учебный год 2023 / Drobnig, Personal Security

Chapter 2: Dependent Personal Security (Suretyship Guarantees)

I. General Principle: Extension of Debtor’s Defences to the

Provider of Dependent Personal Security

1.A primary consequence of the accessority principle is that the liability of the provider of dependent personal security must not be higher than the debtor’s (cf. also supra national notes to Art. 2:102). Hence, the defences that are personally available to the provider of dependent security are supplemented by the debtor’s defences (AUSTRIA: Rummel/

Gamerith § 1351 no. 6; BELGIUM: Van Quickenborne no. 673 ss.; ENGLAND: O’Donovan and Phillips no. 11-46; FRANCE: Simler no. 656 ss.; cf. GERMAN CC § 767 para 1 sent. 1 and § 768; cf. Palandt/Sprau § 768 no. 6; Staudinger/Horn § 768 no. 16; GREECE: Theodoropoulos 273; ITALY: CC art. 1945; LUXEMBOURG: Ravarani, Jurisprudence r cente 915; NETHERLANDS: CC art. 7:852; PORTUGAL: CC art. 637 para 1;

Almeida Costa 774; SCOTLAND: Stair/Eden no. 841; SPAIN: Guilarte Zapatero, Comentarios 340). The provider of dependent security may raise as against the creditor pleas of the debtor, even if the latter has desisted from raising these defences (GERMAN CC § 768 para 2; PORTUGAL: CC art. 637 para 2; Almeida Costa 774; BELGIUM: Van Quickenborne no. 674; FRANCE: contra Simler no. 231) after creation of the security (cf. GREEK CC art. 853; SPANISH CC art. 1853). However, frequently specific exceptions (e.g., for the case of the debtor’s incapacity, infra nos. 5-6) or modifications (for rights of avoidance, cf. infra nos. 16-19) are provided for.

2.In several countries, the debtor’s defences that may be raised are specified by providing that the security provider is entitled to raise the defences that are “inherent” to the secured debt, excluding those that are personal to the debtor (cf. BELGIAN, FRENCH and LUXEMBOURGIAN CC art. 2036 (since 2006: FRENCH CC art. 2313); DUTCH CC art. 7:852 para 1, cf. also Blomkwist nos. 17, 32; du Perron and Haentjens art. 852 no. 5; GREEK CC art. 853; SPANISH CC art. 1853). “Personal” are those defences of the debtor which are closely connected to its person and, thus, cannot be transferred actively or passively (see infra nos. 14-21). Furthermore, it has been held in GREECE that the provider of dependent security is entitled to raise the debtor’s defences even if it has no right of recourse vis- -vis the debtor or has waived the beneficium discussionis (cf. CA Athens 6902/1995, EllDik 37, 1398 s.; Theodoropoulos 273).The PORTUGUESE CC art. 637 para 1, on the other hand, uses as criterion the compatibility of the invocable defences with the guaranteeing obligation.

II. General Defences

A.Invalidity of the Secured Claim – cf. Para (1)

a.Principle

3.According to AUSTRIAN CC § 1351, BELGIAN, FRENCH and LUXEMBOURGIAN CC art. 2012 para 1 (since 2006: FRENCH CC art. 2289 para 1), GREEK CC art. 850, ITALIAN CC art. 1939, PORTUGUESE CC art. 632 para 1 and SPANISH CC art. 1824, a dependent security presupposes a valid principal debt. The same is true for ENGLISH and SCOTS law (cf. Heald v. O’Connor [1971] 1 WLR 497 (CFI); Andrews and Millett no. 6-019; Swan v. Bank of Scotland (1835) 10 Bligh NS 627 = 6 ER 231 (HL(Sc)) and for DUTCH law (Pitlo-Croes no. 851) and can be derived indirectly from GERMAN CC

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§ 767. In GREECE the secured debt need not be valid at the time of the assumption of the dependent security, but must be so at the time at which the security provider is called to perform its obligation (cf. Kaukas 437 fn. 1; ErmAK/Zepos art. 850 no.3).

