учебный год 2023 / Drobnig, Personal Security

Chapter 2: Dependent Personal Security (Suretyship Guarantees)

I. Two Claims

1.In most countries, the security provider normally has two claims against the debtor: one for reimbursement derived from the relationship between security provider and debtor; the other based upon the security provider’s subrogation to the rights of the creditor against the debtor (AUSTRIAN CC §§ 896 and 1358; BELGIAN, FRENCH and LUXEMBOURGIAN CC arts. 2028 and 2029 (since 2006: FRENCH CC arts. 2305 and 2306); DUTCH CC art. 7:850 para 3 juncto art. 6:12 and art. 7:866 (juncto art. 6:10); Blomkwist no. 34 at p.57; GERMAN CC § 774 para 1 sent. 1 and general rules on mandate or on similar relationships, CC §§ 670, 675, 683, 684; cf. Palandt/Sprau § 774 nos. 1-4; GREEK CC art. 858; ITALIAN CC arts. 1949 and 1950; PORTUGUESE CC art. 644 and general rules on mandate or similar relationships, arts. 468, 473, 1167; cf. Almeida Costa 780; SPANISH CC arts. 1838 and 1839; TS 13 Febr. 1988 cited by Dı´ezPicazo 442; ENGLAND: Andrews and Millett nos. 10-003, 11-017; SCOTLAND: Stair/ Clark nos. 929, 935 s.).

A.Reimbursement

a.Legal Bases

2.Many countries specifically grant the security provider who has paid off the secured debt a claim for reimbursement against the debtor (BELGIAN, FRENCH and LUXEMBOURGIAN CC art. 2028 (since 2006: FRENCH CC art. 2305); DUTCH CC art. 7:866; ITALIAN CC art. 1950; SPANISH CC art. 1838). Although no-one will deny that the ground for this recourse has to be found in the relationship between the security provider and the debtor (BELGIUM: Van Quickenborne no. 450; FRANCE: Simler no. 558; ITALY: Fragali, Fideiussione 370), it is very controversial on which legal ground this recourse can be based. Both the arguments that the recourse can be based upon a mandate which the security provider has been granted or upon the fact that the security provider acted as negotorium gestor have been criticized as unconvincing (BELGIUM: Van Quickenborne no. 450 and cited references; FRANCE: Simler nos. 13 and 558; ITALY: Fragali, Fideiussione 374), for in FRANCE the security provider obliges itself towards the creditor without having any intention of representing the debtor and the relationship between the security provider and the debtor is based upon a credit agreement (Simler nos. 13 and 558). Admittedly, this is a purely academic question as the instrument of dependent personal security itself gives rise to the recourse: the one who pays another’s debt must be enabled to recover the money paid (BELGIUM: Van Quickenborne no. 451; FRANCE: cf. Cass.civ. 2 June 1992, JCP G 1992, I no. 3632 (6), note Billiau; ITALY: Bozzi, La fideiussione 260 s.; NETHERLANDS: Korthals Altes 94).

3.Neither the GERMAN, the GREEK nor the PORTUGUESE Civil Codes contain specific rules on reimbursement but only one on subrogation; however, GREEK CC art. 858 mentions the existence of the security provider’s claim to be reimbursed as necessary condition for the right of subrogation. Nevertheless, also in these countries the security provider mostly has a claim for reimbursement against the debtor arising from the legal relationship between them that is the legal basis for the security provider’s assumption of the security, such as a mandate or – especially in case of nullity of the contract of mandate – negotiorum gestio (GERMANY: Erman/Herrmann § 774 no. 12; PORTUGAL:

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cf. Almeida Costa 780). In GERMANY, in all these cases CC § 670 is applicable. This rule grants a claim for reimbursement to the mandatary if for the purpose of the execution of the mandate the mandatary incurs any expense which it may regard as necessary under the circumstances. In PORTUGAL, a distinction is made between a mandatary or negotiorum gestor with or without representation, the practical result being here the same for they are all entitled to reimbursement of the indispensable expenses and to indemnity for their loss (CC arts. 1167 litt. c), d), 1182 in fine, 468 and 471). Under special circumstances the security provider may even be entitled only to a claim for unjust enrichment according to GERMAN CC § 684 and PORTUGUESE CC art. 473 ss. (GERMANY: Staudinger/Horn § 765 no. 104; PORTUGAL: Almeida Costa 780). In GREECE as well, the security provider’s claim for reimbursement depends on the internal relationship between the former and the debtor, i.e. whether the security provider acted as mandatary (GREEK CC art. 722) or as negotiorum gestor (cf. GREEK CC art. 736 juncto art. 722 or art. 737 juncto art. 904; A.P. (Plenum) 10/1992, NoB 41, 70 ss.; Georgiades § 3 no. 153).

