учебный год 2023 / de la Mata Munoz, Personal Security

84 Chapter 2: The contract ofguarantee

has supplemented case law in order to provide protection to nonprofessional guarantors as being particularly weak278.

Spain has not participated within this positive protective trend. There is no specific regulation and case law has failed to provide with protection to the guarantor in general and the universal guarantor in particular. Only since the decision of 23 February 2000 there has been a moderate interest in the protection of the guarantor. This has however been indirect and limited in scope and there seems to be little enthusiasm to develop beyond this state of affairs.

It is difficult to discern the reasons for the passive attitude of the courts and also the academics with regard to this matter; the result being that the guarantor, as generally the weakest party, is not sufficiently protected. A change in the regulation of the guarantee in line with the Italian example would therefore be desirable. Also the courts should be more stringent on a case by case basis with regard to the guarantor's protection.

VII. Guarantee for an invalid obligation

1. The guarantee for a void obligation

a) In general

The validity of the guarantee depends on the validity of the secured obligation (art. 1939 Italian CC and art. 1824 Spanish CC). If the secured obligation does not exist, the guarantor shall be discharged according to the secondary nature of the guarantee. However, it might be the case that the guarantee has been agreed in such terms as to cover specifically the incidence of nullity of the principal obligation and the consequences thereof79. This will happen a) if the guarantor has compelled himself explicitly with regard to the case of nullity, b) he has compelled himself unconditionally and has therefore included the case of the nullity of the principal

obligation280, or c) if he knew at the moment of contracting that the secured obligation was void2811282 .

It can be concluded that the declaration of nullity of the secured obligation affects the extent of the guarantee in different ways depending on the terms in which the guarantee has been agreed and the reasons for nullity.

278See references above.

279This possibility is also considered valid in Germany. See BGH 12 Febraury 1987, NJW 1987, 2076. Horn/Staudinger, on§ 765, no. 80 ff.

280See hereinafter Chapter 2, C., VII., b) The guarantee explicitly granted for the case of nullity of the secured obligation, 85.

281See hereinafter Chapter 2, C., VII., c) The guarantor's awareness of the nullity of the secured obligation, 86.

282See Bozzi, La fideiussione, 1995, 68 f.

Either the guarantee is automatically extinguished as a consequence of the nullity of the principal obligation or it is considered granted for the event of nullity of the principal obligation and is therefore valid. In that case, the guarantor will be liable for the legal consequences arising from the declaration of nullity like the duty of restitution or damages. Both cases have been admitted in Spanish case law. In a case where the secured obligation was void due to the lack of formal requirements, the guarantee was considered also extinguished as a consequence of its ancillary nature283. However, in a previous decision, Spanish Supreme Court had considered that the

guarantee covered specifically the case of nullity of the secured obligation284.

The guarantee agreement shall be construed as to determine whether nullity of the secured debt is covered or not. The real will of the parties to this extent shall be thereby explored ("integrative construal"285). Hence, if it can be determined that the parties wanted to cover the situation of nulli- ty, the guarantee cannot be considered extinguished by the declaration of nullity of the principal debt but it will cover the negative effects arising from it.

b) The guarantee explicitly grantedfor the case ofnullity ofthe secured obligation

If the guarantee expressly secures the nullity of the principal obligation, the object of the guarantee is not the underlying obligation but rather the patrimonial consequences or liabilities arising from the nullity, i.e. guarantee for the refund, damages, etc. Such guarantees are not always valid. The courts must evaluate whether it is legitimate to guarantee a situation that has been classified as void. In this sense, a guarantee may cover the nullity of the principal obligation for lack of essential formal or procedural requirements but may not cover the cases in which nullity is based on a qualitative important reason, like a mandatory provision that serves to protect the interests of a weaker group. In that case the guarantee would make possible a result that was prohibited by the law. In this respect, it is vital to analyse whether the reasons for the nullity of the principal obligation are such as to consider void the guarantee of the consequential liabilities of such nullity286. For instance, a guarantee can be validly constituted for the obligation to refund the payment performed by the buyer if the wife of the seller does not consent to the alienation of a common immovable asset.

283STS 23 November 1990 [RA 1990 no. 9044].

284STS 6 March 1961 [RA 1961 no. 937].

285Carrasco, Cordero and Marin, 152.