4.As everyone may invoke the “absolute” nullity of a contract, the provider of dependent security can invoke the nullity of the secured debt and therefore of its security (FRANCE: Simler no. 227; GREECE: cf. Georgiades-Stathopoulos AK/Vrellis art. 853 no. 3; ITALY: Fragali, Della fideiussione 317; NETHERLANDS: nullity by law (van rechtswege): Du Perron and Haentjens art. 852 no. 2; PORTUGAL: CC art. 632 para 1). In some countries, the provider of dependent security may invoke the nullity of the debt, even if it had been aware of this nullity at the time of the assumption of the dependent security (PORTUGAL: Pires de Lima and Antunes Varela 649, no exception), except regarding the debtor’s lack of legal capacity (cf. infra nos. 5-6) and the nullity of the agreement due to excessive interest (GREECE: Kaukas 437; CFI Thessaloniki 399/ 59, Arm 13, 237). By contrast, in other countries, if the provider of dependent security already knew about the nullity of the secured obligation at the time of the security agreement, the security will be valid (SCOTLAND: Stair/Eden no. 838; SPAIN: Carrasco Perera, Fianza 202). In the latter case, the dependent security may have been assumed in GERMANY for the claim for unjust enrichment which may arise due to the invalidity of the secured obligation, if one party or both had already made performances (Reinicke and Tiedtke, B4rgschaftsrecht nos. 4 ss.).

b.Exception – Debtor’s Incapacity – Para (3)

5.Exceptionally, in many European countries a dependent security is valid even if the debt is defective by reason of any incapacity or limited capacity of the debtor to act legally (especially if it is a minor, cf. AUSTRIAN CC § 1352; FRENCH, BELGIAN and LUXEMBOURGIAN CC arts. 2012 para 2 and 2036 para 2 (since 2006: FRENCH CC arts. 2289 para 2 and 2313 para 2) also BELGIUM: T’ Kint no. 753, Van Quickenborne no. 746; ENGLISH Minors Contracts Act 1987 sec. 2; GREEK CC art. 850 para 2; ITALIAN CC art. 1939 in fine; PORTUGUESE CC art. 632 para 2 for incapacity and defective consent of the debtor causing a relative nullity, cf. Galva˜o Telles 279; SCOTLAND: cf. Stevenson v. Adair (1872) R 919 (CA); SPANISH CC art. 1824 para 2). In most countries, the provider of dependent security must have been aware at the assumption of the dependent security of the debtor’s incapacity or limited capacity to contract (FRANCE: Simler no. 219; PORTUGUESE CC art. 632 para 2 in fine; SPAIN: Reyes Lo´pez 170). In GREECE the creditor must prove the relevant knowledge of the security provider (cf. Kaukas 439; ErmAK/Zepos art. 850 no. 10; Apostolides art. 850 no. 5); negligent ignorance is not sufficient in this case (same references). Only in AUSTRIA it is provided expressly that a provider of dependent security is bound even if it is unaware of the lack of capacity (CC § 1352); however, this feature of the rule is generally criticised (Rummel/Gamerith § 1352 no. 4; Koziol and Welser II (-Welser) 139).

6.If a debtor company has acted ultra vires, the provider of dependent security (often a director) shall be personally liable (ENGLAND: Yorkshire Railway Waggon Co v. Maclure (1881) 19 Ch 478 (CA); it has been said, however, that the liability of the personal security provider should depend upon whether the security was intended to cover the risk of non-payment for the reason of legal incapacity of the debtor, cf. also Garrard v. James [1925] Ch 616 (CFI); Chitty/Whittaker no. 44-036; after abolition of the doctrine

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of ultra vires by the Companies Act 1989 secs. 108. 109, 111 this problem is now of little relevance). In FRANCE some court decisions (Cass.civ. 27 April 1976, JCP G 1978, I, no. 2902 (79)) tried to assimilate incapacity to the lack of power (e.g. if dependent securities are granted by the manager of a legal person). But since 1980, this assimilation in regard to CC art. 2012 para 2 is no longer admitted (Cass.com. 25 Nov. 1980, JCP G 1981, IV, no. 56).