4.But there is no claim for reimbursement if the security provider assumed the security as a donation or as another form of liberality (GERMANY: cf. Palandt/Sprau § 774 no. 2; Staudinger/Horn § 765 nos. 103 s.).

5.Similarly in ENGLISH law the security provider has a right to be indemnified by the debtor once it has paid the creditor or otherwise discharged the debt. This right may be based on either of three footings: (i) express agreement; (ii) implied agreement; or (iii) restitution in quasi-contract (Andrews and Millett nos. 10-002 s.). In case of an express agreement between security provider and debtor, the extent and nature of the indemnity are determined according to the agreement (Re Richmond Gate Property Co [1965] 1 WLR 335 (CFI); O’Donovan and Phillips no. 12-01), and there will be no implied or restitutionary right to be indemnified (Toussaint v. Martinnant (1787) 2 Term Rep 100 = 100 ER 55 (CFI)). An implied agreement as to indemnification is likely to be accepted if the security provider has assumed the security at the express or implied request of the principal debtor (Re Debtor [1937] Ch 156 (CA)). The nature and extent of the debtor’s implied promise to indemnify the security provider has to be construed in accordance with the intention of the parties and be ascertained by the court in each particular case (Andrews and Millett no. 10-007). It has been held to be effective even though neither the debtor nor the security provider are legally liable because the debtor’s promise is presumed to be “pay if I do not”, and not “pay if I do not and if I am legally compellable to pay” (Argo Carribean Group Ltd v. Lewis [1976] 2 Lloyd’s Rep 289 (CA); contrary in IRELAND: Re Morris, Coneys v. Morris [1922] 1 IR 82 (CFI), affd [1922] 1 IR 136 (CA)); this presumption may be rebutted (Sleigh v. Sleigh (1850) 19 LJEx 345 (CFI)). Indemnification based on a restitutionary right in quasi-contract, on the other hand, is only awarded if the security provider was (i) legally bound to pay under the terms of the security (Re Cleadon Trust [1939] 1 Ch 286 (CA)); (ii) has not voluntarily exposed himself to make payment (Owen v. Tate [1976] QB 402 (CA)); and (iii) has discharged a legal liability of the debtor (Garrard v. James [1925] Ch 616 (CFI); Re Law Courts Chambers Co Ltd (1890) 61 LT 669 (CFI); cf. further Andrews and Millett nos. 10-008 ss.). The first two conditions are regularly fulfilled if the security provider has acted on the request of the debtor (Batard v. Hawes (1853) 2 E&B 287 = 118 ER 775 (CFI)), although then there will be no need for a restitutionary claim since it is likely that an implied agreement will be established.

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6.In SCOTS law the security provider’s right to relief against the debtor, in the absence of an express agreement to that effect, is based on an implied mandate between debtor and security provider (Stair/Clark no. 935) and may be excluded or limited by agreement (Williamson v. Foulds 1927 SN 164 (CFI)). If the security provider has acted on the request of the creditor only and without the knowledge of the debtor, the security provider’s right of recourse cannot be based upon a contract with the debtor, but may be based upon restitution or subrogation (Stair/Eden no. 834). The legal situation seems to be different in GERMANY: If the security provider assumed the security on the basis of a specific relationship to the creditor, especially if the creditor pays a commission to the security provider, the latter performs to the creditor in its own interest so that the rules on negotiorum gestio are inapplicable (Staudinger/Horn § 765 nos. 104, 132). A claim for unjust enrichment against the debtor might be excluded.

