учебный год 2023 / Drobnig, Principles of European Law of Personal Security

Introduction

A.General Remarks

1.By granting personal security, a security provider obliges itself to render a performance, usually by payment of money, to the creditor for the purpose of security. Typically, the purpose of personal security is to secure an underlying obligation that may be directly and expressly connected to the personal security or merely indirectly. Personal security differs from proprietary security which is usually granted by the debtor itself: the latter merely creates a preferential right for the creditor in one or more specific item(s) of its property. By contrast, by assuming a personal security, a third person, the security provider, becomes liable to the creditor with all its assets. It goes without saying that this creates a special risk for the security provider. This risk is commensurate to the utility which such security may constitute for the secured creditor, depending, of course, upon the security provider’s potential to pay.

2.The rapid evolution and expansion of modern credit economies has increased the economic demand for as much security as possible; the better and the more comprehensive the security, the lower the creditor’s risk and therefore the cost of the credit, as reflected by the interest rate. In addition, by making available a personal security, many debtors who otherwise would not be eligible may have the chance of receiving credit; this applies in particular to many consumers. Consequently, personal security has in recent years as much expanded as proprietary security. In countries, where the latter is restricted due to legal or practical reasons, personal security often may serve as a substitute and may therefore be even more important than the alternative.

3.The enormous expansion of credit in all modern economies would not have been possible without an equally strong expansion of the means of securing these credits, by both personal and proprietary security. The expansion of personal security, in particular, can be observed especially in public credit programmes for promoting credits to small and medium sized enterprises, as well as for exports and investments in foreign countries. In some countries, special institutions for the promotion of such programmes have been created which provide personal security for the commercial credits which small and medium domestic enterprises as well as exporters and investors may receive; the conditions, especially the interest rates of these credits are – thanks to the personal security furnished – clearly lower than those of normal commercial credits. The same phenomenon can be observed in a purely commercial setting if and insofar as satisfactory commercial or private persons or legal entities are willing to assume personal security. The granting of personal security has in recent years often been used also as a substitute for a customer’s retaining payments as a security for potential warranty claims against building or other contractors. By offering a third party’s personal security, the contractor quickly obtains urgently needed cash. Such personal securities require to be as readily and fully available as the cash which would otherwise have been retained by the customer. This is

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Introduction

the economic reason for the popularity of the personal securities that become due upon “first demand”.

4.The granting of personal security is a specific type of contract which is recognised in all member states of the European Community and beyond. Being a contract, it is governed by the general maxim of freedom of contract. The parties therefore are free to develop new types of contractual personal security. Practice shows that such new types – beyond the classical model of the suretyship – have indeed been developed, especially the independent guarantee and the co-debtorship for security purposes, the most recent and still developing invention being the binding comfort letter.

5.One lesson to be learnt from the recent expansion of personal security is that any rule-making in this field, be it by legislation or by informal means such as a restatement, must be flexible, so as to leave room for new developments. In other words, any rulemaking must not, in principle, be mandatory. On the other hand, the granting of personal security creates a very considerable risk for the security provider. It assumes an obligation vis- -vis the creditor and it is liable with all its property. Only security providers who make the providing of personal security their business, such as banks or insurance companies, will assume this risk against a fee or commission, usually to be paid by the debtor. A very great percentage of personal security, however, is granted without a reward: by members or directors of a company with limited liability for securing company debts; by family members for bank credits granted to a spouse, a parent or a child to finance private acquisitions of any kind or the setting up, the expansion or the rescue of a business. Modern experiences in many countries have confirmed the old insight and wisdom that most people without business experience do not recognise the highly risky character of assuming a personal security. Legislators and courts have therefore increasingly intervened by establishing protective rules of a mandatory character for the protection of security givers. Any modern rule-making in the area of personal security would be incomplete and deficient if it would fail to recognise and counter this risk. However, in view of the existing broad range of national varieties to be found in Europe, it is not easy to frame a European common standard in this field (cf. Chapter 4).

6.The purpose of the Rules presented here is to reflect the state of development that has been achieved in our days in the 15 “old” member states of the European Union. In most of these member states, legislation or firm case law exists for the dependent personal security based upon, or at least in accordance with, the old Roman institution of the fideiussio. However, everywhere major new developments have taken place, although to different degrees and in divergent directions: one is the creation of a commercial branch in the form of the independent personal security and related instruments. Another, by contrast, is the elaboration of special protective rules for consumer security providers. The present Rules are intended to reflect these developments on a European level. By formulating rules that reflect these divergent modern trends it is hoped to promote practice in all member states and to thus create a level playing field for all interested parties in all member states.

7.The granting of personal security may be subject to conditions established by other branches of the law. There are prohibitions or restrictions of public law or general private

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A. General Remarks

law. In some legal systems the validity of a personal security is sometimes made dependent upon its approval by a third party, e.g., by the security provider’s spouse or by the board of management of a company or, in the case of public institutions, by a supervisory authority. The absence of a required approval may nullify the personal security. The rules of this Part do not cover these situations; rather, the applicable national legal systems have to be consulted on any such requirements which typically are regulated in other branches of the law and the consequences of their non-observation.