7.FRENCH and GERMAN courts have dealt with cases in which the debtor, a legal entity, was dissolved after assumption of the personal security. In a case where the assets of the dissolved company passed without liquidation to the sole shareholder, the FRENCH Supreme Court held that the dependent personal security remained valid for obligations that arose before the dissolution (Cass.com. 19 Nov. 2002, Bull.civ. 2002 IV no.175 p.200). More daring is a decision of the GERMAN Federal Supreme Court on a similar set of facts; however, the company had been liquidated and erased from the commercial register. A creditor’s claim under a dependent personal security failed; but it did not fail due to the “death” of the debtor company but because the security provider was allowed to invoke the expiration of the period of prescription for the secured claim (BGH 28 Jan. 2003, BGHZ 153, 337, 339 ss., JZ 2003, 1068 with critical note Tiedtke; cf. also supra Art. 2:102 national notes no. 19).

B.Unenforceability of the Secured Claim – cf. Para (1)

8.The provider of dependent security may invoke the defence that the secured claim arose from gaming or betting and is therefore unenforceable (FRANCE: cf. CC art. 1965; Simler no. 215; GERMANY: Palandt/Sprau § 765 no. 28 with further references; GREECE: CC art. 844, cf. Kaukas 444; PORTUGAL: CC art. 1245). There is some authority in ENGLISH law that a provider of dependent security is in certain cases released from liability if the principal contract is unenforceable, e.g. for lack of compliance with statutory requirements (Eldridge and Morris v. Taylor [1931] 2 KB 416 (CA); Temperance Loan Fund Ltd v. Rose [1932] 2 KB 522 (CA): both cases concerning a failure to comply with the Moneylenders Act 1927). This, however, must not be understood as rendering unenforceable every dependent security which is provided for a principal obligation that is unenforceable (cf. Andrews and Millett no. 6-027). Rather, the decision has to be made on a case by case basis (O’Donovan and Phillips nos. 5-125 s.).

C.Prescription of the Secured Claim

9.The provider of dependent personal security may invoke the defence of prescription of the principal debt (AUSTRIA: Schwimann/Mader and Faber § 1351 no. 10; FRANCE: Simler nos. 689 ss.; GERMANY: Erman/Herrmann § 768 no. 4 with further references; see also supra no. 7 and the exception in BGH 21 Jan. 1993, BGHZ 121, 173; GREECE: A.P. 601/1985, EllDik 27, 77; ITALY: cf. CC art. 1945; Fragali, Della fideiussione 318; Cass. 15 March 2000 no. 2975, BBTC 2001 II 544; SCOTLAND: Halyburtons v. Graham (1735) Mor 2073 (CA); SPAIN: Dı´ez-Picazo 455). This rule applies also if the prescription period has been completed after the creditor has initiated judicial proceedings against the provider of dependent security, because proceedings against the security provider do not interrupt prescription vis- -vis the debtor (GERMANY: BGH 12 March 1980, BGHZ 96, 222, 225 ss.; CA Bamberg 14 Jan. 1998, MDR 1998, 796; GREECE:

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Georgiades § 3 no. 133). The NETHERLANDS go one step further by declaring the dependent security to be extinguished if the prescription period for the secured claim has expired (CC art. 7:853). In GREECE, the provider of dependent security may exercise the general remedy of third party opposition (CCP art. 583 ss.) against a decision rendered in a trial between the creditor and the debtor, where the debtor did not raise the plea of prescription, and raise this plea itself (Kaukas 445). If however the provider of dependent security assumed the dependent security after prescription of the debt, even if the security provider did not know of the prescription (cf. CC art. 272 para 2 sent. 2), then it is not entitled to rely on that prescription (GREECE: Georgiades § 3 no. 134). If the claim against the provider of dependent security was declared valid by a final judgement and subsequently the prescription period of the secured debt expires, then the provider of dependent security may raise this defence with the remedy of opposition against the enforcement (cf. GREEK CCP art. 933; Georgiades § 3 no. 135).

10.In conformity with this principle, the creditor’s demand for payment or the debtor’s acknowledgement interrupts prescription also against the provider of dependent security (FRANCE, BELGIUM and LUXEMBOURG: CC art. 2250; BELGIUM: CA Brussels 8 May 1990, BankFin 1990, 463; GERMANY: Reinicke and Tiedtke, B4rgschaftsrecht no. 262; GREECE: Kaukas 445). In PORTUGAL, however, this interruption does not affect the dependent security unless the creditor informs the provider of the dependent security about the interruption of the prescription of the secured debt. The prescription of the dependent security is considered interrupted by law at the time of this communication (CC art. 636 para 1). Suspension of prescription of the secured debt as well as its waiver do not affect the prescription of the dependent security (CC art. 636 para 2 and 3).