7.According to DANISH and SWEDISH literature and FINNISH law the security provider who has performed the security may claim reimbursement from the debtor (DENMARK: Pedersen, Kaution 85 ss.; FINLAND: LDepGuar § 28; RP 189/1998 rd 67 (see also HD 27 Nov. 1986, KKO 1986-II-154; HD 7 June 1994, KKO 1994:47; HD 10 Feb. 1995, KKO 1995:9; SWEDEN: Walin, Borgen 198 ss.). The FINNISH LDepGuar § 29 sent. 2 also affords the security provider a recourse unless it had good reasons not to pay, even if the debtor was not liable (RP 189/1998 rd 67 s.).

b.Items Covered

i.Principal, Interests and Costs

8.In most countries the Civil Codes establish the right of recourse of the security provider against the debtor for principal, interest and costs. This is true for BELGIAN, FRENCH

and LUXEMBOURGIAN CC art. 2028 para 2 (since 2006: FRENCH CC art. 2305 para 2) and for GREECE, according to the principle arising from the nature of the security, that the security provider may not suffer any damage due to the fulfilment of the obligation assumed by it (Theodoropoulos 233). Interest arises automatically – without any notification to the principal debtor – since the moment of the security provider’s performance (BELGIUM: T’Kint no. 782; France: Simler no. 578). Nevertheless, the security provider has only recourse for costs incurred by it after it informed the principal debtor of the proceedings against it (BELGIAN, FRENCH and LUXEMBOURGIAN CC art. 2028 para 2 (since 2006: FRENCH CC art. 2305 para 2); GREECE: Theodoropoulos 234). In GREECE the question was raised whether the security provider’s claim for interest, in case the sum it paid to the creditor already included interest of the principal debt, violated CC art. 296 para 1 regulating interest on interest (compound interest). The answer was negative, since for the security provider who has paid this part of the debt is spent capital and not interest (CFI Athens 4621/1967, EED 18, 522).

9.In the NETHERLANDS as well, the security provider has a claim against the debtor for the entire amount it paid to the creditor in principal, interests and costs (DUTCH CC art. 7:866 para 1). The security provider, however, cannot derive a claim against the debtor for legal interest over the period in which it has been in default by circumstances personal to it or which it was not reasonable for him to make (DUTCH CC art. 7:866 para 2). According to ITALIAN CC art. 1950 paras 2 and 3 the right of reimbursement comprises the principal, interests and expenses after the security provider has informed

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the debtor about the legal action taken against him. The security provider has also the right to the legal interest on the paid sum from the day of performance. If the principal debt bears interests above the legal interest, the security provider has also the right to these sums until reimbursement takes place (Bozzi, La fideiussione 261). According to SPANISH CC art. 1838 the indemnification consists of: (1) the total amount of the debt,

(2) legal interests on the same from the time the debtor has been notified of the payment, even when it did not produce interest for the creditor, (3) expenses incurred by the security provider after notifying the debtor that payment has been demanded from him, and (4) damages, when appropriate. All this, even when the security has been provided without the knowledge of the debtor.

10.In GERMANY the security provider’s claim for reimbursement according to CC § 670 covers all outlays which the security provider may regard as necessary under the circumstances, especially the secured performances that the creditor is entitled to demand from the debtor and that the security provider has paid to the creditor (Reinicke and Tiedtke, B4rgschaftsrecht no. 381), i.e. regularly the principal debt and the contractual interest thereon. Furthermore, the security provider may demand reimbursement of the costs for a proceeding between itself and the creditor, the costs of legal defence, interest on outlays, the consequential damages of its employment and legal interest on the paid sum (cf. Staudinger/Horn § 774 no. 4 and M4nchKomm/Habersack § 774 nos. 18 s. with further references). In PORTUGAL, according to CC art. 468 or art. 1167 litt. c) and d), the reimbursement covers, with legal interest, the expenses the security provider has considered as indispensable and it may also receive an indemnification for its loss.

11.In ENGLAND, the indemnity usually covers the sum the security provider has paid on the debt (Davies v. Humphreys (1840) 6 M&W 153 = 151 ER 361 (CFI); O’Donovan and Phillips no. 12-57) and thus comprises interest (Re Fox, Walker & Co, ex p. Bishop (1880) 15 ChD 400 (CA)) as well as costs for reasonable legal defences – even if fruitless – against the creditor’s call, especially if approved by the debtor or unavoidable (Garrard v. Cottrell (1847) 10 QB 678 = 116 ER 258 (CFI); Pierce v. Williams (1854) 23 LJEx 322 (CFI). As to the extent of the recourse, SCOTS law is almost identical with ENGLISH law (Stair/Clark no. 935).

