro cesante) which are incurred by a landlord when a lessee remains in possession of a house206.

All these accessories derive from the secured debt and must have been agreed to before the creation of the guarantee207 . Those accessories that have been agreed in a posterior agreement imply a novation of the contract and are therefore not covered by the guarantee.

e) Costs oflegal proceedings

Art. 1942 Italian CC and art. 1827 par. 2 Spanish CC expressly refer to the costs of legal proceedings208 . This reference is only with regard to those proceedings which occur after the guarantor has been required to perform his obligation of payment. Such requirement does not need to be of a judicial nature or to follow any special form. However, the creditor must give

the guarantor an opportunity to accomplish performance. A mere notification of this requirement shall not be sufficient2091210•

In the case of joint and several guarantees the creditor may ask for payment from the debtor or any of the co-guarantors. Any of these requests constitute a demand for performance to the guarantor211 .

2. Guarantee exceeding the secured obligation or in duriorem causam. Reduction ofthe exceeding extent

By virtue of the principle of co-extensiveness, the extent of the guarantee (in regard to the amount, time for payment and conditions) cannot be greater than that of the underlying obligation. A guarantee exceeding the extent of the secured debt is not totally void by reason of invalid object but its extent is reduced to encompass only the limits of the principal obliga-

European countries the default interests and claims for damages caused by the debtor's lack of performance are not considered accessories but they are covered by the guarantee unless otherwise agreed. In Portugal this is explicitly established in art. 634 CC; in France and Germany it has been established by case law and scholars. For France see: Cass.civ. 10 May 1988 Bull.civ. 1988, I no. 134 and Simler, no. 300 ff. For Germany see: BGH 17 May 1994, NJW 1994, 1790; Horn/Staudinger on § 767 no. 25.

206SAP Asturias 13 May 1993 [AC 1993 no. 1009]; SAP Asturias 30 December 1996 [AC 1996 no. 2395] and SAP Madrid 19 April 1999 [AC 1999 no. 1666].

207See: Cass. 13 January 1928 cited by Giusti, 154; Carrasco, Cordero and Marin,

140.

208See also Germany(§ 767 par. 2 CC) and Portugal (art. 634 CC).

209Giusti, 155; Carrasco, Cordero and Marin, 144.

210The same is true for France, Belgium and Luxemburg (art. 2016 par. 1 CC) and the Netherlands (art. 7:856 par. 2 CC).

211Cass. 30 April 1952 no. 1203, FI 1952, voce Fideiussione, 890; Guilarte, 104.

tion. The guarantee obligation is void only for the part which is in excess, as set in art. 1941 par. 3 Italian CC and art. 1826 par. 2 Spanish CC212.

3. Convenience of establishing a maximum amount as legal constitutive requirement

a) In general

The basic limitation of the guarantor's liability is already established per relationem to the secured obligation; by virtue of the application of the principle of co-extensiveness. The parties are thus free to agree the terms and conditions that they may wish for. If they do not specify the limits of the assumed liability, the guarantor is therefore presumed to have granted the guarantee for the secured obligation (in addition of its accessories). This might be seen as a sufficient legal limitation of the guarantor's liability. However, the limitation of the guarantor's liability to a maximum amount is already very common in practice. Expert guarantors do not accept a risk which they cannot precisely define at the moment of assumption. Moreover, such limitation is known in neighbouring countries as a constitutive requirement ex lege (Switzerland, art. 493 Swiss Code of Obligations). It might therefore be arguable that it would be convenient to introduce the legal requirement to stipulate a maximum amount for every guarantee, which would contribute to the guarantor's awareness of the risk assumed and would establish a basic limitation thereof; something positive for every guarantor.

b) Special case: liability limitation for non-professional guarantors

Non-professional guarantors are usually more vulnerable than professional ones. They are commonly also financially weaker and/or more exposed to changes in their patrimonies. They deserve protection with regard to the risks that the guarantee might entail. In this sense, the awareness of the risk assumed and its limitation is desirable for this kind of guarantor. That is the reason why the legal requirement to fix a maximum amount in the case of the guarantor being non-professional has been introduced in the Netherlands (art. 7:858 par. 1 Dutch CC).

However, not every kind of guarantee entails the same level of risk for the non-professional guarantor. Limiting the liability for every kind of guarantee assumed by a non-professional appears to be an excessive protective measure. It seems more balanced to limit those types of guarantees,

212 See also art. 2013 French, Belgian and Luxembourgian CC; art. 7:851 and art. 7:860 Dutch CC; § 5 par. 2 Finnish Law of Guarantees; art. 851 Greek CC; art. 631 par. 2 Portuguese CC; § 767 par. 1 sent. 1 German CC is construed in the same way (Horn/ Staudinger on § 767 no. 4).

which entail a higher level of risk for non-professional guarantors, such as future or universal guarantees.

c) Special case: liability limitation for future guarantees

Italian CC specifically foresees in art. 1939 that guarantees created for future debts need to be limited with a maximum amount213 •

III. The extent ofa limited guarantee

The parties can limit the liability of the guarantor vis-a-vis the secured debt in terms of amount, conditions and time.