11.By contrast, in ENGLAND it has been held that the prescription of the principal obligation does not release the provider of dependent security from its liability (cf. Carter v. White (1884) 25 Ch 666 (CA)).

D.‘‘Res Judicata’’

12.The provider of dependent security may invoke the defence of res judicata based upon a final judgement for the defendant debtor in a proceeding brought by the creditor, if the decision dismissed the action of the creditor against the debtor as unfounded (GERMANY: cf. Reinicke and Tiedtke, B4rgschaftsrecht nos. 535 with further references), unless it regards personal circumstances of the debtor, since these do not affect the liability of the security provider (BELGIUM: T’ Kint nos. 748, 373; FRANCE: cf. Simler nos. 499 for subsidiary liability and no. 541 for solidary liability; GREECE: cf. CCP art. 328, A.P. 1264/1995, EllDik 38, 798; NETHERLANDS: du Perron and Haentjens art. 852 no. 2; PORTUGAL: CC art. 635 para 1; SPAIN: Guilarte Zapatero, Comentarios 341). In GERMANY the provider of dependent security may rely upon a final judgment between creditor and debtor that is favourable for him, but it is not bound by a final judgment that is disfavourable (Erman/Herrmann § 767 no. 6 with further references). The same solution is held by ITALIAN legal writers (Fragali, Della fideiussione 318 s.; however, Ravazzoni 261 thinks that the security provider is bound also by a final judgment between the debtor and the creditor that is disfavourable for him).

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E.Extinction of the Secured Claim

13.The provider of dependent security can raise the defence of extinction of the debt due to whatever reason, especially payment (cf. AUSTRIAN CC § 1363; FRENCH, BELGIAN and LUXEMBOURGIAN CC art. 1281 para 2 and art. 2038 (since 2006: FRENCH CC art. 2315); cf. also for BELGIUM: Van Quickenborne nos. 680-698 and 707-726; FRANCE: Simler nos. 661 ss.; LUXEMBOURG: Ravarani, Jurisprudence r cente 913915; ENGLISH and SCOTS law: Andrews and Millett no. 9-001, Stair/Clark no. 958;

GERMAN CC § 767 para 1 sent. 1; GREEK CC art. 851; Georgiades-Stathopoulos AK/Vrellis art. 853 no. 7; ITALIAN CC art. 1945; Fragali, Della fideiussione 317; NETHERLANDS: du Perron and Haentjens art. 852 no. 1; PORTUGAL: CC art. 651; Almeida Costa 784). Under FRENCH, BELGIAN, LUXEMBOURGIAN and PORTUGUESE law, payment may be made by a third party (FRENCH, BELGIAN and LUXEMBOURGIAN CC art. 1236 para 2; PORTUGUESE CC art. 767), who will then be subrogated against the provider of the dependent security as well as against the debtor (FRENCH CC art. 1252; PORTUGUESE CC art. 593), except if the third party made this payment in its own interest (cf. FRENCH CC art. 1236 para 2; BELGIUM: Van Quickenborne no. 685; FRANCE: Simler no. 670). In PORTUGAL the subrogation depends either on the creditor’s explicit declaration or on the debtor’s explicit consent (CC art. 589, 590). However, a legal subrogation occurs if there is a direct interest of the third party (CC art. 592). If in GREECE a third party, which owns or possesses mortgaged property, provided as additional security, pays the secured debt, it shall be subrogated to the rights of the mortgagee-creditor and the dependent security remains valid, although the principal debt has become extinct by virtue of payment (GREEK CC art. 1298, cf. Georgiades-Stathopoulos AK/Vrellis art. 853 no. 7). By contrast, under GERMAN law the payment of a third person extinguishes the obligation of the provider of a dependent security (Erman/Kuckuk § 267 no. 9).