ii.Damages

12.In most countries also damages, if any, can be recovered by the security provider on the ground of its right of recourse. This is expressly stated by BELGIAN, FRENCH and LUXEMBOURGIAN CC art. 2028 para 3 (since 2006: FRENCH CC art. 2305 para 3) and by SPANISH CC art. 1838 no. 4. The same result is reached by PORTUGUESE law through the application of the rules on negotiorum gestio or mandate (respectively, CC art. 468 para 1 and art. 1167 lit. d)), by ENGLISH case law (Badeley v. Consolidated Bank (1886) 34 ChD 536 (CFI)) and by legal doctrine in ITALY, also along the line of old CC of 1865 art. 1915 para 3 (Giusti 236 s.).

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B.Subrogation

a.Legal Bases

13.According to AUSTRIAN CC § 1358, BELGIAN, FRENCH and LUXEMBOURGIAN CC art. 2029 (since 2006: FRENCH CC art. 2306), GERMAN CC § 774 para 1 sent. 1, ITALIAN CC art. 1949, PORTUGUESE CC art. 644 and SPANISH CC art. 1839 a security provider who pays the debt is subrogated to all the rights which the creditor had against the debtor. These provisions are an application of the general rules on subrogation in BELGIAN, FRENCH and LUXEMBOURGIAN CC art. 1251 no. 3, GERMAN CC

§ 412, ITALIAN CC art. 1203 no. 3, PORTUGUESE CC art. 589 ss. and SPANISH CC art. 1210 no. 3. In AUSTRIA, CC § 1358 embodies itself the general rule on subrogation (Rummel/Gamerith § 1358 no. 5); it is generally understood, beyond its wording, as providing a statutory, automatic subrogation of the security provider into the creditor’s rights against the debtor (Rummel/Gamerith § 1358 no. 1). By contrast, according to GREEK CC art. 858 the subrogation claim depends upon the existence of the claim for reimbursement.

14.In the NETHERLANDS, the subrogative recourse of the security provider is not explicitly provided for, but can be derived from CC art. 7:850 para 3 that refers to the general rules on solidary liability; there, CC art. 6:12 para 1 provides for subrogation against the co-debtor(s) (Blomkwist no. 34 at p. 57; du Perron and Haentjens, art. 7:850 no. 9). In DENMARK and SWEDEN the security provider is subrogated to the rights, which the creditor had against the debtor (DENMARK: Pedersen, Kaution 86; SWEDEN: Walin, Borgen 198 s.). Pursuant to the FINNISH LDepGuar § 30 para 1 the security provider has the same rights as the creditor against the debtor (RP 189/1998 rd 68). Equally under ENGLISH law the security provider is entitled to stand in the shoes of the creditor by being subrogated in all the creditor’s rights against the debtor. The right is equitable – not contractual – in nature and arises out of the relationship of security provider and creditor itself (Duncan Fox & Co v. North and South Wales Bank (1880) 6 App.Cas. 1 (HL); see also Mercantile Law Amendment Act 1856, sec. 5; Andrews and Millett no. 11017; Lord Goff of Chieveley and Jones no. 3-023; for the details of the dogmatic construction of the right to subrogation cf. Dieckmann 200 ss.). The situation is similar in IRELAND: also here the doctrine of subrogation applies in order to prevent the debtor being unjustly enriched (Highland Finance v. Sacred Heart College [1992] 1 IR 472 (CFI); White

543 s.). In SCOTS law the security provider has the so-called beneficium cedendarum actionum by virtue of which it is entitled, on full payment of its obligation, to be put in the creditor’s place vis- -vis the debtor (Ewart v. Latta (1863) 1 M 905 (CA); Gloag and Irvine 803) and thus to demand from the creditor transfer of the secured claim and any security held for it (Lowe and Burns v. Greig (1825) 3 S 543 (NE 375) (CA); Sligo v. Menzies (1840) 2 D 1478 (CA); Bankruptcy (Scotland) Act 1985 sec. 60 para 3 juncto para 4). In certain situations it can be desirable to demand a formal transfer from the creditor, e.g. in order to safeguard the priority of a claim (Graham v. Gordon (1842) 4 D 903 (CA); Stair/Clark no. 929).