1. Limitation ofthe guarantee in terms ofamount

The guarantor might assume the guarantee for a part of the secured debt214• In this case, he is liable for the accessories which correspond to that part of the debt. Moreover if the debtor has partially performed his debt it will be held to be the part which is not covered by the guarantee.

A different way of limiting the guarantor's liability is to fix a certain maximum amount above which he cannot be required to perform. The accessories of the debt are also covered by the guarantee so long they, together with the secured debt, do not surpass the maximum limit of liability established by the parties.

2. Limitation ofthe guarantee in terms ofconditions

The guarantee can be agreed in leviorem causam i.e. it can be agreed under certain conditions which reduce the onerousity of the guarantor' s liability. For instance, it is very common for a guarantee to be created under the condition that the principal debt is secured by other security interests. In other cases, the guarantee only covers those liabilities of the debtor resulting from his fraud (dolo), or it only covers after all other guarantees have failed to satisfy the creditor215 •

3. Limitation ofthe guarantee in terms ofextension oftime

The parties can also establish a time limit for the guarantee beyond which it will be extinguished. However there is a state of ambiguity with regard to the extent of the guarantee within this time limit. It may be the case ei-

213 See under Chapter 2, C., IV., 3. The protection of the guarantor for future debts,

70.

214STS 30 January 1990 [RA 1990 no. 102] and STS 27 May 1990 [RA 1990 no.

1732].

215Carrasco, Cordero and Marin , 145.

scholars220 engaged in an extensive debate with regard to the validity of

guarantees for future debts, as it was also the case in Spain to a certain extent221 •

Some authors222 consider it essential that the underlying obligation exists previous to the valid constitution of a guarantee, as otherwise the principle of co-extensiveness would be breached. In contrast, others223 contend that it is possible to create a guarantee on future obligations, provided the minimum number of references are made as to enable the future identification of the secured obligation (conclusive evidence of the future obligation).

The constitution of guarantees for future obligations has been admitted within case law224 . A future guarantee can thus be created without there being a previously existing underlying obligation. The guarantor thus remains liable for the secured obligation from the moment it becomes existent.

3.The protection ofthe guarantor for future debts

a)The maximum amount

In Italy, guarantees for future obligations must by law establish a maximum amount (as stated in the last sentence of art. 1938 Italian CC). This provision was introduced in 1992225 to protect the guarantor who cannot exactly know the extent of the liability he is assuming when guaranteeing a future (and therefore undetermined) obligation. The guarantee for a future obligation in Italy must therefore necessarily be created as a limited guarantee.

The limitation ex lege of the risks assumed by the guarantors is surely a positive development, with significant practical implications. This is especially true for guarantees agreed for credit lines, as the guarantor may not be able to anticipate the extent of liability that the secured obligation could eventually reach.

While the limit set in art. 193 8 does provide a first layer of protection to the guarantor, it is arguable whether it should be considered enough, as the

220 See references to the discussion at that time in: Campogrande, 300 and from a current perspective in: Giusti, 156 and 157.

221See references in Guilarte, 104 f.

222Stolfi, In tema di fideiussione per debiti futuri, 225; Aru/D 'Amelio e Finzi, on art. 1936, 391.

223See: Fragali/Scialoja/Branca, 193; Cass. 17 February 1968 no. 570, GI 1969, I, I,

748.Guilarte, 107.

224Cass. I June 1936 no. 1187, GI, 1936, I, 642; SAP Santa Cruz de Tenerife 12 September 1994, AC 1994 no. 1517.

225Art. IO Law 17 February 1992, no. 154.

parties may agree a disproportionate limit as compared to the secured debt and the possible risk. Certainly, the fact that any limit (even a huge one) would be valid for a future obligation could jeopardize the protection effect of the provision. However, the mere fact of setting a maximum guaranteed sum serves to warn the guarantor of the possible level of risk he is assummg.

In contrast, Spanish law does not offer any protection to the guarantor even in cases of special risk like in the guarantee for future debts. The guarantor seems to be presumed to be aware of all the possible risks of granting a guarantee. Practical experience demonstrates, however, how weak, badly informed and easily manipulated guarantors can be. This is especially evident in the case of non-professional guarantors226 . A rule, by means of which the guarantor of a future obligation limits de facto his liability to a fixed amount and is thus reminded of the risk he is taking on, would also be a positive development in Spain. In the case of non-professional guarantors, such a provision would be necessary as they are particularly vulnerable parties.

b) Guarantor's discharge (art. 1956 Italian CC)

By means of art. 1956 Italian CC, the guarantor for a future obligation is released if the creditor, without special authorisation from the guarantor, has extended credit to the third party whilst knowing that the debtor's financial conditions are such as to render the satisfaction of the claim considerably more difficult.

