20 Years of Litigation Over a Joint and Indivisible Guarantee: Bank Liability and Undue Payment

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A bank is sued in liability by the joint and indivisible guarantor of a company’s obligations, for having liquidated his securities portfolio, whereas the later liquidation of the debtor company would ultimately repay the bank’s claim in full.

The starting point: enforcing a joint and indivisible guarantee

In the 1990s, Mr F., manager of a French company, stood as joint and indivisible guarantor of his company’s obligations towards the bank. The French company ran into difficulties, and the guarantor was ordered by a French court in December 1998 to perform his guarantee (about EUR 30,000). The company was then put into liquidation, and the bank filed its proof of claim for about EUR 112,000. The liquidation took more than 15 years due to a dispute between the company and its insurer. Meanwhile, the bank obtained an exequatur order in Belgium and Mr F.’s securities portfolio was liquidated for about EUR 17,000, the proceeds being applied mostly to the interest on the guarantee but also repaying part of the claim.

Close of the liquidation, full repayment, and a liability suit

Years later, in 2013, the liquidation of the French company concluded with payment to the bank of the EUR 112,000 in its proof of claim. On learning this, Mr F. sued the bank in liability, arguing that it should not have sold his portfolio, and claiming the value of the sold securities plus the capital gain they should have made between 2000 and 2014. The bank relied on the fact that the guarantor had authorised the sale of his portfolio without reservation, and on the joint and indivisible character of the guarantee.

The decisions: limitation, no liability, and a Cassation epilogue

At first instance, the court dismissed the guarantor’s claim as time-barred, without examining the merits, to the relief of the bank, which had overlooked Article 2031 of the Civil Code. The guarantor appealed. Meanwhile, the French company’s liquidator sued the bank for recovery of an undue payment; a settlement was reached at the outset, and the bank paid a sum to the liquidator.

The guarantor pursued his action nonetheless, but the Court of Appeal also dismissed it. The court did reverse the first-instance ruling on limitation, holding the claim not time-barred, but found the appeal unfounded on the merits: the bank had committed no fault, breach of good faith or abuse of rights. By entering into a joint and indivisible guarantee, the guarantor had lost the benefit of discussion; the bank could therefore compel him to perform without awaiting the uncertain outcome of the liquidation. As to the overpayment and Article 2031, since the bank had already returned it to the liquidator, the appeal was unfounded. The guarantor then brought the matter before the Court of Cassation, which dismissed the appeal.

This article is a translation. Only the French version is authoritative. It is provided for information purposes and does not constitute legal advice.