Part 1 - The reform of the contracts of guarantee and of security interests granted by a third party, further to the Ordinance 2021-1192 of 15 September 2021, reforming the law on security interestsRequest the file
Ordinance 2021-1192 of 15 September 2021, reforming the law on security interests, amends the law on guarantees, which the previous 2006 reform did not do.
Entry into force starting from the 01st of January 2022 - Under transitional provisions, Article 37 of Ordinance 2021-1192 of 15 September 2021 stipulates that the reform will only apply to contracts of guarantee entered on or after the 01st of January 2022. 1
The reform makes many amendments to the law on guarantees. The main amendments concern:
- the mandatory provisions required ad validitatem (I),
- the duty to warn and disproportionate guarantees (II),
- the exemptions the surety may raise (III),
- the right of subrogation (IV),
- and security interests granted by a third party (V).
I. Mandatory provisions
The handwritten endorsement that the surety must insert in the contract of guarantee, or surety agreement, as a condition of validity of his undertaking, was amended by the Ordinance of 15 September 2021 in its form, content and scope.
Art. 2297: “As a condition of validity of his undertaking, the surety that is an individual, shall, himself indicate that he undertakes as guarantor to pay to the creditor what he is owed by the debtor in the event of the latter's default, within limit of the amount of the principal debt and other charges, stated in words and figures. Where a difference in the amount as expressed by the words and figures exists, the sum guaranteed shall be the sum as stated in words.
If the surety is deprived of the benefits of discussion or division, he acknowledges in this statement that he cannot require the creditor to first exhaust its remedies against the debtor or require that the guarantee obligations be made several as between all of the joint guarantors. Failing this, he shall retain the right to avail himself of these benefits.
An individual who gives a mandate to a third party to stand as surety for him must comply with the provisions of this Article."
Firstly, the endorsement no longer has to be handwritten, that is to say, handwritten by the surety, as required, for surety agreements prior to 1 January 2022, by Articles L. 331-1 and L. 331-2 of the French Consumer Code. The new Article 2297 of the French Civil Code merely requires that the endorsement be inserted by the surety "himself", which allows for the endorsement to be inserted electronically2, provided that this electronic insertion establishes the link between the surety and the endorsement.
Secondly, the exact words comprising the content of the endorsement are no longer prescribed word for word by law, as they were under the Consumer Code. This requirement did in fact give rise to contentious content, with many sureties having tried to claim a clerical mistake, or even...
1 Thus, guarantees entered into before this date will continue to be governed by the old law, "including for their legal effects and for public policy legislation", with the 2021 Ordinance reproducing, in this respect, the wording of the 2016 Ordinance reforming contract law (Ordinance of 10 February 2016, Art. 9.).
As with the 2016 Ordinance, the Court of Cassation may amend its case law that applies to guarantees that were entered into prior to 1 January 2022 in order to take account of changes in the law on security interests and to resolve the differences between the old and new law.
This does not alter the fact that, by way of exception, the new Articles 2302 to 2304 of the French Civil Code, which deal with the guarantor's and surety's obligation to provide information(during the life of the guarantee), will apply, as of 1 January 2022, to all surety bonds and guarantees in rem for third parties, even if they were created before that date.
2 See Civ. Code, Art. 1175, as amended by the 2021 Ordinance, which no longer excludes making in electronic form "private agreements relating to personal sureties and security interests, of a civil or commercial nature, unless they are made by a person for the purposes of his profession".