14.In case of partial performance by the debtor, in some countries the dependent security remains valid for the remaining debt (AUSTRIA: CC § 1363 sent. 1 and Schwimann/ Mader and Faber § 1363 no.1; GERMAN CC § 767 para 1 sent. 1 and Staudinger/Horn § 767 no. 10; BELGIUM: Van Quickenborne no. 688; FRANCE: Simler no. 673; GREECE: Kaukas 446). In BELGIUM, FRANCE and GREECE, a partial performance of the secured obligation shall in the first place be allocated to the non-secured part of the debt (BELGIUM: Van Quickenborne no. 689; FRANCE: Simler no. 674; GREECE: Kaukas

446).

III. Specific Defences

A.Right to Withhold Performance – Para (2)

15.In some European countries, the provider of dependent security can also invoke the debtor’s right to withhold performance (defence of non adimpleti contractus) in order to force the creditor to furnish its own performance to the debtor (BELGIUM: T’ Kint no. 749, Van Quickenborne no. 732; FRANCE: by analogy to CC art. 1653, Simler no. 730; GERMANY: Palandt/Sprau § 768 no. 6; GREECE: CC arts. 325 and 374, Kaukas 444 fn. 1a, 447; ErmAK/Zepos art. 853 no. 7; ITALY: cf. CC art. 1945; PORTUGAL: CC art. 637 para 1). DUTCH law comes to the same result, but by another route: if the debtor

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rightfully withholds its performance, the surety provider has the same right (CC art. 7:852 para 3; du Perron and Haentjens art. 852 nos. 11-15).

16.The provider of dependent security may also invoke the defence that the debt cannot yet be claimed due to a condition or term set for performance (cf. DUTCH CC art. 7:852 (1); du Perron and Haentjens art. 852 no. 2(c), Pitlo-Croes no. 852, p. 353-354; BELGIUM: Van Quickenborne no. 322 a fortiori), unless this defence is considered as related to the person of the debtor (GREECE: Kaukas 444; ErmAK/Zepos art. 853 no. 11; ITALY: CC art. 1945, cf. also Giusti 209 s.).

B.Debtor’s Rights of Avoidance – Para (4)

17.The situation seems more complicated if the secured debt is affected by a “relative” nullity which can only be invoked by the contracting parties or one of them. The debtor is then entitled to avoid the contract by invoking this relative nullity. The matter is of great importance, since in some countries the solution will also apply for all other rights of the debtor concerning the effectiveness of the debt, i.e. not only for avoidance, but also for other rights such as termination, which do not relate to a relative nullity. One must distinguish as to whether the debtor avoids the contract or whether the provider of dependent security can exercise the respective right:

a.Avoidance by Court Decision

18.If the contract is avoided by virtue of a court decision, then the dependent security as an accessory to the secured debt is also void ab initio and the security provider can raise the plea of res judicata against the creditor (BELGIUM: Van Quickenborne no. 729; FRANCE: Simler no. 229; GREECE: Kaukas 438; ErmAK/Zepos 850 no. 6; ITALY: Fragali, Della fideiussione 318; NETHERLANDS: (cf.) du Perron and Haentjens art. 852 no. 2e; PORTUGAL: Almeida Costa 774; SPAIN: cf. Guilarte Zapatero, Comentarios 427 s.). A corresponding rule applies if the contract is avoided by declaration (ENGLAND: Andrews and Millet no. 6-024; GERMANY: Reinicke and Tiedtke, B4rgschaftsrecht no. 280).

b.Can the Provider of Dependent Security Avoid the Contract?

19.In some countries the provider of dependent security may itself avoid a contract affected by a relative nullity in which the secured obligation is rooted (BELGIUM: T’ Kint

nos. 748, 372; Van Quickenborne nos. 729-730; FRANCE: Simler no. 230; Cass.civ. 11 May 2005, Bull.civ. 2005 III no. 101 p. 94; ITALY: Fragali, Della fideiussione 317;

PORTUGAL: CC art. 632 para 2; Almeida Costa 774; SPAIN: Guilarte Zapatero, Comentarios 340). By contrast, in many other countries the security provider is precluded from avoiding the contract (AUSTRIA: OGH 25 Feb. 2004, JZ 2004, 677; ENGLAND:

