Com. 11 Sept. 2024, F-B, No. 23-11.534
In a judgment dated 11 September 2024, the Commercial Chamber of the Cour de cassation recalls several interesting rules for managing directors acting as sureties:
Regarding suretyship, the decision recalls that nullity on grounds of mistake based on the presence of co-sureties cannot be invoked when a clause specifies the independence of each suretyship agreement, unless it is proven that such independence was not a determining factor, despite the stipulation.
In banking law, the Cour de cassation recalls the effects of annulling a current account opening agreement. Where an overdraft authorisation has been granted, restitution must be limited to the amount allocated under the overdraft only, thereby excluding all contractual fees and interest, and not merely the fees and interest charged under the overdraft.
The facts underlying the case
The facts underlying the case begin on 2 June 2010, when a natural person, acting on behalf of a company specialising in the buying and selling of wines, the company Vins et Selections, opened two current accounts with a bank, the Caisse de credit mutuel le Val Lorrain.
On the same day, the bank granted the company a loan of 100,000 euros, secured by four separate sureties. On 26 July 2012, the bank also granted the company an overdraft authorisation of 20,000 euros, this time secured by three of the four sureties from the initial loan. These same sureties also provided joint and several guarantees for all the company’s commitments for a period of five years, up to 24,000 euros each.
However, the company encountered financial difficulties which led to cessation of payments and compulsory liquidation. The bank then sent a formal demand to each surety to pay the amounts due. In the absence of payment, the bank brought proceedings against them.
By a judgment delivered on 16 December 2019, the court dismissed the bank’s claims against two of the sureties, holding that the commitments were manifestly disproportionate in relation to their assets and income. However, the third surety was ordered to pay certain sums claimed by the bank. The latter then decided to appeal, challenging the validity of his suretyship commitment and, in the alternative, the validity of the current account agreement.
The Court of Appeal dismissed the application for annulment of the personal guarantee but declared the annulment of the current account opening agreement and of the overdraft authorisation agreement. Consequently, the surety was ordered to pay the sum of 8,081.30 euros corresponding to the restitutions due following the annulment of these agreements, including banking fees and interest.
Dissatisfied, the surety appealed to the Cour de cassation. Two grounds of appeal were raised in the judgment of 11 September 2024, but only the first resulted in a reversal. Let us analyse the reasoning behind this decision.
The validity of the suretyship from the perspective of nullity for mistake
The second ground raised (point No. 6 of the decision) posed an interesting and relatively classic issue on the merits. The appellant argued that he had committed as a surety solely because of the presence of other co-sureties. However, the commitments of the other sureties had been annulled at first instance on grounds of disproportionality. The core of the second ground therefore rested on a mistake vitiating consent.
The case law on this subject appears to be settled: where there are multiple sureties, one of them may obtain the annulment of their commitment if they prove that the maintenance of all personal guarantees was a determining condition of their commitment (see in particular: Com. 21 June 2023, 22-11.439, Unreported, or Com. 18 March 2014, 13-11.733, Unreported).
However, in this case, Article 8 of the contract stipulated that “the surety does not make the situation of the principal debtor or the existence and maintenance of other sureties a determining condition of its suretyship” (point No. 7 of the judgment), which necessarily made it very difficult for the surety to establish its case, given the clarity of the wording. Clearly, in this matter, this independence between the guarantees was a major asset for the bank, allowing it to avoid a domino effect in the event of annulment of one of the suretyships.
Since the suretyship could not be annulled, the reversal could only relate to the nullity of the current account agreement.
The validity of the suretyship from the perspective of the nullity of the current account agreement
The reversal is based on former Article 1379 of the Civil Code, the case being prior to 1 October 2016, the date of entry into force of Ordinance No. 2016-131 of 10 February 2016, which, as a reminder, provided that “If the thing unduly received is immovable property or tangible movable property, the person who received it is obliged to restore it in kind, if it still exists, or its value, if it has perished or been damaged through their fault; they are even liable for its loss by fortuitous event, if they received it in bad faith“.
In this case, the current account agreement had been annulled by the Metz Court of Appeal because it had been entered into while the SARL Vins et Selections was still being formed and did not yet have legal personality, which entails nullity of the agreement, unless it is proven that the current account agreement was a commitment assumed by the company in accordance with the conditions imposed by Articles L210-6 and R201-5 of the Commercial Code, which was not the case here.
