Disproportionate Guarantee: Disproportion Is Assessed Against the Amount of the Commitment, Not the Instalments (French Supreme Court, Commercial Chamber, 1 April 2026, No. 24-11.700)

French Supreme Court, Commercial, Financial and Economic Chamber, 1 April 2026, Appeal No. 24-11.700. Quashing the judgment of the Pau Court of Appeal of 9 January 2024, No. RG 22/00959

What was the background to this case?

The facts: a joint and several guarantor facing the liquidation of the guaranteed company

The story begins in July 2015, in the Pyrénées-Atlantiques. A company, Ossau 64, applies for two loans from the Caisse régionale de crédit agricole mutuel Pyrénées Gascogne. The first loan is granted on 8 July 2015, secured by the joint and several guarantee of an individual for €200,000. On the same day, a second loan is granted, with a new joint and several guarantee from the same person for €77,000.

In other words, the guarantor personally committed to repay up to €277,000 if the company defaulted. All on the same day, for the same company, with the same bank.

A few years later, Ossau 64 is placed in court-supervised reorganisation (redressement judiciaire), then in compulsory liquidation (liquidation judiciaire). The bank, no longer able to hope for repayment from the defaulting borrower, turns to the guarantor and sues for performance of the commitments. The guarantor then challenges those commitments before the civil courts, arguing in particular that they were manifestly disproportionate to their income and assets at the time they were entered into.

What the Pau Court of Appeal held

At first instance, then before the Pau Court of Appeal, the guarantor argued that their commitments were manifestly disproportionate to their assets and income. The court of appeal rejected this argument. It relied on the information sheet completed by the guarantor on 3 April 2015, a few months before the guarantee deeds were signed. This sheet revealed that:

The court of appeal inferred from this that the couple’s combined income and the property assets enabled the guarantor to meet their commitment. It reasoned by comparing the household’s available income with the instalments of the secured loans, considering that the guarantor would be able to pay those instalments if the company defaulted.

It is precisely this reasoning that the French Supreme Court is about to sweep aside.

What is the legal principle at the heart of this judgment?

Article L. 341-4 of the Consumer Code: a shield for the guarantor

This provision rests on a clear protective logic: if a bank, which is a credit professional with every tool to assess risk, accepts a manifestly disproportionate guarantee, it cannot subsequently rely on it. It is a form of sanction for the imprudence or carelessness of the professional creditor.

But the practical application of this mechanism requires answering a fundamental question: what are the guarantor’s resources compared against? This is the central issue of the judgment of 1 April 2026.

The fundamental distinction: instalments vs. the amount of the commitment

Two readings are possible of what the guarantor must “cover” with their assets and income:

The reason for this distinction is simple to understand: if the principal debtor defaults, the guarantor is not called on to pay the instalments in the borrower’s place; the guarantor is called on to pay the outstanding principal, that is, the entire sum still owed to the bank at the time of default. This amount may be very high, and represents the real risk that the guarantor takes on.

Comparing the guarantor’s monthly income with the loan instalments amounts to artificially minimising the risk, as if the guarantor would only ever have to pay small regular sums. This is not the reality: if the borrower defaults after only a few months of repayments, the guarantor will have to face almost the whole of the borrowed principal, in a single payment or on an accelerated basis.

Why did the Pau Court of Appeal err?

The flawed reasoning: comparing instalments with monthly income

The Pau Court of Appeal had indeed looked at the right basic elements (the couple’s income, the property assets, the existing outgoings), but it used them wrongly. Rather than weighing these overall resources against the total amount of the guarantee commitments (€277,000), it reasoned in terms of monthly flow: does the income make it possible to pay the instalments if the borrower defaults?

In doing so, it made an error of legal method. It confused two fundamentally different things:

On the one hand, the ability to pay instalments, which would be relevant for analysing the solvency of the principal debtor, but not that of the guarantor. On the other hand, the ability to meet the total amount of the guarantee commitment, which is the only legally relevant criterion for assessing the proportionality of the guarantee.

Why quashing was inevitable

The French Supreme Court recalled, in remarkably precise terms, that “the manifest disproportion of a guarantee is assessed by reference to the guarantor’s ability to meet, with their assets and income, not the secured obligation according to its own payment terms, but the amount of their own commitment.”

This wording is not new: it is consistent with well-established case law of the Commercial Chamber. But its reaffirmation in this context is useful: it clearly indicates that some courts of appeal continue to apply the wrong criterion, which justifies regular quashing on this point.

In practice, the correct reasoning to follow is as follows:

What is the practical significance of this judgment for guarantors?

How do you assess the disproportion of a guarantee in practice?

This judgment offers a valuable framework for anyone sued for performance of a guarantee. The first question to ask is: at the time I signed, were my income and assets commensurate with the amount I had guaranteed?