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b.Items Covered

15.According to GERMAN CC § 774 para 1 sent. 1 the security provider is subrogated into the creditor’s claim against the debtor insofar as it paid off the creditor. The subrogation covers the secured claim and accessory claims that have been secured (cf. supra national notes to Art. 2:102), as e.g. contractual interest that became due before the security provider’s payment. Pursuant to court practice the security provider shall even be subrogated into the claim for contractual interest insofar as the interest becomes due after the security provider’s payment (BGH 18 May 1961, BGHZ 35, 172, 174; Staudinger/ Horn § 774 no. 15; critical: Reinicke and Tiedtke, B4rgschaftsrecht nos. 351 s.).

16.Via a subrogative recourse, the security provider can claim the sums mentioned in

BELGIAN, FRENCH and LUXEMBOURGIAN CC art. 2016 para 1 – since 2006:

FRENCH CC art. 2293 para 1 – (BELGIUM: Van Quickenborne no. 480; FRANCE: Simler no. 593 ss.). According to PORTUGUESE and SPANISH law via subrogation the security provider can also claim the interest and accessories of the credit (PORTUGAL: Pires

de Lima and Antunes Varela 660; Almeida Costa 780; SPAIN: Dı´ez-Picazo 441). The security provider cannot claim more than what it effectively paid to the creditor (FRANCE: cf. Simler no. 593; NETHERLANDS: Blomkwist no. 34 at p. 57; PORTUGUESE CC art. 644; SPAIN: Guilarte Zapatero, Comentarios 276). DUTCH CC art. 7:866 para 2 limits the security provider’s recourse with respect to legal interest for a period in which it had been for personal reasons in delay with its own performance and for expenses incurred in his personal interest. In ITALY the security provider is subrogated into the rights which the creditor had even after the creation of the security and the scope of the subrogation is the same as indicated by CC art. 1950 para 2 and 3 for the security provider’s recourse claim (cf. supra no. 9), except for the costs sustained by the security provider after he has informed the debtor of the legal actions taken against him (Giusti 230).

C.Relation between the Two Claims

a.Independent Claims

17.All countries recognise the independence of the security provider’s claim for reimbursement against the debtor, on the one hand, and of the creditor’s rights against the debtor, into which the security provider has been subrogated, on the other hand. Consequently, each of these claims and rights is subject to its proper regime, e.g. with respect to prescription (AUSTRIA: OGH 26 March 1987, SZ 60 no. 55 at p. 285 ss.; Rummel/ Gamerith § 896 nos. 1a, 5, 11; BELGIUM: T’Kint no. 781 ss.; FRANCE: Simler nos. 555 ss.;

GERMANY: M4nchKomm/Habersack § 774 no. 15; Graf Lambsdorff and Skora nos. 296 ss.; GREECE: Georgiades § 3 no. 165). In ITALY the distinction between the two actions is still controversial (Andreani 710). Some authors are for an identification of the two actions, because the claim for reimbursement is seen as the technical way of exercising the subrogation (so Fragali, Fideiussione 375). The prevailing view, however, points out the autonomy of the two figures also because they have different legal base: respectively CC arts. 1949 and 1950 (Bozzi, La fideiussione 261).

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b.Cumulation of the Claims

18.In most countries the security provider may, but need not cumulate the two claims: it may rely upon one or the other or upon both claims (AUSTRIA: OGH 27 Nov. 1928, SZ 10 no. 332 at p. 803; Schwimann/Mader and Faber § 1358 no. 23; ENGLAND: for the independence of the right to subrogation from the security provider’s right to reimbursement Dieckmann 484 s.; GERMANY: Staudinger/Horn § 774 no. 5; GREECE: CFI Thessaloniki 1699/1967, ND 24, 369; Theodoropoulos 236; ITALY: Giusti 231 ss.; NETHERLANDS: Pitlo/Croes no. 866 at p. 374; PORTUGAL: Almeida Costa 780; SCOTLAND: Smithy’s Place Ltd v. Blackadder and McMonagle 1991 SLT 790 (CFI); SPAIN:

Dı´ez-Picazo 441 with extensive references).

19.On the other hand, in BELGIUM and in FRANCE it is the traditional view that the security provider has to choose between both types of recourse; but several authors plead in favour of allowing the cumulation of both claims (BELGIUM: Van Quickenborne nos. 484-489 with further references; FRANCE: Simler no. 556; Cass.com. 30 Nov. 1948, GazPal 1949, 1).