Andrews and Millett no. 6-024; GERMANY: Reinicke and Tiedtke, B4rgschaftsrecht no. 280; GREECE: cf. CC art. 154; contra ErmAK/Zepos art. 850 no. 6, 853 no. 5; NETHERLANDS: Pitlo-Croes no. 852, p. 355). Especially in GREECE and the NETHERLANDS, this negative solution applies to all rights of the debtor concerning the effectiveness of the debt (GREECE: Filios II/1 § 127 at p. 89; NETHERLANDS: du Perron and Haentjens art. 852 no. 5). If the debtor ratifies the transaction as valid, the provider of dependent security is not deprived of the right to invoke itself the nullity of the secured

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obligation (BELGIUM: Van Quickenborne nos. 738-741 and cited references; FRANCE: contra Simler no. 231).

20.In still other countries, where the provider of dependent security is not entitled to avoid the contract, it is at least entitled to withhold its performance as long as the debtor may avoid the contract (expressly GERMAN CC § 770 para 1; followed in AUSTRIA invoking the GERMAN provision, cf. Schwimann/Mader and Faber § 1351 no. 11 sub 1); Rummel/Gamerith § 1351 no. 6). When, however, in AUSTRIA and GERMANY the debtor has failed to invoke the defence and is precluded by a final decision from invoking it in future, then the provider of dependent security must perform (cf. AUSTRIA: OGH 27 April 1987, SZ 60 no. 69, p. 362 s.; GERMANY: cf. Reinicke and Tiedtke, B4rgschaftsrecht nos. 282 ss.). In the NETHERLANDS the provider of dependent security may grant the debtor a reasonable time to exercise the right of avoidance and it is entitled to suspend the performance of its own obligation during that period (CC art. 7:852 para 2; du Perron and Haentjens art. 852 nos. 2 and 7; Pitlo-Croes no. 852).

C.Set-off – Para (5)

21.Three solutions can be distinguished if both the debtor and the creditor are entitled to a set-off, but neither of them has exercised such a right. In some European countries the provider of dependent security may set off the debtor’s counter-claim against the creditor, even if the security provider’s liability is solidary, since set-off is not considered to be a personal defence of the debtor which the security provider cannot raise vis- -vis the creditor, and even if it has no right of action and subrogation against the debtor (cf.

BELGIAN, FRENCH and LUXEMBOURGIAN CC art. 1294 para 1; BELGIUM: Van Quickenborne nos. 699-703; FRANCE: Cass.civ. 1 June 1983, D. 1984, 152, note Aubert; also Simler no. 686 ss.; ENGLAND: Bechervaise v. Lewis (1872) LR 7 CP 372 (CFI); Murphy v. Glass (1869) LR 2 PC 408 (PC); FINLAND: cf. LDepGuar § 27 para 2; RP 189/1998 rd 66 ss.; Ha˚stad 3 s; GREECE: CC art. 447; cf. Fragistas 1371; Georgiades § 3 no. 129; SCOTLAND: Stair/Eden no. 843). Since in FRANCE the Grimaldi Commission proposes to suppress the distinction between personal defences and defences inherent in the debt (proposed new CC art. 2308 para 1), the right of the security provider to set-off the debtor’s claims is indirectly confirmed.

22.In other countries, the provider of dependent security has the right to withhold performance, either indefinitely or as long as the possibility of set-off exists (expressly

GERMAN CC § 770 para 2; ITALY: Giusti 208; PORTUGAL: CC art. 642 para 1; SPAIN:

Guilarte Zapatero, Comentarios 283). In AUSTRIA opinions are divided, the majority denying the provider of dependent security a right of set-off (OGH 20 Dec. 1991, BA 1992, 660; Schwimann/Mader and Faber § 1351 no. 11 sub 3) and most writers granting a right of retention (cf. Schwimann/Mader and Faber and Rummel/Gamerith § 1351 no. 6 sub c); contra OGH 20 Dec. 1991, supra); also in the NETHERLANDS (CC art. 8:150 para 3 juncto 6:139 para 1, 2; du Perron and Haentjens art. 852 nos. 5, 9).

