The surety bond is a common practice to guarantee the risk of default. But it involves a number of commitments. Zoom on its characteristics and operation.
The risk of non-payment is very important in business life. This is why it is common for credit institutions and lending organizations to guarantee the repayment of their debts by collateral . The surety bond can be one of these securities. It allows the lender to continue, in the event of default by the principal debtor, the repayment of his debt to another debtor, called surety or surety.
In the case of a loan, the person who acts as surety may therefore be required to repay the capital, to pay normal interest and late payment interest and any procedural costs. This engagement can be qualified as civil or commercial . This qualification entails the application of a different regime. The legislator requires the parties to the surety bond to comply with a certain formality. In addition, because of the impact of the surety bond on the manager's assets, it is preferable to take some precautions.
The surety bond is, in principle, by nature, a civil act . Nevertheless, it is recognized that, by exception, the bond can be of a commercial nature .
The commercial nature of the surety implies the competence of the commercial court in the event of a dispute. On the other hand, the limitation periods (five years) are identical, whether the action is civil or commercial.
The bond can be qualified as commercial when:
it is taken out against payment by a credit institution. In this case, the establishment acts as surety for its client, the latter remunerating him for this service;
the surety undertakes to honor trade bills in the event of default by the principal debtor;
the surety is taken out for the needs of a commercial activity, for example when a supplier acts as surety for his distributor towards a bank to facilitate the granting of a loan;
the surety has a personal interest of a financial nature in the business and the guaranteed operation is commercial. This is, for example, the case of the manager of the company who acts as surety when obtaining a loan for the benefit of his company. The case law of the Court of Cassation has specified that this qualification is necessary even when the manager of the company does not have the quality of trader. On the other hand, the guarantees of the partners, even the majority, and those of the spouse of the manager are not considered as commercial.
The civil or commercial nature of the suretyship entails the application of separate rules which may have significant implications for the surety's assets.
The surety being an important act for a natural person , the legislator conditions its validity to strict rules of form . Thus, the Civil Code provides that the surety must expressly engage. Not being able to be presumed, the surety generally gives rise to the establishment of a writing. This writing is obligatory, in all cases where the law requires that the surety bears certain mentions in the deed recording his commitment.
On the other hand, in order to facilitate the life of the business, the requirement of a writing subjected to strict rules of form does not apply to thecommercial bond . However, in order to protect the manager, who is most of the time required to guarantee his company by a credit organization, case law has tempered this reasoning. Thus, the rules of commercial proof only apply when the surety has the quality of trader . The proof can be done by any means only when the act is of a commercial nature and that the surety has the quality of trader (a person who carries out acts of commerce and makes it his usual profession).
An incomplete or badly drafted surety bond constitutes only the beginning of proof in writing which must be supplemented by external elements. Case law thus considers that the quality of company director constitutes an external element proving the act of surety. Indeed, because of his position in the company the leader is necessarily aware of the act, and the extent of his commitment.
The commercial surety therefore requires a written act which must comply with the same requirements as the civil surety act , except when it is subscribed by a merchant in the performance of his duties.
The commercial nature of the surety automatically entails joint and several liability . This applies as of right in commercial matters, whereas it must be expressly stipulated within the framework of the civil surety.
Here again, the legislator intervened, in order to limit the consequences, for a company director, linked to the conclusion of a commercial surety contract. Thus, the Consumer Code provides that in a surety contract granted by a natural person for the benefit of a professional creditor, the solidarity clauses and waiver of the benefit of discussion are deemed unwritten if the surety's commitment is not limited to a global amount, expressly and contractually determined. This amount must include interest, costs and accessories. A surety for an unlimited amount cannot therefore be joint and several.
In order to protect the interests of the surety, the judge may also qualify the act of surety as mixed , that is to say commercial and civil, depending on the quality of the parties. In this case, the judge applies the specific rules to each bond.
Essential characteristics of the surety
A distinction is made between simple surety and joint surety.
The simple bond
The simple surety is a guarantee of payment where the surety is not solidary with the principal debtor or the other sureties . Indeed, in the absence of the express mention "joint surety" on the surety bond, the surety is committed according to the rules of simple surety.
This lack of solidarity has two consequences:
The creditor can only seek payment from the surety after having exhausted all possible legal remedies ( benefit of discussion ). Thus, a simple deposit can only be committed after the implementation and failure of a seizure of movable or immovable property, for example.
The surety may oppose the benefit of division against the creditor : in the event of multiple sureties, the creditor is forced to sue each surety for his part.
The Civil Code provides that it is up to the surety to oppose these arguments to the creditor who has not respected them.
The commitment of the simple surety is therefore quite limited. This is why, in practice, the financial partners of the company rather favor the use of joint and several guarantees.
The joint and several guarantee requires a writing , except in the case of a commercial guarantee taken out by a merchant.
This requirement of the legislator is explained by the importance of the commitment of the surety in this contract. Indeed, the situation is very protective for the creditor who can apply to the surety as soon as the principal debtor is in default, without waiting for the expiry of legal proceedings. The surety loses the benefit of discussion which is granted to him in simple surety. It is required to pay the debt under the same conditions as the principal debtor.
In addition, when several people are joint sureties , they jointly guarantee the creditor and each of them is committed for the whole. The creditor is free to choose the debtor he wishes, his choice logically stopping on the most solvent.
By its payment, the surety is automatically subrogated in the rights, actions and privileges of the creditor, that is to say that it benefits from the rights enjoyed by the lender with regard to the borrower. In addition, solidarity has the effect of making enforceable against the surety a court decision rendered against the principal debtor.