II. Debtor’s Exceptions

20.According to DUTCH CC art. 7:868, a debtor from whom reimbursement is demanded pursuant to CC art. 6:10 may invoke against the security provider the defences which it had against the creditor at the time the claim for recovery has arisen, unless a different result follows from the relationship between the debtor and the security provider (art. 868 juncto art. 6:11 para 4). The same is true under BELGIAN and FRENCH law where the security provider exercises the subrogative recourse, i.e. the creditor’s recourse against the debtor (BELGIUM: T’Kint nos. 783 ss.; FRANCE: Cass.civ. 18 Oct. 2005, D. 2005, 2870 for a plurality of security providers; Simler no. 591). The debtor cannot invoke defences that arose after the security provider’s claim for reimbursement (Blomkwist no. 38). In case of a subrogative recourse, the debtor may invoke all defences it has against the creditor without any limitations against the security provider (Blomkwist no. 38 at p. 62-63; du Perron and Haentjens art. 868 no. 4). Further the debtor is no more liable according to FRENCH, BELGIAN and LUXEMBOURGIAN CC art. 2031 para 2 (since 2006: FRENCH CC art. 2308 para 2), if the security provider pays without informing the debtor. Under ITALIAN law, if the debtor had the possibility of exemption from its liability by raising an exception to the creditor relating to the secured claim, the security provider’s reimbursement is given only if (a) he informed the debtor of its intention to pay and (b) raised the exceptions to the creditor which he knew or had to know acting with due diligence (Giusti 237; CC art. 1952 para 2). The same is true in SPAIN, according to CC art. 1840.

21.In GERMANY and in PORTUGAL the debtor may invoke against the security provider’s claim for reimbursement only those defences that are based on the internal relationship between these two parties (GERMANY: Palandt/Sprau § 774 no. 4; M4nchKomm/Habersack § 774 no. 15). Against the subrogative claim, however, the debtor may invoke both defences (PORTUGAL: Pires de Lima and Antunes Varela 663) arising from the internal relationship with the security provider (GERMAN CC § 774 para 1 sent. 3) as well as those arising from the relationship between debtor and creditor (GERMAN CC §§ 412, 404; cf. Palandt/Sprau § 774 no. 4; M4nchKomm/Habersack § 774 no. 15).

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22.In ENGLAND the security provider’s right to be indemnified by the debtor is restricted as described above (supra no. 5): If no express or implied agreement on the right to indemnity can be established, the security provider can rely only on a restitutionary right based on quasi-contract, which is subject to an existing obligation to pay on its side. Since the right to be indemnified is an independent claim of the security provider, it is subject to any right of set-off which the debtor can raise against him (Thornton v. Maynard (1875) LR 10 C.P. 695 (CFI)). In relation to claims based upon subrogation, however, it seems that the debtor cannot rely on a set-off vis- -vis the security provider (cf. Andrews and Millett no. 11-017 citing Commonwealth decisions).

23.According to GREEK CC art. 463 para 1, as applied by analogy (cf. Georgiades-Statho- poulos/Vrellis art. 858 no. 8), the debtor may raise as against the security provider acting as assignee under the subrogation – in contrast to the case it is facing the security provider’s claim for reimbursement – all the defences, which it (debtor) had as against the creditor arising from the secured obligation which had arisen before the subrogation took place (i.e. satisfaction of the security provider).

III. Exclusion of Claims

24.DUTCH, GERMAN, GREEK and ITALIAN law grant the security provider the subrogative claim, unless it is completely or partially excluded by the underlying relationship between security provider and debtor (NETHERLANDS: CC art. 7:868 juncto art. 6:11 para 4; GERMANY: Staudinger/Horn § 774 nos. 6, 15 and 40; cf. for contractual interest BGH 18 May 1961, BGHZ 35, 172, 174; GREECE: cf. wording of CC art. 858; ITALY: Bozzi, La fideiussione 260). Consequently, the security provider cannot rely upon the subrogative claim if it is excluded from recourse according to the internal relationship, e.g. in case it did not intend to be reimbursed (BELGIUM: Van Quickenborne no. 491; FRANCE: Simler nos. 551 and 582; GREECE: Georgiades-Stathopoulos/Vrellis art. 859 no. 8).