286STS 15 February 1982 [RA 1982 no. 689]; Carrasco, Cordero and Marin, 150.

The nullity of the primary liability is based on an essential formal defect and can hence be validly guaranteed.

c) The guarantor's awareness ofthe nullity ofthe secured obligation

If the guarantor secures the underlying obligation being aware that it is void, the court will endeavour to construe the real intention of the guarantor. The guarantee obligation is not necessarily extinguished by virtue of being the secondary obligation of a void secured debt. It might be the case that the guarantor desired to remain liable for the secured obligation as the primary debtor, or that he has guaranteed the consequences of the nullity (damages, etc), or that the guarantee is a penalty clause which becomes operational in the case of the nullity of the principal obligation. The courts must analyse the evidence and decide on a case by case basis.

2. Nullity ofthe secured obligation by reason ofsimulation

The secured obligation may have been simulated (relative simulation); i.e. the real will of the parties was to agree a different obligation than that declared in the contract. Since the simulation is relative and not absolute, the simulated contract shall not void but it will be converted according to the real intention of the parties. It has been controversial whether the guarantee of such void obligation remains valid if the underlying contract has been converted into a valid one. This has been considered to be possible under the condition that it can be logically and strongly presumed that the guarantor would have also guaranteed the valid new obligation, as his intention was to provide a guarantee and to assume the risk associated with it287• It is hence a matter of interpretation in each case. In general, if the guarantor knew the real intention of the parties then the guarantee is not void but is held to have been agreed for the "hidden" obligation288. In order for this conclusion to be reached there must be adequate proof of the guarantor's knowledge of the simulation. If the guarantor did not know about it, or if the simulation has been absolute (there is no hidden obligation desired by the parties), then the guarantee is void due to a lack of causa in the guarantee contract289.

3. Nullity caused by the guarantor

The guarantor who has caused a) the nullity of the principal obligation or b) the nullity of the guarantee obligation290 will not be entitled to allege

287Fraga/i/Scialoja/Branca, 199; Giusti, 121.

288See Petti, 145.

289Bozzi, La fideiussione, 1995, 69.

290STS 12 January 1989 [RA 1989 no. 100].

such nullity in order to be discharged from his obligation to perform. This is a direct consequence of the principle of good faith. In the first case, the guarantor will not be discharged of his guarantee obligation even if it is the debtor that alleges the nullity of the principal obligation. The guarantor shall be then considered principally liable291 • Accordingly, the guarantor

cannot oppose simulation of the principal obligation if he has taken part on it292 or if he had notice of it before the creation of the guarantee293 . Another

example is the case in which the misrepresentation of the parties to the contract is previously known by the guarantor. In this case the guarantor cannot allege nullity294 •

4. Nullity and avoidability

If the obligation is null this means that it possesses an essential defect which invalidates its effect from the moment of its creation. Every person, including the parties to the contract, can ask for nullity to be declared. This is a right which does not prescribe. In contrast a voidable obligation is valid so long its avoidance has not been requested by one of the parties who are entitled to seek this declaration. Furthermore this declaration must be sought within a specific time limit (four years from the constitution of the contract). The guarantee of a voidable debt is valid until the secured obligation is in fact declared null. Until that moment, the guarantor cannot allege this avoidability.

5. Validity ofthe waiver by the guarantor to set up the defence ofnullity ofthe secured obligation. The case ofguarantees on first demand

In current banking practice it is common for guarantees to be agreed on first demand. These guarantees state that the guarantor must perform upon demand of the creditor. He cannot allege that the secured debt is invalid, nor can he set up the defenses which are available to the debtor. In this situation the guarantor has expressly waived rights which have been established by the law on guarantees as a consequence of the guarantee's ancillary character295 • They are essential to its nature and they are therefore mandatory. If the guarantor renounces these rights then the contract cannot be considered to be a guarantee. Therefore the question is that of how to

291Carrasco, Cordero and Marin, 151.

292STS 10 July 1995 [RA 1995 no. 5561].

293SAP Vizcaya 10 July 1998 [AC 1998 no. 1382].

294STS 16 October 1989 [RA 1989 no. 6925].

