Surety Substitution

Bonds between the debtor and the surety

Bonds between the debtor and the surety

The case law consistently holds that the disappearance of the bonds between the debtor and the surety does not entail the release of the bond. Yet changing the context in which the guarantee was granted is an important element of business life; for this reason, the practice has developed the mechanism of surety substitution intended to release the bond of a commitment become useless and embarrassing.

The situation of the guarantor is particularly delicate when he leaves office or sells his shares. No provision has come to improve the specific situation of the guarantor.

The question is singular because the context plays a key role in the decision made by the leader to guarantee society. However, although it is usually committed on the sole basis of its quality in the company, the Court of Cassation, according to settled case law, considers that the loss of the quality of officer or partner does not release the guarantee of his engagement.

Thus, the Court of Appeal of Douai held that the officer who had an interest in endorsing the commitments entered into by the company when he ran the company, would no longer have any interest in doing so for commitments subscribed after his resignation. Similarly, the litigants try to bring the Court of Cassation to pronounce in this direction. They argue that the bond is not presumed and can not be extended beyond the limits in which it was contracted. Accordingly, they conclude that the manager who has endorsed his company as a corporate officer can not be required to guarantee the debts contracted by it after the termination of his duties and the transfer of his shares in the company. the company unless it has expressly stipulated it.

Guarantor’s commitment


But the dominant case law persists in the maintenance of the guarantor’s commitment as long as the quality of the leader has not been erected as a condition of the obligation. The Court of Cassation even explicitly reaffirmed, in a judgment of 27 January 2004 that the mere transfer of shares by the surety is not enough to release the bond of its commitments. The practice has tried to find other solutions by imagining a surrogate surrogate process.

However, the setting up of a mechanism initiated by the former leader can not have the effect of calling into question the binding force of the contract which binds him to his creditor and by which he agreed to affect all or part of his assets as collateral for the debts of the company. It follows that the bail replacement mechanism can not, on its own, have the direct and immediate effect of releasing the bond which is maintained in the bond report, unless the banker explicitly accepts the release of the substitute…

This mechanism, in fact, serves a dual purpose: on the one hand, it must maintain, continue and preserve the security that the banker had taken care to provide when setting up the contractual operation. On the other hand, the substitution of surety must make it possible to take into account the evolution of the life of the business and to adapt the contractual situation to the circumstances. It has the singular effect of changing a situation and putting it in coherence with its context; in this sense, the loss of the status of officer or partner substantially modifies the balance of the transaction put in place by the banker, the principal debtor and the surety. In most cases, the quality of a leader is a true motive for the commitment: the substitution of the surety allows to take into account this important modification. It establishes new relations corresponding to the evolution of the situation generated by the loss of the quality of the guarantor, while maintaining the binding force of the old relations.

The agreement concluded between the substitute (formerly guarantor) and the substitute (new officer) remains foreign to the creditor and to the principal debtor. It is therefore possible to exclude from the outset any extinguishing effect of the suretyship agreement by the substitution agreement because the obligatory effects of the contract impose the respect of the initial contract. Consequently, the conclusion of the substitution agreement must be reconciled with the pre-existence of the suretyship contract: if the substitution can not call into question the existence of the bond, it may organize the execution procedures. Therefore, next to the original link, which is maintained is created a new link uniting the former substitute leader to the new substituted leader.

You may also like...

Leave a Reply

Your email address will not be published. Required fields are marked *