23.In SWEDEN and DENMARK, however, the provider of dependent security remains fully liable in spite of the set-off situation because the security provider should not be able to “reject the claim because the debtor has other assets, such as a counter-claim” (SWEDEN: HD 7 July 1994, NJA 1994, 474; DENMARK: Ussing, Kaution 222 ss.).

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IV. Conditions for Invoking these Defences

A.Solidary Liability

24.The right of the provider of dependent security to invoke the defences of the debtor exists, even if the security provider has waived the beneficium discussionis (see infra national notes on Art. 2:106 nos. 8 ss.) and its liability is solidary (BELGIUM: Van Quickenborne nos. 411, 214; GREECE: A.P. 148/1997, NoB 46, 1061). Although according to FRENCH CC art. 2021 (since 2006: FRENCH CC art. 2298) the rules on solidary debtors apply for the solidarily liable provider of dependent security, it is considered first to be a security provider and not a solidary co-debtor. So the defences of set-off and of relative nullity, which according to the broad interpretation given to FRENCH CC art. 1208 are not available to co-debtors, can also be raised by the provider of dependent security who is solidarily liable (FRANCE: Simler no. 220).

B.Waiver of Defences and Other Rights by the Debtor

25.If the debtor waives defences, in the narrow, technical sense of the word (cf. infra no. 26), the rule in BELGIUM, GERMANY, ITALY and PORTUGAL is that the provider of dependent security can still invoke all defences which are inherent to the secured debt (BELGIUM: T’ Kint no. 751; Van Quickenborne no. 674; GERMANY: CC § 768 para 2; ITALY: Fragali, Della fideiussione 315, Giusti 206: the provider of dependent personal security acts iure proprio when invoking defences; PORTUGAL: CC art. 637 para 2; Almeida Costa 779), regardless of the time when the waiver took place. According to GREEK CC art. 853, however, if the debtor waives defences inherent to the debt prior to the assumption of the dependent security, then the security provider cannot invoke these defences, because they were not available to the debtor at the time of contracting, even if the security provider had no knowledge of this waiver when it

assumed the dependent security (cf. Georgiades-Stathopoulos AK/Vrellis art. 853 no. 18). If, however, the waiver took place after the assumption of the dependent security, the security provider may invoke the defences originally available to the debtor, despite the waiver (cf. CC art. 853, Georgiades § 3 no. 139).

26.By contrast if the debtor waives a right of avoiding the underlying contract or of set-off with respect to the secured obligation, opinions between the member states differ. If the debtor has waived the right to declare a set-off against the creditor demanding performance, then in some countries the provider of dependent security can nevertheless declare a set-off instead of the debtor (BELGIUM: Van Quickenborne no. 700; FRANCE: cf.

Simler no. 686; GREECE: Georgiades § 3 no.130, contra Fragistas 1372). By contrast, in other countries, these rights are no longer available to the security provider (ENGLAND: Bechervaise v. Lewis (1872) LR 7 CP 372 (CFI); Andrews and Millett no. 11006; GERMANY: cf. CC § 770 para 1 (which is to be applied by analogy in the case of a right of set-off, cf. M4nchKomm/Habersack § 770 no. 6; but the security provider may still rely on this defence as long as the creditor is entitled to set-off vis- -vis the debtor, CC § 770 para 2); SCOTLAND: Stair/Eden no. 843).

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Chapter 2: Dependent Personal Security (Suretyship Guarantees)

