UNIT 11 (2014)Apunte Inglés
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UNIT 11: SURETYSHIPS
Creditors want assurances that they will be paid or repaid by the debtor. The creditor wants to
know if the debtor is going to pay.
- Liability: Article 1911 CC: “Del cumplimiento de las obligaciones responde el deudor con todos sus bienes presentes y futuras” - Insolvency risk - Security obtained through agreement comes in two major types: (1) Personal guarantees (example: suretyship (“fianza”).
(2) Real guarantees: mortgage of real estate (“hipoteca”), personal property securities, such as for instance, a pledge (“penyora”, “prenda”). Collateral is put up to secure performance.
Concept: Surety (“fianza”): personal guaranty which involves a promise by one party to assume responsibility to the creditor for the debt obligation of a debtor if that debtor defaults (art.
1822.1 CC). The party undertakes to answer for payment of a debt or the performance of a duty of the principal in case of the principal’s default or miscarriage of the obligation.
- Creditors frequently ask the owners of small, closely held companies (empresas con pocos accionistas) to guarantee their loans to the company, and parent corporations also frequently are guarantors of their subsidiaries’ debts (deudas de sus filiales).
- Very frequently, the creditor requires first that the debtor put up collateral to secure indebtedness (endeudamiento), and—in addition—that the debtor engage a surety to make extra certain the creditor is paid or performance is made.
Surety is the legal model for personal guaranties (arts. 1822 and ff. CC). Other personal guaranties: - Commercial suretyship (“fianza mercantil” (arts. 439-442 CCom)): when debt is established in a commercial contract.
- Guaranties in negotiable instruments (“Aval cambiario” (arts. 35-37 Ley cambiaria y del cheque 1985)).
- First demand guarantee (“Garantía a primer requerimiento”): atypical personal guaranty which has been admitted by courts in Spain, although it’s not regulated. The main difference with suretyships is that first demand guarantees are independent and not accessorial guaranties to the debt obligation not generally affected by the principal obligation’s existence or conditions.
Parties - - Necessary parties in a suretyship contract: guarantor/surety (“fiador”) and creditor.
Debtor (or principal) will not always be a party in the contract. A suretyship may be valid and effective regardless of debtor’s knowledge or opposition to suretyship (art.
Parties should have general capacity to be legally bound: a person with the general capacity to contract has the power to become a guarantor.
Object: - Debt obligation must be valid (art. 1824 CC).
- Future debts (art. 1825 CC): suretyship may involve a promise to pay future debts, the amount of which is ignored at the time of establishing the guaranty. Creditor may not claim against guarantor until the debt is not finally assessed.
Conclusion: creditor’s declaration of will is required.
- Formalities: freedom of form. In commercial suretyships, written form (art. 440 CCom).
- Consensual agreement: suretyships cannot be presumed. They should be expressed and not involve other obligations not expressly stated (art. 1827.1 CC): surety’s clear intention; it cannot be presumed.
Types: - Onerous/gratuitous: depending on whether creditor (or debtor) remuneration to guarantor in exchange for surety.
promises Main features (características) (a) Accessorial: - A valid debt obligation is required (art. 1824.1 CC). If the obligation is deemed null, suretyship is also null as a result.
Changes in the debt obligation affect the suretyship.
Not in first demand guarantees: they are independent and debt obligation’s nullity does not affect guarantee.
(b) Subsidiary: - Creditor can only address claims against guarantor in case the debtor defaults.
Exception: solidary suretyship; or guarantor waives her defense of unexhausted remedies (“excusión”).
Establishment (a) Through contract between parties: - Between creditor, debtor and guarantor trilateral agreement.
Between creditor and guarantor (cfr. arts. 1158-1159 CC: performance by a third party).
Between debtor and guarantor, accepted by creditor.
Where there is a private interest that requires protection from the possibility of a default, sureties are engaged. For example, a landlord might require that a commercial tenant not only put up a security deposit but also show evidence that it has a surety ready to stand for three months’ rent if the tenant defaults.
(b) Legal obligation to provide surety.
Usually where there is a public interest that requires protection from the possibility of a default (art. 1854 CC).