This assessment is made on the basis of the information known or declared at the time. In practice, banks have the guarantor complete a “personal financial information sheet” (fiche de renseignements patrimoniaux) before signing. This document is often at the heart of the court debate. If it reveals a glaring mismatch between the declared assets and the amount guaranteed, the disproportion may be established.

It should also be noted that the law provides an exception to the disproportion principle: even if the guarantee was manifestly disproportionate when entered into, the bank may nonetheless rely on it if, at the time it calls on the guarantor, the guarantor’s assets enable them to meet their obligation. In other words, if the guarantor’s financial position has improved between signing and the call on the guarantee, the protection may be lost.

The double timing test: at signing and when the guarantee is called

The mechanism of Article L. 341-4 of the Consumer Code therefore operates through a double timing test, which can be summarised as follows:

In the case before the French Supreme Court, only the first test was at issue: the court of appeal had wrongly assessed the initial disproportion by using the wrong basis of comparison. The French Supreme Court censures it on this point and refers the case to the Bordeaux Court of Appeal so that it applies the correct criterion.

What is the settled case law on this subject?

This judgment is not isolated. It forms part of a well-established line of authority from the French Supreme Court, which has regularly had to correct methodological errors by courts of appeal in assessing the disproportion of guarantees. The Commercial Chamber has repeatedly stated that it is the amount of the commitment, and not the payment terms of the secured debt, that constitutes the yardstick.

This consistency in the case law is explained by the very logic of the protective mechanism. The legislature wished to protect individuals against commitments they cannot bear. If one reasoned from the instalments rather than the total amount, the protection would be emptied of its substance: any moderate instalment would seem bearable relative to the guarantor’s income, even if the guarantor guarantees an astronomical principal relative to their assets.

It is important to note that the bank had attempted to raise an objection that the ground of appeal was inadmissible, arguing that the guarantor had themselves, before the court of appeal, reasoned from the instalments. The French Supreme Court swept aside this objection by holding that the ground of appeal “arose from the contested decision”, which means that it is precisely the court of appeal’s error that justified raising this ground for the first time before the French Supreme Court.

Evolution of the applicable law: from former Article L. 341-4 to the Civil Code

Article L. 341-4 of the Consumer Code, in the version applicable to this case (prior to the Ordinance of 14 March 2016), has since been recodified. Today, the principle of proportionality of guarantees is anchored in the Civil Code, at Article 2300, resulting from the Ordinance of 15 September 2021 reforming the law of security interests, which came into force on 1 January 2022.

The timing distinction is crucial here for practitioners: guarantees signed before 1 January 2022 continue to fall under the earlier provisions (former Article L. 341-4 of the Consumer Code for individual guarantors towards professional creditors), whereas guarantees entered into from that date fall under new Article 2300 of the Civil Code. The principles drawn from the case law under the former text nevertheless remain largely transposable.

What should you do if you are a guarantor and the bank claims large sums from you?

If you are in the situation of a person sued for performance of a guarantee, this judgment reminds you that there are concrete means of defence that the law guarantees you. Here are the main steps to consider.

The first thing to do is to gather the documents relating to your financial situation at the time the guarantee was signed: payslips, tax assessments, asset statements, title deeds, statements of outstanding loans. These items will make it possible to reconstruct your real financial capacity at the date of signing.

You should then compare the total of your guarantee commitments (and not the loan instalments) with your income and your net assets at that time. If the gap is glaring (if, for example, you had guaranteed several hundred thousand euros while your annual income and assets represented only a fraction of that amount), manifest disproportion may be established.

You must also check whether or not the bank was aware of items of your assets that were not mentioned in the information sheet, which may influence the assessment. Likewise, your current financial position, at the time the bank calls on you, will be examined by the judge to determine whether the disproportion protection can still apply.

In every case, the assistance of a lawyer specialising in banking law is essential. Limitation periods, procedural rules, and the complexity of assessing disproportion require a precise analysis of your individual case.

Conclusion

The judgment of the French Supreme Court of 1 April 2026 is not a legal revolution, but it is a useful confirmation of a fundamental principle that lower courts must not lose sight of: to assess whether a guarantee is manifestly disproportionate, one must measure the guarantor’s ability to meet the total amount of their own commitment, and not the payment terms of the secured debt, however comfortable those instalments may appear in comparison with monthly income.

This rule has a concrete and potentially decisive impact for thousands of individual guarantors: SME managers who guaranteed their company’s debts, spouses who co-guaranteed business loans, partners who guaranteed credit lines. All of them may find themselves in the position of Ms [E]: apparently decent income, modest assets, and commitments representing several years of cumulative income.

The protection of Article L. 341-4, now Article 2300 of the Civil Code, is there for them. But judges must still apply it with the right criterion. That is the whole point of this judgment, which recalls it firmly.

If you are in this situation and wish to analyse your rights, the lawyers of Le Bot Avocat are at your disposal to review your case and advise you on the options available to you.

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