This mandatory rule is especially relevant in the case of the guarantee of a current account as well as in all those cases where the creditor regularly extends credit through a period of time. In the structure of a secured claim, creditors are usually the parties with more information or with the necessary structures to get such information. Through this provision, guarantors also benefit from the creditor's information with regard to the debtor and are so protected from their lack of awareness. The risk that the creditor extends credit to a debtor in financial difficulties because he thinks he will be covered by the guarantor, is limited.

This provision was introduced in art. 1956 Italian CC by art. 10 of the Italian Law 17 February 1992 no. 154 as a new protective provision regarding guarantees for future debts. A similar rule does not exist in the Spanish CC. The protection of the guarantor in this type of situations is

226 This is the reason why art. 7:858 par. 1 Dutch CC establishes that if at the moment of constitution of the guarantee by a non-professional guarantor, the value of the secured obligation is not determined, the guarantee is only valid for the maximum amount agreed in money by the parties. The non-professional guarantor cannot derogate from this provision (art. 7:862 lit. a).

limited to proving the creditor's lack of good faith when granted subsequent credit. This is difficult, uncertain and time-consuming and therefore, the inclusion of a similar provision to art. 1956 Italian CC in Spanish law would be positive.

V.Guarantee for conditional obligations

1.In general

A guarantee may secure a conditional obligation. This possibility is specifically included in art. 1938 Italian CC and it is generally accepted as being valid in Spain227• The guarantee exists and is valid as soon as the agreement has been concluded. From that moment, the guarantee cannot be withdrawn228 but the guarantor cannot be required to provide payment until the obligation has come into existence, i.e. until the condition has been fulfilled229 •

2. The nature ofa guarantee for conditional obligations

Some Spanish legal authors regard the guarantee for a conditional obligation as a conditional contract230. Other Italian authors231 consider that the guarantee remains a pure (non-conditional) obligation, as this contract of guarantee itself is not subject to any conditions. It can of course also be held to be a conditional contract if the guarantee obligation is subject to conditions.

VI. The universal guarantee (fideiussione omnibus!fianza omnibus)

1. The concept ofuniversal guarantee

The term "universal guarantee" refers to the guarantee assumed for a group of obligations the content of which is still undetermined or which do not even exist but will or may fall due in the future. The content of the guarantee relates to the performance of any present and determined obligation and any future and undetermined obligation. These obligations may exist within a certain relationship or with regard to all the debts that might arise between a creditor and a debtor.

227The conditional obligation is a valid and existent obligation (see art. 1113 ff. Spanish CC) and can therefore be guaranteed. See Guilarte, 100.

228Guilarte, 100.

229Carrasco, Cordero and Marin, 149.

230See Guilarte, De la fianza, 1991, 1781; Diez-Picazo, Fundamentos, 424.

231Fragali/Scialoja/Branca, 195 ff.

2. Practical applications

a) In general

Many commercial relationships are of a long-term variety. In many cases there are different simultaneous contractual relationships, which serve to create a plurality of different obligations. In all these cases the creditor normally requires a guarantee for the complete operation or for the complete ensemble of relationships; i.e. a guarantee for all the claims that he may have against the debtor in present or in the future.

b) Advantages for the parties

In contractually agreeing a universal guarantee, the bank avoids the administrative and negotiation costs of forming a contract for every new guarantee. Moreover, the grant of continuous credits by the same bank to the same creditor could be seen as an extension of time (pr6rroga) or as an essential modification of the terms and conditions of the original agreed guarantee. This would introduce the risk that the guarantor would try to be discharged from some of the obligations on the basis of art. 1955 Italian CC and art. 1851 Spanish CC. The universal guarantee reduces this risk, as the parties agree a single contract of guarantee which serves to cover all obligations. These are the main reasons why banks usually prefer universal guarantee and force debtors to agree to these arrangements. In any case a universal guarantee makes the debtor's relation with the bank more flexible and easier to manage, which can be crucial for the successful running of certain businesses or in certain commercial situations. This is often the case in the context of project finance, especially if the project regards the creation of infrastructures and as such, extended over a long period of time.

c) Clauses used in banking practice in order to create a universal guarantee

The terms used in banking practice are usually very general. These clauses endeavour to include as many future obligations as possible or every obligation that exists between the creditor and the debtor.

The Italian Banking Association (ABI)232 has defined the wording of atypical clause for the creation of a universal guarantee: "the guarantee covers the performance of any kind of obligation vis-a-vis the bank, which arises from banking operations of any nature, already agreed or to be

232 The ABI is the regulatory institution in Italian banking practice that establishes basic rules or general banking practice through the Unitary Banking Rules (Norme Bancarie Uniforme), circulars and other soft law documents.