Example: Guarantees for potential environmental liability (Ley 26/2007, de 23 de octubre, de Responsabilidad Medioambiental).
Artículo 24. Constitución de una garantía financiera obligatoria.
“1. Los operadores de las actividades incluidas en el anexo III deberán disponer de una garantía financiera que les permita hacer frente a la responsabilidad medioambiental inherente a la actividad o actividades que pretendan desarrollar.[…]” Artículo 26. Modalidades.
“La garantía financiera podrá constituirse a través de cualquiera de las siguientes modalidades, que podrán ser alternativas o complementarias entre sí, tanto en su cuantía, como en los hechos garantizados: a) Una póliza de seguro que se ajuste a la Ley 50/1980, de 8 de octubre, de Contrato de Seguro, suscrita con una entidad aseguradora autorizada para operar en España. En este caso, corresponderán al Consorcio de Compensación de Seguros las funciones a que se refiere el artículo 33.
b) La obtención de un aval, concedido por alguna entidad financiera autorizada a operar en España.
c) La constitución de una reserva técnica mediante la dotación de un fondo «ad hoc» con materialización en inversiones financieras respaldadas por el sector público. […]” (c) Obligation to provide surety established by a court.
A bond (fianza) filed with the court as a guarantee. For example, a party to a court action (acción/proceso jurídico) may post a judicial bond to guarantee payment ordered by a judgment while an appeal is being considered by a superior court.
Example: art. 529 LEC: a judge may require that a defendant put up a bond indemnifying the plaintiff for the costs of delays caused by the suspension of enforcement a judgment.
Artículo 529. Sustanciación de la oposición a la ejecución provisional o a actuaciones ejecutivas concretas “[…]3. Si se tratase de ejecución provisional de sentencia de condena no dineraria y se hubiere alegado la causa segunda del apartado 2 del artículo 528*, de oposición a la ejecución provisional, el que la hubiere solicitado, además de impugnar cuanto se haya alegado de contrario, podrá ofrecer caución suficiente para garantizar que, en caso de revocarse la sentencia, se restaurará la situación anterior o, de ser esto imposible, se resarcirán los daños y perjuicios causados.
La caución podrá constituirse en dinero efectivo, mediante aval solidario de duración indefinida y pagadero a primer requerimiento emitido por entidad de crédito o sociedad de garantía recíproca o por cualquier otro medio que, a juicio del tribunal, garantice la inmediata disponibilidad, en su caso, de la cantidad de que se trate”.
“Si la sentencia fuese de condena no dineraria, resultaría imposible o de extrema dificultad, atendida la naturaleza de las actuaciones ejecutivas, restaurar la situación anterior a la ejecución provisional o compensar económicamente al ejecutado mediante el resarcimiento de los daños y perjuicios que se le causaren, si aquella sentencia fuese revocada”.
Content: Scope of surety: content agreed by the parties Absent consent: Art. 1827.2 CC: the guarantee has the same content as the debt obligation (“fianza simple”).
The amount required to be reimbursed includes the surety’s reasonable, good-faith outlays, including interest and legal fees. It thus includes the main obligation, with all of its ancillary obligations, as well as legal costs and fees incurred after creditor claims performance to guarantor.
Limit (art. 1826 CC): - Guarantor shall not pay more than the debtor. In case he pays more than the debtor, amount shall be reduced (partial nullity).
- It may be agreed that guarantor will pay less than the debtor. Or surety only established for a limited period of time (temporary suretyship).
Relations between parties Trilateral relation 1. Between guarantor and debtor Upon the principal debtor’s default, the surety is contractually obligated to perform unless the creditor discharges the obligation. When the surety performs, it must do so in good faith.
When the surety pays, it has to be in good faith (avoid an incorrect payment).
Taking into account that the surety has the right to be reimbursed by the principal debtor and that his defenses are generally limited, in order to refuse paying the reimbursement, debtors not infrequently claim the surety acted in bad faith or negligently, for instance by: - Failing to make an adequate investigation to determine if the debtor really defaulted.
Overpaying claims Making unreasonable refusals to let the debtor complete the promise made to the debtor.
