The guarantor's obligation to warn is being tested by the reform of security interests resulting from Ordinance No. 2021-1192 of September 15, 2021

Warning regarding surety bonds and reform of security interests

Grenoble Court of Appeal, 1st Chamber, January 18, 2022, No. 20/00621

Applying the law prior to the reform of the law of securities resulting from Ordinance No. 2021-1192 of September 15, 2021, the Grenoble Court of Appeal sanctioned a banking establishment that failed in its obligation to warn a couple of borrowers who were not sophisticated with regard to their financial capacity and the risk of excessive indebtedness arising from the granting of the loan.

In this case, one of the borrowers had also acted as guarantor for his SCI, so that the total commitments exceeded the financial capacity of the spouses.

The bank was ordered to pay the borrowers damages based on the loss of opportunity not to take out this loan, assessed in this case at 50%.

The solution will logically be different in the future due to the entry into force since January 1, ²⁰²² of the reform resulting from ordinance number 2021-1192 of September 15, 2021 which, without disrupting the system, carries out a comprehensive overhaul of the provisions of the Civil Code relating to suretyship.

While the essential elements of the legal framework for suretyship are retained, the text innovates on certain points and notably makes certain modifications regarding the sanction applicable when the professional creditor fails in its duty to warn or in the event of disproportionate suretyship.

The obligation to warn the individual guarantor

With regard to guarantees concluded from 1 ^January 2022, the order of 15 September 2019 eliminated the distinction between "informed" and "lay" guarantors in order to reduce the risk of litigation: the duty to warn incumbent upon the professional creditor now benefits all natural person guarantors.

Under the new article 2299, paragraph 1 ^of the Civil Code, the professional creditor is required to warn the individual guarantor about the inadequacy of the principal debtor's financial capacity.

Regarding the penalty, prior to this reform, a creditor who failed in their duty to warn incurred contractual liability towards the guarantor for depriving them of the opportunity to avoid entering into the agreement. Set-off between the sums owed to the creditor and the damages awarded against them could therefore be ordered.

Since January 1 ^, 2022, the order has replaced this liability action with a forfeiture: the guarantor will thus be released from his commitment up to the amount of his loss, it being specified that this consists of a loss of opportunity not to commit.

This forfeiture mechanism avoids the need for a judgment against the creditor ordering them to pay damages to offset the guarantor's debt. The partial termination of the guarantor's obligation is now immediate.

Proportionality of the guarantee

The order of September 15, 2021 repealed the provisions of the Consumer Code prohibiting a professional creditor from relying on a guarantee that was manifestly disproportionate to his assets at the time of its conclusion, replacing them with the new article 2300 in the Civil Code.

This new article establishes the requirement of proportionality of the guarantee given by a natural person towards a professional creditor.

When, at the time it was given, such a guarantee was "manifestly disproportionate to the income and assets of the guarantor" , it will automatically be reduced to the amount to which she could actually commit.

The new sanction is more in line with the purpose of the rule: a total discharge of the guarantor, which is highly punitive for the creditor, is replaced by a reduction of his commitment, which perfectly fulfills the objective of preventing over-indebtedness of the guarantor .

In this regard, it may be regrettable that the rule of return to better fortune was not retained, according to which a guarantee initially disproportionate escaped any sanction if, due to the evolution of the guarantor's financial situation, it was no longer so at the time it was implemented.

From now on, any manifest initial disproportion of the guarantee will irrevocably condemn it to a reduction, even if the commitment has become bearable for the guarantor.