C.Waiver by Provider of Dependent Security

27.The provider of dependent security may waive the right to invoke defences available to the debtor, since the principle of accessority is generally dispositive (BELGIUM: Van Quickenborne no. 676, contra: T’ Kint no. 750; GREECE: cf. CC art. 853, CA Athens 635/ 1986, EllDik 27, 1476). In GREECE and in ITALY this waiver is a standard clause in the General Business Conditions of banks (GREECE: cf. Kozyris EEN 1972, 416 ss.; ITALY: Giusti 132 ss.). This right to waive defences is restricted, however, by the core of the accessority principle: any waiver of defences available to the debtor in the contract of dependent security may not alter the core of the accessory character of the dependent security, so that defences available to the debtor regarding the existence and validity of the debt cannot be waived by the provider of dependent security, without at the same time transforming the dependent security into another contract (e.g. an independent security, promise or acknowledgement or assumption of debt: BELGIUM: T’ Kint no. 750; Van Quickenborne nos. 675-677; FRANCE: Simler no. 924; GERMANY: The Federal Supreme Court has recently held that a clause in general business conditions refusing the security provider a right to invoke set-off is at least invalid if the debtor’s counter-claim is admited or has been confirmed by final judgment; however it may even be admitted if the debtor is by court decision precluded from invoking a set-off (BGH 16 Jan. 2003, BGHZ 153, 293, 299 s., 301 s.); cf. Erman/Herrmann § 768 no. 6; Reinicke and Tiedtke, B4rgschaftsrecht nos. 293 ss. and 556 for standard contracts; GREECE: Georgiades § 3 no. 140; ITALY: Cass. 17 July 2002 no. 10400, Giust.civ.Mass. 2002, 1257; Petti 383 ss. and Chine`, I contratti di garanzia 309 ss. on the presumption of nullity of the clause waiving defences when the security provider is a consumer on the basis of ConsC art. 33 para 2, former CC art. 1469bis para 2; SPAIN: Reyes Lo´pez 191).

28.Under DUTCH law, however, there may be no derogations to the detriment of the nonprofessional provider of dependent security from CC art. 7:852 on the possibility of the provider of dependent personal security to invoke the debtor’s defences that relate to the existence, content and time of performance of the obligation of the debtor (CC art. 7:862 lit. a)).

V. Consequences of Not Raising these Defences

29.Cf. infra national notes to Art. 2:112 (2) and (3).

VI. Defences Unavailable to the Provider of Dependent Security

A. Debtor’s Personal Defences (cf. supra nos. 2 and 5-6)

30.In ITALY and in GREECE the provider of dependent security may not invoke the defence arising from the personal agreement to release the debtor, concluded between the latter and the creditor (ITALY: Fragali, Della fideiussione 317; GREECE: CC art. 853; Kaukas 448; ErmAK/Zepos art. 853 no.16). Neither can in GREECE the security provider invoke the right of a donor (debtor) to refuse the performance of the donation if such performance would endanger either its own maintenance or any alimony it owes to another by virtue of law (cf. CC art. 501; Georgiades-Stathopoulos AK/Vrellis art. 853

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Article 2:104: Coverage of Security

no. 26) or the rescission of a donation made ultra vires (cf. CC art. 1836; GeorgiadesStathopoulos AK/Vrellis art. 853 no. 26).

B.Defences Incompatible with the Securing Purpose of a Dependent Security

31.In addition to the cases mentioned in the national notes to Art. 2:102 nos. 17-23, the following defences are not admitted: a limitation of liability which results from the acceptance of a succession on behalf of the debtor with the benefit of inventory (GREECE: cf. CC art. 1902; Georgiades § 3 no. 141; NETHERLANDS: du Perron and Haentjens art. 852 no. 5). According to PORTUGUESE CC art. 637 para 2 sent. 2, the provider of dependent security may not invoke those defences of the principal, which are “incompatible with the guaranteeing obligation”.

C.Defences from the Relationship between Provider of Dependent Security and Debtor

32.Since the creditor is a third party who stands outside the relationship between provider of dependent security and debtor, defences arising from this latter relationship cannot be invoked against it (BELGIUM: Van Quickenborne no. 749; GREECE: CFI Pireus 1499/ 1968, EED 19, 629; ITALY: Fragali, Della fideiussione 317).

(Karpathakis/Hauck)

Article 2:104: Coverage of Security

(1)The security covers, within its maximum amount, if any, not only the principal obligation secured, but also the debtor’s ancillary obligations towards the creditor, especially

(a)contractual and default interest;

(b)damages, a penalty or an agreed payment for non-performance by the debtor; and

(c)the reasonable costs of extra-judicial recovery of those items.

(2)The costs of legal proceedings and enforcement proceedings against the debtor are covered, provided the security provider had been informed about the creditor’s intention to undertake such proceedings in sufficient time to enable the security provider to avert those costs.

(3)A global security (Article 1:101 lit. (f)) covers only obligations which originated in contracts between the debtor and the creditor.

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