Operating procedures of the surety
When a natural person stands surety by deed under private signature (that is to say a deed which has not been passed before a notary), a specific handwritten mention must appear in the deed of surety, in order to make become aware of the surety of the extent of his commitment. This mention is as follows and only this one:
"By standing surety for X within the limit of the sum of ... covering the payment of the principal, interest and, where applicable, penalties or interest on late payment and for the duration of ..., I undertake to reimburse the lender the sums due on my income and my property if X does not satisfy them himself ”.
In the event of joint surety , the following sentence must be added, on pain of nullity of the commitment of the joint surety:
"By waiving the benefit of discussion defined in article 2298 of the Civil Code and by binding me jointly with X , I undertake to reimburse the creditor without being able to demand that he sue X beforehand ”
If the surety has not fully written his commitment by hand , the commitment is null and the bank cannot enforce the surety.
Note : the professional creditor must notify the surety before March 31 of each year of the amount of the principal, interest, commissions and costs remaining to run on December 31 of the previous year in respect of the guaranteed obligation as well as the term of this commitment.
In addition, if the commitment is for an indefinite period , the creditor must remind the surety of his ability to revoke his commitment at any time. If the surety revokes his commitment, he nevertheless remains committed for the debts due at the time of said revocation. Failure to comply with this obligation entails, for the creditor, the forfeiture of interest accrued from the previous information until the date of communication of the new information.
The creditor is required to inform the surety within one month of the payment incident of the debtor's default . Case law specifies that this obligation also applies to the executive guarantor of his company.
Protection of the guarantor of his company
If the manager takes out a guarantee contract for his company, he becomes responsible for the failings of the company on his own assets . This subscription can lead to situations such as foreclosure of home or bank accounts.
Because of the consequences which can be disastrous for the patrimony of the company manager, one can only too strongly advise the manager to be extremely careful with this mechanism. However, in certain situations, the manager's guarantee may appear to be the only solution in order to obtain new financing. The legislator has therefore made provisions to limit the commitment of the surety .
The choice of matrimonial regime
In order to limit these consequences, the manager of the company must in particular pay particular attention to his matrimonial regime. It may be in the interest of the couple's patrimony to conclude a marriage contract to choose a regime of separation of property or participation in acquests.. These regimes make it possible to protect the property of the spouse from professional creditors. Thus, it is common to attribute the ownership of private property to the spouse who is not an executive, the latter only owning the business. Except that the legal regime of the community reduced to acquests applies by default. However, this regime allows the creditors of the company to seize the assets of the manager and his spouse. It is therefore necessary for the spouses to express their particular wishes on this point. In practice, this rule can be circumvented by hiring the spouse under conditions similar to those of the manager. In this case, the bond is of a civil nature. As such, the surety spouse is protected by the rules of formalism and especially by the principle of the benefit of discussion. This requires that the creditor does not initiate proceedings against the surety until all the procedural means have been exhausted. Unless the contract derogates from this principle ... Therefore, one would only be too advised to read the surety contract carefully and to negotiate the terms with the creditor.
Limitation of the surety bond
The manager who stands surety for the debts of his company must measure the financial extent of his obligation, as well as the duration of it.
When the surety comes as collateral for a bank loan, it is limited in its amount. Indeed, the guarantee takes into account the principal borrowed, as well as the interest and possible late penalties.
On the other hand, the surety bond can guarantee all the loans that the company could take out with the bank. In this case, the manager acts as guarantor for all debts born or to be born as a result of the activity of the company. As this guarantee is much more risky for the manager's assets, it is prudent for the manager to negotiate with his creditors a maximum beyond which he cannot be committed.
Likewise, the manager must be attentive to the time limit.surety bond. He vouches for his company precisely because he is the manager of that company. However, even if he ceases to function, the suretyship does not necessarily end. If the parties have specified a term of the engagement, that is to say a date beyond which the surety cannot be committed, the surety is limited in time. On the other hand, if the surety contract does not provide for an extinctive term, the manager of the company, without a voluntary act on his part, remains committed beyond the exercise of his functions. He must therefore inform the creditor of his desire to waive this surety. It is up to the banker to take out a new surety bond with the new manager. In addition, French law prohibiting perpetual commitments,
The subscription of a guarantee proportional to the financial capacities of the manager
The law provides that a professional creditor cannot rely on a surety contract concluded by a natural person whose commitment was, at the time of its conclusion, manifestly disproportionate in relation to his property and income, unless the patrimony of this surety, when it is called, does not allow him to meet his obligation. This provision benefits the manager who is a natural person.
The manifestly disproportionate nature must be assessed at the time of the conclusion of the surety contract, but also at the time when the surety is called. It is assessed with regard to the heritage of the surety. In the event of disproportion , the surety is discharged from its commitment. It is therefore no longer required to honor the debts of the principal debtor. This point is left to the sovereign appreciation of the trial judges.
The implications of insolvency proceedings and personal recovery
A manager who is a natural person who is unable to meet the commitment to guarantee a debt of the company he manages can request to benefit from a procedure for dealing with his situation of over-indebtedness . As part of this procedure, the sums due under the surety bond may be postponed or rescheduled, partial erasure or total erasure in the event of the opening of a security procedure. personal reestablishment without judicial liquidation or closure of a personal reestablishment procedure with judicial liquidation.
In addition, in the context of bankruptcy proceedings , the manager must be able to anticipate the difficulties of his company and launch bankruptcy proceedings from the first financial difficulties in order to avoid judicial liquidation.
Therefore, the guarantor of his company can avail himself of the provisions of the agreement that it is noted or approved, as well as that of the safeguard plan. On the other hand, in the event of reorganization or judicial liquidation, the guarantor manager cannot avail himself of the provisions of the plan.