Consequently, the overdraft authorisation of 20,000 euros that had been granted after the company’s registration, being ancillary to the current account agreement, was also annulled by the Metz Court of Appeal.
It should be recalled that nullity implies treating the contract as if it had never existed by making restitutions so that the parties are returned to the position they were in before the conclusion of the annulled agreement.
However, the Court of Appeal had ordered the surety to pay the sum of 8,081.30 euros in respect of restitutions following the annulment of both the current account opening agreement and the overdraft authorisation agreement, but deducting only the contractual fees and interest due under the overdraft: it appeared from the account history produced by the CCM, closed on 25 November 2016, that the current account opened in the name of SARL Vins et Selections was in debit to the amount of 9,378.67 euros, from which the Court of Appeal considered that 1,297.37 euros in interest and fees should be deducted, corresponding only to the banking fees and interest due under the overdraft.
However, in order to reduce the amount, the surety argued that it was incumbent upon the Metz Court of Appeal to deduct all banking fees and interest from the date of the current account opening agreement.
The reasoning of the Cour de cassation rests on this key formula: “the annulment of the current account opening agreement entails the restitution of sums corresponding to the current account balance, to the exclusion of all other contractual fees and interest” (point No. 11). It was therefore incumbent upon the Metz Court of Appeal to deduct all banking fees and interest from the date of the current account opening agreement and not merely the banking fees and interest due under the overdraft.
Ultimately, the restitutions to be borne by the surety are limited to the current account balance alone, to the exclusion of all contractual fees and interest.
This is an interesting decision that encompasses the law of security interests, general contract law and banking law, offering a compelling illustration of the issues that arise in this type of case.
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Com. 11 Sept. 2024, F-B, No. 23-11.534
Full text of the decision:
Cour de cassation, Civil Division, Commercial Chamber, 11 September 2024, 23-11.534, Published in the Bulletin
Cour de cassation – Commercial Chamber
- Appeal No.: 23-11.534
- ECLI:FR:CCASS:2024:CO00468
- Published in the Bulletin
- Outcome: Partial reversal
Public hearing of Wednesday 11 September 2024
Decision under appeal: Metz Court of Appeal, 1 December 2022
President: Mr Vigneau; Counsel: SCP Rocheteau, Uzan-Sarano and Goulet, SARL Le Prado – Gilbert
Full text
FRENCH REPUBLIC
IN THE NAME OF THE FRENCH PEOPLE
THE COUR DE CASSATION, COMMERCIAL CHAMBER, has rendered the following judgment:
COMM.
FM
COUR DE CASSATION
______________________
Public hearing of 11 September 2024
Partial reversal
Mr VIGNEAU, President
Judgment No. 468 F-B
Appeal No. N 23-11.534
F R E N C H R E P U B L I C
_________________________
IN THE NAME OF THE FRENCH PEOPLE
_________________________
JUDGMENT OF THE COUR DE CASSATION, COMMERCIAL, FINANCIAL AND ECONOMIC CHAMBER, OF 11 SEPTEMBER 2024
Mr [C] [U], domiciled at [Address 2], filed appeal No. N 23-11.534 against the judgment rendered on 1 December 2022 by the Metz Court of Appeal (Commercial Chamber), in the dispute between him and the Caisse credit mutuel le Val Lorrain, having its registered office at [Address 1], respondent in cassation.
The appellant relies, in support of his appeal, on three grounds of cassation.
The file was communicated to the Procureur General.
On the report of Ms Champ, Reporting Judge, the observations of SCP Rocheteau, Uzan-Sarano and Goulet, counsel for Mr [U], of SARL Le Prado – Gilbert, counsel for the Caisse credit mutuel le Val Lorrain, and the opinion of Ms Guinamant, Advocate General, following deliberations at the public hearing of 11 June 2024 where present were Mr Vigneau, President, Ms Champ, Reporting Judge, Ms Vaissette, Senior Judge, and Ms Bendjebbour, Clerk of Chamber,
the Commercial, Financial and Economic Chamber of the Cour de cassation, composed of the aforementioned President and Judges, having deliberated in accordance with the law, has rendered the present judgment;
Facts and procedure
1. According to the judgment under appeal (Metz, 1 December 2022) and the exhibits, on 2 June 2010, Mr [C], acting in the name of the company in formation Vins et Selections (the company), opened two current accounts in the books of the Caisse de credit mutuel le Val Lorrain (the bank). On the same day, the bank granted the company a loan in the amount of 100,000 euros, secured by the suretyships of Mr [U], Ms [Z], Mr [E] and Mr [T]. On 26 July 2012, the bank granted the company an overdraft authorisation in the amount of 20,000 euros, secured by Mr [U], Ms [Z] and Mr [T], who also provided joint and several sureties, each up to 24,000 euros for a period of 60 months, for all of the company’s commitments.