25.Moreover, the security provider does not have any recourse if the debtor did not gain any profit from the security provider’s payment. This happens for instance in case the security provider paid more than the debtor had to pay to the creditor, with reference to the differential amount (SPAIN: Guilarte Zapatero, Comentarios 272). Furthermore, reimbursement is excluded if the security provider violates its duty of information or of exercising the debtor’s defences (cf. supra national notes to Art. 2:112).

26.Reimbursement on the basis of an agreement of indemnity under ENGLISH law is subject to the security provider being requested to assume the security by the debtor. If no agreement (implied or express) to that effect can be established, a right to reimbursement can exist only as a restitutionary claim. The same is true in GERMANY (cf. supra no. 10) and SCOTLAND (cf. supra no. 6).

IV. Part Performance by Security Provider

27.One has to distinguish again between the claim for reimbursement and subrogation to the creditor’s rights.

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A.Claim for Reimbursement

28.If the security provider performs only in part, it is under BELGIAN, ENGLISH, FRENCH, LUXEMBOURGIAN, ITALIAN and SPANISH law entitled to partial recourse only against the debtor (ENGLAND: Davies v. Humphreys (1840) 6 M&W 153 = 151 ER 361 (CFI); Soutten v. Soutten (1822) 5 B&Ald 852 = 106 ER 1403 (CFI); FRANCE: Simler no. 568; GREECE: Georgiades § 3 no. 164; ITALY: Giusti 236 fn. 197; SPAIN: Guilarte Zapatero, Comentarios 268, 276 and 278).

29.If the security provider bases its recourse claim on BELGIAN, FRENCH and LUXEMBOURGIAN CC art. 2028 (since 2006: FRENCH CC art. 2305), a clash between the security provider’s claim for reimbursement and the creditor’s claim for payment of the residual debt is possible. The creditor does not have any priority over the security provider (BELGIUM: Van Quickenborne no. 460; CA Gent 10 Feb. 1883, Pas belge 1883 II 224; CA Luik 13 Feb. 1950, Pas belge 1950 II 100; FRANCE: cf. Insolvency Act of 25 Jan. 1985 art. 60 para 2 integrated into Ccom art. L 622-33 para 2; Cass.civ. 25 Nov. 1891, DP 1892, I, 261; except the parties agree otherwise Simler no. 568). The opposite is true in case of a subrogative recourse based on BELGIAN, FRENCH and LUXEMBOURGIAN CC art. 2029 (since 2006: FRENCH CC art. 2306); cf. infra no. 30.

B.Subrogated Claims

30.In BELGIUM, FRANCE, DENMARK, GERMANY, ITALY and PORTUGAL, even a partial satisfaction of the creditor leads to a corresponding partial subrogation. The creditor, benefiting from the maxim “nemo censetur subrogasse contra se”, enjoys priority for its remaining claim over the (partial) claims of the security provider into which the latter is subrogated (BELGIUM: Van Quickenborne no. 479 p. 248; CA Antwerpen 26 Oct. 1987, Pas belge 1988, II 46; FRANCE: but according to the predominant court practice only if the security provider wants to exercise a priority or a security, which belongs to the creditor: Cass.civ. 28 June 1977, JCP G 1979 II no. 19045, note Guillot; Simler no. 592; DENMARK: Pedersen, Kaution 88, 92; GERMAN CC § 774 para 1 sent. 2;

ITALY: Giusti 226; PORTUGUESE CC art. 593).

31.In ENGLAND the general rule being that subrogation is only available if the creditor is paid in full, a partial discharge of the secured obligation by the security provider does normally not entitle it to be subrogated to the creditor’s rights against the security provider. Thus it is accepted that where there is a security for the whole debt with a limitation on the amount of the security provider’s liability, a payment of the security provider which only partly satisfies the creditor does not entitle the security provider to a transfer of a proportionate interest in the creditor’s securities (Re Sass, ex p. National Provincial Bank of England [1896] 2 QB 12 (CFI); Andrews and Millett no. 11-020; O’Donovan and Phillips no. 12-273). Where, however, the security provider is a surety for part of the secured debt only, it is subrogated pro rata to any rights held by the creditor in respect of that debt after performance of the security (Hobson v. Bass (1871) 6 ChApp 792 (CA); Andrews and Millett no. 11-020; O’Donovan and Phillips no. 12-273). There is