8.The character and function of a personal security sometimes tends to be mixed up with other legal institutions and therefore needs to be clearly set out. In particular, the term “guarantee” (and its linguistic equivalents) in the GERMANIC countries is there used also in another context, scil. as a debtor’s express warranty of its due performance. Such express warranties, as a collateral term affirming or strengthening a debtor’s contractual main obligations (sometimes called a bilateral guarantee) are outside the scope of this Part. This Part deals only with contracts which serve as security for the performance of obligations owed by a third person, the debtor to the creditor. The security provider usually assumes this personal security upon the request and for the account of the debtor. Economically and to some degree also legally, a trilateral relationship is involved.

9.Close analysis of the various forms of personal security that have developed outside the original historical institution of what in these Rules is called a personal security, i.e. suretyship, has revealed that most variations of the traditional suretyship can be reduced to two basic patterns: personal security is either dependent upon the secured obligation – the classical example being the suretyship; or it is independent from any underlying obligation – the typical example being the (new) independent guarantee. While most Continental legal systems have developed specific terms for the two types of personal security (such as Bu¨rgschaft and Garantie, or cautionnement and garantie inde´pendante, etc.), the terms used in the English-speaking countries ((suretyship) guarantee and indemnity) are not as precisely defined. Also another linguistic diversity should be noted: While English law accommodates all types of personal security under the singular of this term (the term “securities” has a meaning of its own), all Continental countries refer to the various types of personal “securities” in the plural. Consequently, these Rules are entitled “Rules on Personal Security”, while the translations use the plural form.

10.The present Part is divided into four Chapters, the main division being between Chapters 2 and 3 which deal, respectively, with the two basic types of personal security just mentioned (cf. supra no. 9), i.e. the dependent and the independent personal security. These two Chapters are preceded by a short Chapter 1 with Common Rules. In this Chapter are to be found definitions, rules on the scope of this Part, rules common to dependent and independent personal securities and a rule on the special institution of the co-debtorship for security purposes (cf. Article 1:106). Finally, Chapter 4 comprises special protective rules for consumers as grantors of personal security.

Chapter 1: Common Rules

Chapter 2: Dependent Personal Security (Suretyship Guarantees)

Chapter 3: Independent Personal Security (Indemnities/Independent Guarantees) Chapter 4: Special Rules for Personal Security of Consumers

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11.In view of the manifold types of personal security that already exist and may further be added in the future, it seems to be preferable to use terms that are as general as possible, such as “personal security”, “security provider” etc. throughout this Part. This method has indeed been used in the English version of these rules, allowing only for abstract terms such as “dependent personal security” or “independent personal security” in Chapters 2 and 3, respectively. In the translations of these rules into other languages, however, general terms are used only in Chapters 1 and 4, while in Chapters 2 and 3 the traditional national legal terminology has been applied in order to make the texts more comprehensible for the reader who will inevitably be more acquainted with these terms. Where, as in English and sometimes in some other national legal terminologies, terms that are comparably well-defined and generally accepted are not available, in the English version as well as in some of the translations traditional terms such as “suretyship guarantee” or “indemnity” are indicated only as a traditional variant.

12.The English text of the rules on personal security is the authentic text including the Comments which explain and specify the rules and the National Notes which, presented in a comparative method, indicate the situation in the 15 “old” member states of the European Union. The translations of the rules into some other languages are not authentic although much effort and discussion has been invested in establishing them.

B.Relation to General Contract Law (PECL)

13.Personal security is a specific type of contract, and only the specific features of this type of contract are laid down in the present Principles of European Law on Personal Security. However, for a full understanding of the present Principles, the Principles of European Contract Law (PECL) must be taken into account as an important supplemental set of rules. It goes without saying that it is neither necessary nor feasible to present in the present context a broad survey. A short conspectus of important principles and rules must suffice in order to direct attention to central issues and solutions of potentially relevant points.

14.The Principles of European Contract Law (PECL) were published in two volumes in 2000 and 20031 and offer in 17 chapters rules on general European contract law, specifically on the following subjects:

	Chapter(s)
Legal Sources, General Duties of the Parties and Terminology	1
Formation of Contracts	2
Plurality of Parties	10
Authority of Agents	3
Validity and Illegality	4 and 15

1Lando and Beale (eds.), Principles of European Contract Law. Parts I and II (The Hague, London and Boston 2000); Lando, Clive, Pru¨m and Zimmermann (eds.), Principles of European Contract Law. Part III (The Hague, London, New York 2003).

