An individual guarantor may, at any time, invoke the disproportionate nature of his or her obligation

Contract Law. After a company was placed in judicial liquidation, its executive argued that his liability was disproportionate.

In this case, a bank had granted loans to a company, which were guaranteed by the company’s executive. After the company was placed in judicial liquidation, the bank asked the executive to fulfill his obligation.

The executive objected to this request, arguing that his obligation was disproportionate to his assets and income.

Faced with the director’s refusal, the bank countered by arguing that the guarantor’s claim seeking to have the guarantee declared null and void was barred by the statute of limitations.

In a judgment dated November 9, 2015, the Versailles Commercial Court granted the bank’s requests.

However, since this judgment was not served within the time limit specified in Article 478 of the Code of Civil Procedure, Crédit Agricole again sued Mr. Y, by a summons dated January 10, 2017, before the Commercial Court of Versailles, which, by judgment dated February 7, 2018, dismissed all of Crédit Agricole’s claims and ordered it to pay Mr. Y the sum of 2,000 euros pursuant to Article 700 of the Code of Civil Procedure, as well as costs.

“The court found that Mr. Y’s surety obligations were manifestly disproportionate to his assets and income.”

The court found that Mr. Y’s surety obligations were manifestly disproportionate to his assets and income. Crédit Agricole appealed this decision.

In the ruling discussed here, the appellate judges unequivocally state that the consequence of a surety obligation granted by an individual being manifestly disproportionate is that the professional creditor cannot rely on it… And not its nullity.

Consequently, they rule that they may rule on the disproportionate nature of the executive’s guarantee without having to examine the statute of limitations on the claim for nullity, since that sanction does not apply and the guarantor may invoke the disproportionate nature of his or her guarantee at any time.

The creditor’s inability to rely on a guarantee that is manifestly disproportionate constitutes a defense on the merits that is not subject to the statute of limitations (Cass. 1st Civ. January 31, 2018, No. 16-24.092 FS-PB: RJDA 7/18 No. 603).

The decision in question also reiterates that the only remedy for disproportion is the unenforceability of the surety’s obligation. Consequently, if the action is granted, the surety is fully released from the obligation (Cass. Com. 3/28/2018 No. 16-25.651: RJDA 7/18 No. 604; See also: Riom Court of Appeal, November 21, 2018, No. 17/00623), and a surety acting on this basis may only seek discharge and not damages (Cass. com. April 8, 2015, No. 13-26.734 F-D: RJDA 12/15 No. 867).

See also: Cass. Com., October 17, 2018, No. 17-21.857; Cass. Com., June 6, 2018, No. 16-26.182; Commercial Court of Cassation, March 28, 2018, No. 16-25.651; Commercial Court of Cassation, January 15, 2015, No. 13-23.489