295See for German law BGH 10 February 2000, NJW 2000, 1563 f. and references

therein. This decision of the German supreme Court regards as case of guarantee on first demand (Burgschaft auf erstes Anfordern) and states that guarantors of these kind keep the right to raise defences in case of abuse (Rechtsmiflbrauch).

determine whether the guarantee is void or it can be converted into a different contract.

The autonomous or non-ancillary guarantee has been accepted within Italian and Spanish Law. Thus a guarantee which is agreed including a derogation from the rules regarding the ancillary nature is automatically converted into an indemnity (autonomous or non-ancillary guarantee)296. This act of derogation implies that there is an asymmetry between the parties. Hence it is only legally acceptable if the guarantor is a professional guarantor, i.e. the guarantor is not the weaker party within the contract. If such a waiver is made by a non-professional guarantor, this would thus be considered to be an unfair clause (clausola vessatoria)297. It would therefore be invalid by virtue of the application of consumer protection laws298 •

It can therefore be concluded that a waiver by the guarantor of his right to allege the nullity of the principal obligation in order to avoid performance, is only possible if the guarantor is a professional guarantor. An indemnity is thereby agreed. If this is not the case then the guarantee is also void.

VIII. Limitation ofthe extent by the agreement ofcertain conditions

The guarantee can be agreed under certain conditions provided they do not render the guarantor's obligation more onerous than the principal debt. Favourable conditions such as a longer term of duration; a lower rate of interest; the establishment of a different place of payment, may be agreed if they are more convenient for the guarantor with regard to the principal obligation299•

296Italian and Spanish case law accepts the validity of clauses "on first demand" on application of the principle of free will of the contracting parties. This inclusion within a contract of guarantee, converts the contract into an atypical personal security contract (Cass. 3 September 1966 no. 2310; Cass. 31 August 1984 no. 4738; Cass. 3 February 1999 no. 920; Cass. 21 April 1999 no. 3964 cited by Petti 144; STS 12 November 2003 [RA 2003 no. 8408]; STS 31 May 2003 [RA 2003 no. 5217] with further references).

297According to art. 1469 bis par. 2 no. 2 Italian CC such a clause shall be presumed to be unfair (vessatoria) as it reduces the rights of the guarantor in general and it also specifically limits hid possible right to set up defences (according to no. 18).

298Art. 1469 bis Italian CC (introduced by art. 25, Italian law 6 February 1996, no. 52). Italian Law 1998 no. 281 shall also be applicable in this context. According to its content, the weaker party to a contract has the right to be treated correctly with transparency and equality within the contractual relationship. These rights cannot be renounced. Spanish Law 7/1998, of 13 April, sobre las condiciones generales de la contrataci6n and art. 10 Law 26/1984 of 19 July, General for Consumers and Users (LGDCU). These regu-

lations are the transposition of EU Directive 93/13 .

299 Cass. 9 December 1997 no. 12456, GI, 1998, I, 1, 11.

The creditor may assign his secured debt without the consent of the guarantor. He only needs to notify the assignment to the guarantor (and not only the debtor). If the guarantor was not informed and performs to the assignor, he will be discharged even if the debtor had been informed about the assignment.

The guarantee can only be assigned together with the secured debt. Otherwise the guarantee extinguishes, as a consequence of the principle of coextensiveness. Accordingly, if both the creditor and the debtor excluded the possibility to assign the secured obligation, the guarantee cannot be assigned. In this case upon request for payment, the guarantor may set up against the new creditor the debtor's defence that the assignment was not allowed and avoid performance. If the guarantor agreed on the transfer, he becomes principal debtor of a new debt. In this case there is novation of the guarantee obligation.

The parties may also agree the discharge of the guarantor in case the underlying obligation is assigned.

2. Creditor's duties before the debt has become due and payable

a) In general

The creditor has certain duties vis-a-vis the guarantor even in the case of a unilateral contract of guarantee. The aim of these duties is to preserve the rights of the guarantor to be reimbursed upon performance. They are not reciprocal obligations regarding the guarantor's liability but if the creditor does not accomplish these duties, the guarantor is discharged from his duty to perform.

Moreover, the parties may agree any kind of legal conditions. For instance, if the creditor consented to remunerate the guarantor for the assumption of the guarantee, the payment of the price agreed is a condition of validity of the contract.

b) Duty to inform about the debtor's delay in secondary guarantees

The guarantor of a secondary guarantee301 becomes liable upon the debtor's default. He must be informed about such default in order to perform his obligation. In contrast with other civil legislations302, Italian and Span-

301Guarantees upon Spanish law are ex lege secondary. In Italy, the guarantee is secondary when the benefit of discussion has been agreed.