(a) Exoneration or relieving of liability (“Acción de relevación o cobertura” (1843 CC)): The surety has a right to claim against the debtor which consists on the termination of the obligation with the creditor, or claim protection to the debtor according to which the debtor has to reimburse the money to the surety.
Guarantor, even before having performed, may ask the debtor to be relieved from the surety obligation when: - Guarantor is sued and brought to court.
- Guarantor is in an insolvency situation.
- Debtor promised to release guarantor from the surety obligation on a date, and the date has arrived.
- Debt is due.
- After 10 years, when the debt obligation has not a specific term or period to be performed.
Guarantor claims release or alternatively a security that he will be repaid or reimbursed by debtor in case the surety performs (example: “retrofianza”: surety of reimbursement right) (b) Claim for reimbursement (“acción de regreso”): Guarantor pays on behalf (a favour) of debtor and the latter has to compensate the former (art. 1838 CC): - Whole amount of debt.
Legal interest from the date the debtor was informed about guarantor’s payment. It is not necessary that theses interests were established in the creditor-debtor obligation.
Damages, if any.
This claim for reimbursement exists even in cases in which the debtor ignored that the surety existed between creditor and guarantor.
(c) Claim for subrogation (“acción de subrogación”): Guarantor takes over the creditor’s position in the legal relationship with debtor (art. 1839 CC): - The guarantor stands in the creditor’s shoes and may assert (hacer valer/imponer) against the principal/debtor whatever rights the creditor could have asserted had the duty not been discharged (cumplida).
- The right of subrogation includes the right to take secured interests that the creditor obtained from the principal to cover the duty (such as for instance, security interests or real guarantees).
Claims for reimbursement and subrogation are incompatible. Guarantor has the option to make one of the two claims. If one of them is unsuccessful, guarantor may bring an alternative claim.
(d) Defenses by the debtor to guarantor: - Guarantor paid without informing the debtor (art. 1840 CC): debtor may use all defenses and elements that could be used against the creditor at the time of performance.
When the surety turns(se convierte en) to the principal debtor and demands reimbursement, the latter (debtor) may have defenses against the surety for acting in bad faith or negligently.
The principal debtor may avail (recurrir) itself of any standard contract defenses as against the creditor, including, among others, impossibility, illegality, incapacity, fraud, duress, set-off, defenses based on insolvency law, statute of limitations, non-performance, or non-conformity.
- Guarantor paid in advance (art. 1841 CC): guarantor may not seek reimbursement until obligation is due.
- Guarantor paid without informing the debtor and debtor also paid to creditor, guarantor cannot seek reimbursement and is only entitled to seek restitution against creditor (“pago de lo indebido”, “solution indebiti”, arts. 1895 and ff. CC).
Relations between creditor and guarantor (a) Defenses by the guarantor to the creditor: - Defenses: guarantor may use all defenses and elements against creditor that could be used against the debtor that are related to the debt. Therefore defenses or elements that are only personally related to the debtor cannot be used (art. 1853 CC) exceptions: personal elements of the relationship that can only be claimed by the creditor itself.
- Generally, the surety may exercise defenses on a contract that would have been available to the principal debtor (e.g., creditor’s breach; impossibility or illegality of performance; fraud, duress, or misrepresentation by creditor; statute of limitations; refusal of creditor to accept or correct performance from either debtor or surety.) - Guarantor may use set-off (compensación) of amounts due (cantidades adeudadas) to the debtor (art. 1197 CC).
(b) Defense of unexhausted remedies (“Beneficio de excusión”): The surety may refuse to satisfy the creditor as long as the creditor has not attempted without success to obtain execution of judgment against the principal debtor.
Guarantor cannot be ordered to pay to creditor before “excusión” being made (art. 1830 CC): “El fiador no puede ser compelido a pagar al acreedor sin antes hacerse excusión de todos los bienes del deudor”.
If the surety raises the defense of unexhausted remedies, the creditor’s claim against the surety is suspended until the creditor has attempted without success to obtain execution of judgment against the principal debtor.