2. Following the compulsory liquidation of the company, the bank sent formal demands to each of the sureties to pay the sums due under their commitments, then brought proceedings against them for payment.
3. A judgment of 16 December 2019 dismissed the bank’s claims against Mr [T] and Ms [Z] after finding that their commitments were manifestly disproportionate to their respective assets and income, and ordered Mr [U] to pay various sums.
4. Mr [U] appealed and raised in particular the nullity of his suretyship.
Examination of the grounds
On the third ground
5. Pursuant to Article 1014, paragraph 2, of the Code of Civil Procedure, there is no need to rule by a specially reasoned decision on this ground, which is manifestly not of a nature to lead to reversal.
On the second ground
Statement of the ground
6. Mr [U] criticises the judgment for dismissing his application for annulment of his suretyship commitment in respect of the professional loan and for ordering him to pay the bank the sum of 30,000 euros, arguing that:
“1/ the extent of the guarantees provided to the bank is necessarily a determining factor in the consent of a surety who commits at the same time as three other co-sureties; in this case, it is apparent from the Court’s own findings that, under the professional loan agreement for 100,000 euros granted to SARL Vins et Selections on 20 July 2010, three other suretyships had been provided in addition to that of Mr [U] (judgment, p. 11, para. 2); in refusing to accept that Mr [U] had made the commitments of his co-sureties a determining condition of his own suretyship commitment, the Court of Appeal relied on the absence of such a mention in the suretyship deed, on the duration of Mr [U]’s commitment, which was longer than that of his co-sureties, and on the existence of a clause, inserted in the general conditions of the loan accepted by Mr [U] in his capacity as manager of SARL Vins et Selections, stipulating that ‘the surety does not make the situation of the principal debtor or the existence and maintenance of other sureties a determining condition of its suretyship’ (judgment, p. 11, paras. 4 to 8); by ruling in this way on grounds insufficient to exclude the determining nature, for Mr [U]’s suretyship commitment, of the commitment of his co-sureties, the Court of Appeal deprived its decision of any legal basis under Article 1110 of the Civil Code in its version prior to that resulting from Ordinance No. 2016-131 of 10 February 2016;
2/ by relying, in order to exclude the surety’s mistake as to the extent of the guarantees provided to the bank, on a clause inserted in the general conditions of the loan stipulating that ‘the surety does not make the situation of the principal debtor or the existence and maintenance of other sureties a determining condition of its suretyship’ (judgment, p. 11, para. 6), when the suretyships of Ms [Z] and Mr [T] had been rendered ineffective on account of the manifest disproportionality of their commitments, a situation not contemplated by the clause, the Court of Appeal violated Article 1134 of the Civil Code in its version prior to that resulting from Ordinance No. 2016-131 of 10 February 2016;
3/ the judge must, in all circumstances, ensure compliance with and himself comply with the adversarial principle; by raising of its own motion, in order to dismiss Mr [U]’s application for annulment of the suretyship of 20 July 2010, the circumstance that, in his capacity as manager of SARL Vins et Selections, he was ‘particularly determined that the loan be granted’ and that he had committed for 108 months, i.e. a longer period than the suretyships provided by the other co-sureties (judgment, p. 11, para. 8), the Court of Appeal, which should have invited the parties to submit their observations, failed to comply with the adversarial principle and thereby violated Article 16 of the Code of Civil Procedure.”
Response of the Court
7. After noting that Mr [U] raised the nullity of his suretyship commitment arguing that the existence of the sureties of Mr [T] and Ms [Z] was a determining factor in his consent, without which he would not have contracted, so that had he known that the commitments of the latter would be struck by disproportionality and that, as a result, the bank could not rely on them, he would not have agreed to commit, the judgment finds that the handwritten formula drafted and signed by Mr [U] does not mention the determining nature of the existence of the other suretyship commitments, that Article 8 of the general conditions of the loan, under the paragraph entitled “surety’s knowledge of the principal debtor’s situation”, stipulates that “the surety does not make the situation of the principal debtor or the existence and maintenance of other sureties a determining condition of its suretyship” and that the page on which this clause appears was initialled by Mr [U].