ENGLISH authority that subrogation only arises if the creditor has been fully satisfied by the security provider itself (Re Howe, ex p. Brett (1871) 6 ChApp 838 (CA); Ewart v. Latta (1865) 3 M 36 (HL(Sc))); modern AUSTRALIAN decisions, however, point to the contrary view and argue that the security provider should be pro tanto subrogated to

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Article 2:113: Security Provider’s Rights After Performance

the creditor’s rights once it has discharged its own liability, even though another part of the debt was paid by the principal debtor or another security provider (A. E. Goodwin Ltd v. A. G. Healing Ltd (1979) 7 ACLR 481; McColl’s Wholesale Pty Ltd v. State Bank (NSW) Ltd [1984] 3 NSWLR 365 (SCt); Raffle v. AGC (Advances) Ltd [1989] ASC 58, 528, all cited by Andrews and Millett no. 11-018; O’Donovan and Phillips no. 12-272). It is submitted that this view should be followed in ENGLAND too, and the contrary decisions not be followed (Andrews and Millett no. 11-018). Furthermore, there is ancient ENGLISH authority to the same effect (Gedye v. Matson (1858) 25 Beav 310 = 53 ER 655 (CFI)), which has not been cited in the later ENGLISH decisions. In SCOTLAND the security provider’s right to an assignation of the creditor’s rights arises only if it has fully paid its obligation (Ewart v. Latta (1863) 1 M 905 (CA); Stair/Clark no. 933).

32.According to GREEK literature, the claims of the creditor and of the security provider as against the debtor are concurrent and shall be proportionately satisfied (cf. GREEK CCP

art. 977 para 3; cf. also the critical approach of Georgiades § 3 no. 164).

V. Subrogation into Security Rights

33.GERMAN CC § 774 para 1 sent. 1 juncto §§ 412, 401 provides that the security provider is not only subrogated into the secured claim but also into the related dependent rights, especially security rights (Staudinger/Horn § 774 no. 19). The independent collateral rights are not transferred ex lege but the security provider is regularly entitled to demand their transfer (Reinicke and Tiedtke, B4rgschaftsrecht no. 358; Staudinger/Horn § 774 no. 21 with further references to court practice). Similarly in PORTUGAL, where the security provider acquires the securities and other dependent rights (CC arts. 593 para 2, 594 juncto art. 582). According to GREEK CC art. 458 applied by analogy, accessory proprietary rights are also transferred to the security provider which secure the claim, created either before or after the issue of the security, either by the debtor or a third

party (Georgiades-Stathopoulos AK/Vrellis art. 858 no. 12). The security provider is also subrogated to any judicial acts commenced by the creditor (ErmAK/Zepos art. 858 no. 9) as well as to the rights of the creditor against the third party, in the hands of which the creditor garnished a claim belonging to the principal debtor (Kosadinos 762763). The same is true under BELGIAN, FRENCH and LUXEMBOURGIAN CC art. 1250 no. 1 since this subrogation covers all “rights, claims, priorities or mortgages [of the creditor] against the debtor”.

34.Also under ITALIAN law the subrogation of the security provider affects all kinds of security rights for the secured claim (CC art. 1955 and, more in general, art. 1204; Bozzi, La fideiussione 259).

35.Under ENGLISH law the security provider is subrogated to all the security rights held by the creditor in respect of the secured claim (Duncan Fox & Co v. North and South Wales Bank (1880) 6 App.Cas. 1 (HL); Chatterton v. McLean [1951] 1 AllER 761 (CFI)), irrespective of whether already existing at the time of assumption of the security (Forbes v. Jackson (1882) 19 ChD 615 (CFI); Pledge v. Buss (1860) John 663 = 70 ER 585 (CFI)), and whether granted by the debtor or third persons (Goddard v. Whyte (1860) 2 Giff 449 = 66 ER 188 (CFI); Dering v. Winchelsea (Earl) (1787) 1 CoxEqCas 318 = 29 ER 1184 (CFI)). There are only a few rights a security provider cannot be subrogated into: private insurance policies (Dalby v. India and London Life Assurance Co (1854) 15 CB 364 = 139

ER 465 (CFI)), purely personal rights of the creditor (such as the right to seize goods

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