“Excusión” can be understood as a duty of creditor of enforcement and realization: guarantor has an obligation according to which he shall identify different debtor’s properties in Spain that may be attained (alcanzar) in order to afterwards obtain complete payment of the debtor’s obligation.
Exclusion of defense of unexhausted remedies (art. 1831 CC): - Guarantor expressly waives (renuncia) this right.
- Suretyship is established as a solidary obligation.
- Debtor becomes insolvent.
- Debtor cannot be brought to court in Spain.
Excusión may be waived ex ante (solidary surety or joint and several surety) or ex post.
Solidary suretyship: Art. 1822.2 CC: application of rules on joint and several obligations in articles 1137 to 1148 CC: - Internal relationship between guarantor and debtor: norms on suretyship.
- External relationship with creditor: rules on joint and several obligations.
Situations described under the Spanish Civil Code that may affect the surety relationship (a) Remission (“condonación” (art. 1190 and 1847 CC)): Remission is a form of cancellation. The principle debt is cancelled. And thus, the surety will be cancelled as well.
- Creditor relieves (aliviar) debtor from obligation surety is cancelled.
Creditor relieves guarantor from surety obligation principal obligation is not cancelled.
(b) Merger (“confusión” (art. 1193 CC)): - Merger between debtor and creditor principal obligation and surety are cancelled.
Merger between creditor and guarantor principal obligation is not cancelled. Surety is cancelled but some rights or guarantees would subsist (“subfiança” (art. 1848 CC)).
(c) Assignment of credit (“cesión del crédito” (art. 1528 CC)): The debtor has an obligation with the creditor. The creditor assigns this credit to another party and the debtor has to pay to a 3rd party.
- Surety is not cancelled, it protects the new party.
(d) Set-off (“compensación” (art. 1202 and 1847 CC): - If set-off requirements are met, debtor’s obligation is cancelled surety is cancelled.
(e) Datio pro soluto (“dación en pago” (art. 1849 CC)): - If the creditor accepts from a debtor a different good than the one initially established in the obligation; and afterward he loses ownership (“evicción”) guarantor is not liable.
(f) Extension (“prórroga” (art. 1851 CC)): - If creditor provides the debtor with an additional term to perform and guarantor does not consent surety is cancelled. Open to discussion; e.g.: automatic extensions or brief periods are considered not to cancel the suretyship.
Cosurety (“Cofianza”) An arrangement (acuerdo) where two or more surety guarantors directly participate on a bond with the same creditor and for the same debt obligation.
Not to confuse with a plurality of independent sureties: each guarantor provides surety and his obligation is not affected by the existence of other surety relationships or situations that affect them.
Art. 1837.1 CC: unless parties agree otherwise, it is presumed that obligations from cosureties are arranged according to several liability (“obligació parciària”).
Creditor is only entitled to claim individual shares to each of the cosureties unless the parties clearly established that obligations were to be arranged according to joint and several liability (solidarity).
If creditor claims more than the individual share to a cosurety he will have a right to oppose paying the whole obligation (“beneficio de división”).
This right cannot be applied in the situations in which the defense of unexhausted remedies is excluded (Art. 1837.2 CC) therefore creditor may claim payment of the whole obligation to any of the cosureties.
Joint and several cosurety (“Cofianza solidaria”): if parties expressly establish this arrangement, creditor would be entitled to claim the whole obligation to any of the cosureties.
Claims for reimbursement and contribution (arts. 1844 and 1845 CC): Reimbursement (art. 1844 CC): - Cosurety that pays has a right to reimbursement against the rest of cosureties.
- If any of the cosureties is insolvent, his share is distributed among the remaining cosureties.
- Application of this provision requires that cosurety was judicially ordered to pay the amount or that debtor was bankrupt.
Defenses (art. 1845 CC) “Subfianza” (art. 1836 CC) - Surety of a surety.
- Defense of unexhausted remedies can be used by the second surety against the creditor concerning both the debtor and the surety. That is (es decir), creditor may only claim against the second surety after having claimed against the debtor and against the guarantor.
- If the second surety assures (asegura) performance of a cosurety, but not of all cosureties, and the cosurety is insolvent, the second surety will take his position and be liable towards the other cosureties (art. 1846 CC).