8. From this statement and these sovereign assessments, the Court of Appeal was entitled to conclude that Mr [U] did not establish that his suretyship commitment had been given solely because of the existence of the other suretyship commitments.
9. The ground, which criticises a superfluous reason in its third branch, is unfounded as to the remainder.
But on the first ground, in its first branch
Statement of the ground
10. Mr [U] criticises the judgment for holding that he is bound to guarantee the obligation of restitution arising from the nullity of the said overdraft authorisation agreement and, consequently, for ordering him to pay the bank the sum of 8,081.30 euros with interest at the statutory rate from the date of service of the judgment, arguing that “the annulment of the current account opening agreement entails the restitution of the sums corresponding to the current account balance, to the exclusion of all other contractual fees and interest; in this case, the Court of Appeal declared null and void both the current account opening agreement entered into on 2 June 2010 for the company Vins et Selections in formation, and the overdraft authorisation agreement of 20,000 euros dated 26 July 2012 (judgment, p. 10, paras. 2 to 4); on that basis, it considered that, in his capacity as surety, Mr [U] was to be discharged from the obligation to guarantee the performance of the principal contract, but was nevertheless required to guarantee the obligation of restitution arising from the annulment of the overdraft authorisation agreement, within the limits of his commitment (judgment, p. 12, para. 8); in order to order Mr [U] to pay the sum of 8,081.30 euros in respect of restitutions following the annulment of both the current account opening agreement and the overdraft authorisation agreement, the Court of Appeal limited the deduction of banking fees and interest to those due under the overdraft (judgment, p. 12, paras. 9 and 10); by ruling in this way when it was incumbent upon it to deduct all banking fees and interest from the date of the current account opening agreement, the Court of Appeal violated Article 1379 of the Civil Code in its version prior to that resulting from Ordinance No. 2016-131 of 10 February 2016.”
Response of the Court
Having regard to Article 1379 of the Civil Code, in its wording prior to that resulting from the Ordinance of 10 February 2016:
11. It follows from this provision that the annulment of the current account opening agreement entails the restitution of the sums corresponding to the current account balance, to the exclusion of all other contractual fees and interest.
12. In order to order Mr [U] to pay the bank the sum of 8,081.30 euros in respect of restitutions following the annulment of both the current account opening agreement and the overdraft authorisation agreement, the judgment finds that nullity entails the restitution of the funds allocated to the company pursuant to the overdraft authorisation in order to restore the parties to the said agreement to the position they were in on the date of its execution on 26 July 2012, that Mr [U] is bound to restore to the bank the sums allocated by it under the authorised overdraft, with the fees and interest charged in addition to be deducted, without it being necessary to rule on the other grounds raised seeking the deduction of such fees and interest.
13. By ruling in this way, when it was incumbent upon it to deduct all banking fees and interest from the date of the current account opening agreement, the Court of Appeal violated the aforementioned provision.
ON THESE GROUNDS, and without the need to rule on the remaining complaint, the Court:
QUASHES AND ANNULS, but only insofar as it ordered Mr [U] to pay the Caisse de credit mutuel le Val Lorrain the sum of 8,081.30 euros with interest at the statutory rate from the date of service of the present judgment, the judgment rendered on 1 December 2022, between the parties, by the Metz Court of Appeal;
Remits, on this point, the case and the parties to the position they were in before that judgment and refers them to the Metz Court of Appeal, differently composed;
Orders the Caisse credit mutuel le Val Lorrain to pay the costs;
Pursuant to Article 700 of the Code of Civil Procedure, dismisses the application of the Caisse credit mutuel le Val Lorrain and orders it to pay Mr [U] the sum of 3,000 euros;
Orders that, upon the diligence of the Procureur General at the Cour de cassation, this judgment shall be transmitted for transcription in the margin of or following the partially quashed judgment;
So decided and adjudged by the Cour de cassation, Commercial, Financial and Economic Chamber, and delivered by the President at the public hearing of the eleventh of September two thousand and twenty-four. ECLI:FR:CCASS:2024:CO00468
