Law applicable to a surety-bond loan: the provisions of the Civil Code and the Consumption Code do not constitute mandatory rules

Civil Law / Commercial Law

Source: Supreme Court, 1st Civil Ch. 16th Sept 2015, n°14-10.373 JurisData n° 2015-020553

On April 19th 2006, an Italian bank granted a loan to a private individual, who usually lives in Italy. Another private individual, who usually lives in France, acted as a guarantor for this loan, by separate document dated April 21st 2006, also concluded in Italy. After having pronounced the acceleration, the bank issued a writ against the borrower and the guarantor for the payment of all due sums.

The Court of Appeal of Besançon declared the French Law applicable to the contract of guarantee, in accordance with the provisions of the article 4 of the Rome Convention dated June 19th 1980 related to the Law applicable to contractual obligations, under which the contract is governed by the law of the country with which it has the closest links. In order to declare the French Law applicable to the guarantee contract, the judgement notes that the guarantee is a separate contract and that it was with France that the disputed contract had the closest links.

The Supreme Court partially reversed the appeal decision in accordance with this text.

In absence of a choice by the parties, the contract is governed by the law of the country with which it has the closest links. Is assumed to have such links, the one where the party who must provide the characteristic performance has, at the time of the contract conclusion, his usual residence.

This presumption is left aside when it results from all the circumstances that the contract presents closer links with another country.

In this particular case, the Supreme Court notes that the disputed guarantee contract, written in Italian, had been concluded in Italy, that the lender had its head office in that country, that the borrower had there his usual residence and that the surety-bond contract, whose surety-bond act constituted the guarantee, was governed by the Italian Law, from which it resulted that the disputed surety-bond contract had closer links with Italy than France.

Then, in order to declare the French Law applicable to the surety-bond contract, the appeal decision notes as well that the texts of the French Law related to the protection of the guarantor and to the formalism of his commitment have a mandatory nature.

The Supreme Court also partially reversed the appeal decision in application of the article 3 of the Civil Code, together with the article 1326 of the same code, the articles L341-2 and L341-3 of the Consumption Code and the article 7, paragraph 2 of the Rome Convention dated June 19th 1980:

«[…]neither the article 1326 of the Civil Code, which gives obligation to the party that commits on its own towards another one, to pay him a sum of money, to add on the act that ascertains this commitment, his signature as well as a mention, written by himself, of the sum in both letters and figures, nor the articles L341-2 and L341-3 of the Consumption Code, which enforce the private individual who acts as guarantor towards a professional debtor, to have his signature preceded by a written mention, the mentions provided by these texts being intended to unsure a better protection of the guarantor, are laws, which have to be observed for the protection of the political, social and economical organisation of the country to the extent of imperatively govern the situation, whatever the law applicable is, and to constitute a mandatory rule.»