302According to art. 7: 855 par. 2 Dutch CC when the creditor requires the debtor for payment, he must also give notice to the guarantor: "De schuldeiser die de hoofdschuldenaar overeenkomstig artikel 82 van Boek 6 in gebreke stelt, is verplicht hiervan tegelijkertijd de borg mededeling te doen". If the guarantor is not professional, the provision is mandatory (art. 7: 862 lit. a).

ish regulations do not directly set up the creditor's duty to inform the guarantor about the debtor's default. However, it is a direct consequence of the principle of good faith303, especially if the guarantor could not otherwise have known whether the debtor had performed on time or not. The mere information about the debtor's default shall be considered enough. No formalities are required.

Moreover, according to Spanish law if the creditor did not demand the guarantor to perform, the latter is discharged of the expenses of the suit (art. 1827 par. 2 Spanish CC). Such a demand does not need to be judicial but a simple requirement. The rule in art. 1827 par. 2 Spanish CC regards uniquely the expenses of the suit, which is a too weak consequence of the lack of information by the creditor. There are other expenses, like the moratory interests, which should not be covered by the guarantor who did not know about the need or possibility to perform.

c) Duty to inform about the debtor's financial difficulties

In Italy and Spain the creditor does not have a duty to inform the guarantor about the debtor's financial difficulties. Not even consumer guarantors in critical situations have the right to be informed until default has finally taken place.

Recent tendencies in neighbouring countries have introduced such duty at least for consumer guarantors. In France, private guarantors must be informed at least once a year about any changes in the secured obligation304. Also, in Belgium special regulation on consumer credit sets up the creditor's duty to inform the guarantor in case of defaults of two payments

In Finland the creditor must inform the guarantor of the debtor's default within one month (§ 4 par. 2 Finnish Law on Guarantee).

According to art. 505 par. 1 Swiss Code of Obligations, the creditor must notify the debtor' s default six months after the obligation was due and payable. If he fails to do so, he looses his rights against the guarantor and remains liable for the damages caused (art. 505 par. 3). Art. 505: "Avis du creancier et intervention dans la faillite et le concordat du debiteur. 1. Lorsque le debiteur est en retard de six mois pour un paiement de capital ou pour l'interet d'un semestre ou pour un amortissement annuel, le creancier doit aviser la caution. Sur demande, il doit en tout temps la renseigner sur l'etat de la dette. (...) 3. Si le creancier omet l'une de ces formalites, il perd ses droits contre la caution a concurrence du prejudice resultant pour elle de cette omission" .

303Also in Germany but only exceptionally if lack of information would seriously damage the guarantor's interest (OLG Bamberg, 13 December 1999, WM 2000, 1582 ss).

304Art. 2016 par. 2 CC: "Lorsque ce cautionnement est contracte par une personne

physique, celle-ci est informee par le creancier de l'evolution du montant de la creance garantie et de ces accessoires au moins annuellement ala date comvemue entre les paries OU,, a defaut, a la date anniversaire du COntrat, SOUS peine de decheance de tOUS les accessories de la dette, frais et penalites" introduced by art. 47 par. 2 sent. 2 loi no. 98657 du 29 juillet 1998, art. 101) and Cass. Civ. 16 March 1999, D. 1999 I.R. 99.

92 Chapter 2: The contract ofguarantee

or a fifth of the debt by the consumer debtor and about the modifications of the contract of credit and payment facilities granted to the debtor305• In Finland, the duty to inform is subject to the guarantor's request306.

This modern tendency has also been observed in the elaboration of the Rules on Personal Security of the Study Group on a European Civil Code307, which art. 2: 107 par. 1 establishes "The creditor must notify without undue delay the security provider in case of a non-performance by or inability to pay of the debtor as well as of an extension of maturity; this notification must include information about the secured amounts of the principal obligation, interest and other ancillary obligations owed by the debtor on the date of notification. No notification is required if an event of non-performance merely relates to ancillary obligations of the debtor, unless the total amount of all non-performed secured obligations has reached five percent of the outstanding amount of the secured obligation".

