Cour de cassation Commercial chamber, May 14, 2009 - Decision N°07-17568 (X v. Banque Populaire du Nord)

A Bank had made a loan to Mr Y to finance an electoral campaign. The loan was secured h by a surety on Mr X, who was the second person on the electoral list.

The bank had added in the surety contract a special clause by which the surety made the following declaration:

“I recognize (the surety) to take my surety engagement with a perfect view on the financial and legal situation of the debtor, and that, in my own interest, I'll personally have to follow the company's evolution, independently from the information that the bank could eventually provide.”

The campaign didn't go as planned, the main debtor went bankrupt and the bank claimed the debt against the surety.

The surety claimed the surety was null his consent being obtained by retaining information on the financial situation of the main debtor.

The Court of appeal of Amiens (3, May 2007) ruled the surety engagement wasn't null. The Court of appeal found that the surety didn't prove that his consent had being obtained by deception. The Court of appeal stated that the clause added to the contract made more difficult the proof of the existence of deception since the surety recognized he had been informed of the main debtor's situation.

The Surety appealed to the Cour de cassation (French civil Supreme Court). The Question raised to the Supreme Court was whether a clause could relieve the Bank from its obligation to inform the surety of the financial situation of the main debtor.

The Supreme Court (1st civil Chamber) clearly stated that a contractual clause couldn't free the bank from its duty to inform the surety.

The Supreme Court with such a position protects the surety from contractual attempts to diminish the bank's duties in such operations. The bank's duties are imperative rules which cannot be contractually modified. This is reaffirmed very clearly by the Supreme Court.

Article written by Olivier Vibert

Published in the EUROPEAN JOURNAL OF COMMERCIAL CONTRACT LAW.