Such a duty of information is not too hard a charge for the creditor and means an important benefit to the guarantor, who can start taking action to avoid payment in critical situations. Italian and Spanish regulations have remained conventional on this matter but a modification would be beneficial.

d) Duty to notify the assignment

The creditor must inform the guarantor of the assignment of the principal debt (see supra under, 1. Creditor's right to assign the credit, page 91).

Ill. Rights ofthe guarantor vis-a-vis the creditor

1. The benefit ofdiscussion

a) General notion

The benefit of discussion (beneficium excusionis) is the right of the guarantor to deny performance until the creditor has tried to find and prose-

305 Art. 35 Belgian Consumer Credit Act (Loi 12 June 1991 au credit de consummation as amended in 2003 (Loi 200303- 24/40)) : "Le preteur communique ala caution et, le cas echeant, a la personne qui constitue une surete personnelle, le retard de paiement par le consommateur de deux echeances ou d ' au moins un cinquieme du montant total a rembourser. Il lui communique les facilites de paiement accordees et l'informe au prealable de toute modification apportee au contrat de credit initiale".

306§ 14 par. 1 Finish Guarantee Law.

307The Rules on Personal Security have been elaborated by the working group at Max-Planck-Institute for foreign law and international private law under the direction of Prof. Dr. Dr. he Ulrich Drobnig. Drobnig, Principles of European Law, Personal Security, 7.

cute for those goods eventually owed by the debtor308. Accordingly, if the guarantor is entitled to raise the benefit of discussion, his liability is secondary309; if not, it is joint and severally.

b) Benefit ofdiscussion, ex lege or agreed by the parties

In Italy the guarantor is joint and severally liable together with the debtor for the performance of the debt310. When the underlying obligation becomes due and payable, the creditor may proceed directly against the guarantor or against the debtor indistinctly. The guarantor must perform upon request even if the debtor has not yet been requested for payment311 . He cannot raise the benefit of discussion unless it has been specifically agreed by the parties in the contract. The possibility to agree the benefit of discussion is explicitly established in art. 1944 Italian CC, where the benefit of discussion is defined as the guarantor's right to refuse payment until a discussion (escussione) of all the goods of the principal debtor has taken place. Consequently, in Italy, the guarantor is ex lege joint and severally liable and the benefit of discussion can only be raised when it has been previously specifically agreed by the parties312. In that case the guarantee is converted by the parties in a secondary obligation313.

In contrast, in Spain the guarantor's liability is ex lege secondary to that of the debtor. The guarantor enjoys the benefit of discussion; i.e. he has the right to refuse performance until a discussion has been previously made

308Lasarte, 398.

309"Die Einrede der Vorausklage ist Ausdruck der Subsidiaritat der Bilrgenverpflichtung'', Horn/Staudinger, on § 771, no. 1.

310See Giusti, 181 and De Maria/Franzoni, 1491. Some scholars have described the guarantee as a joint and several obligation sui generis: See Rubino/Scialoja/Branca, 134136; Ravazoni, La fideiussione generale, 1980, 70; Barasi, 194.

311He may claim the debtor for reimbursement afterwards: Cass. 4 March 1995 no. 2517 Fl, Rep 1995, voce Fideisussione e mandato di credito no. 49; Cass. 28 February 1957 no. 724, FI, Rep. 1957 voce Fideiussione e mandato di credito, no. 28.

312By virtue of art. 1333 Italian CC, since the guarantee is a unilateral contract in Italian Law, the benefit of discussion will be considered agreed in case the creditor has not refused on time the proposal of the guarantor to establish the benefit of discussion in the contract. The period of time might be expressly established by the guarantor in his proposal or it can be established according to the uses.

313Cass. 15 June 1967 no. 1389, FI, I, 1976, 2540. Some Italian scholars, making an

extremely theoretical analysis of the matter, have considered the benefit of discussion as a mere beneficium ordinis; establishing an order or rank for payment (the guarantor can only be compelled to pay upon certain debtor's default). In the opinion of these scholars, every guarantee has a subsidiary nature since as surety the guarantor is placed in a second position. Even if the guarantor must first perform, he can afterwards demand the debtor to pay him back (Giusti, 38; Simonetta, La fideiussione prestata da privati, 133; Fragali, L'inerzia del creditore, 1969, 739).