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B. Relation to General Contract Law (PECL)
	Chapter(s)
Interpretation	5
Contents and Effects; Conditions	6 and 16
Performance	7
Non-Performance in General	8
Particular Remedies for Non-Performance; Capitalisation of Interest	9 and 17
Assignment of Claims	11
Substitution of New Debtor and Transfer of Contract	12
Set-Off	13
Prescription	14

If the parties wish to make these rules applicable, they will have to opt for them (PECL Article 1:101). Both the rules of PECL and most of the present rules are subject to party agreement, unless the contrary is expressly said (PECL Article 1:102 and in this Part Article 1:103, except the rules of Chapter 4).

15.For present purposes, it is necessary to distinguish between two different contracts: one is the security agreement under which the debtor of a monetary (or other) obligation obliges itself to provide a personal security to the creditor in order to secure its obligation (infra nos. 16-19). The other is the personal security itself which contains the security undertaking of the security provider towards the creditor (infra nos. 20-33).

16.The security agreement. This agreement usually is a clause which is contained in the main contract (e.g., a credit contract between creditor and debtor; or an instalment sale between seller and buyer; etc.) and which is the source of the obligation to provide the security. It may also occur that the security agreement is a separate contract. However, the distinction between these two forms does not imply any difference in substance.

17.The security agreement will not be regulated as a specific type of contract; it is a preliminary aspect of both personal and proprietary security rights.

18.The security agreement is fully subject to the rules of general contract law, as laid down in PECL: The General Provisions of PECL, contained in Chapter 1 are applicable, including the principle of freedom of contract (PECL Article 1:102), the incidence of mandatory law (Article 1:103), the relevance of usages and practices (Article 1:105) and the rules on interpretation (Article 1:106 as well as Articles 5:101 to 5:106) and supplementation. The mandatory duty of good faith and fair dealing applies as well as the duty to co-operate (Articles 1:201 and 1:202). Attention should be drawn to the meaning of terms (Articles 1:301 s.) as well as certain technical rules on notice, computation of time and imputed knowledge and intention (Articles 1:303 ss.).

More comprehensive is the contents of each of the following Chapters 2-17, cf. supra no. 14.

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Judging from published decisions, security agreements rarely seem to give rise to controversies. Critical fact situations that might be imagined may be the failure of the debtor of the obligation to be secured to present any security provider or to present a security provider with adequate means in view of the risk to be covered. Clearly this would be a non-performance within the purview of Chapter 8 which would give rise to the remedies set out in Chapters 8 and 9. While the enforcement of a right to performance (Chapter 9 Section 1) would make little sense, a claim for damages (Chapter 9 Section 5) and, depending upon the circumstances, termination of the security agreement under Chapter 9 Section 3 are realistic remedies.

19.Unlike for the contract of personal security as such (cf. infra no. 20), special rules on consumer protection do not appear to be necessary for the security agreement as such. Any terms that might have been agreed by the parties to the disadvantage of a consumer would be reflected, directly or indirectly, in the contract of personal security as such. They would therefore become subject to the special protective rules that are laid down in Chapter 4 of this Part.

20.The contract of personal security. The more essential aspects of the contract of personal security are governed by the rules laid down in this Part. However, these rules do not and cannot purport to deal with all aspects of the contract of personal security. Rather, gaps left by these rules are to be filled by recourse to the general rules contained in PECL. For this purpose, general reference is made to preceding no. 14 which offers a first, though very general survey of the fields covered by PECL.

21.With respect to general aspects of the contract of personal security, reference is made to supra no. 18. Article 1:103 of these rules on personal security is intended to have the same bearing as PECL Article 1:102 and must be understood in the same way.

22.The formation of the contract of personal security is almost completely subject to the general rules on formation of contracts contained in PECL Chapter 2. The only exception in the present Rules is Article 1:104. This exception is due to the fact that, since contracts of personal security as a rule do not create any principal obligation for creditors, the latter often neglect to accept expressly the security provider’s offer if it complies with the conditions agreed by the parties and often proposed by the creditor.

23.Since the present Rules do not deal with the authority of agents nor with validity and illegality, the rules of PECL Chapters 3, 4 and 15 dealing with these topics apply fully.

24.The PECL rules in Chapter 5 on interpretation are fully applicable. However, PECL Article 5:103 is supplemented by Article 1:105 of the present Rules which slightly deviates from the corresponding PECL rule.

25.PECL Chapter 6 on contents and effects of contracts has almost no counterpart in the present Rules and is therefore, generally speaking, fully applicable. That is only partially true, though, for PECL Articles 6:104-6:108, since these rules obviously are relevant only for contracts concerning goods or services for a price. Professional security

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B. Relation to General Contract Law (PECL)

providers will invariably provide security only against a fee, and they will also fix it expressly. If the fixed price is grossly unreasonable, PECL Article 6:105 offers a remedy.

PECL Article 6:109 on contracts for an indefinite period is with respect to dependent and independent personal securities overruled by Articles 2:109 and 3:106 (2) of the present Rules which deal with limiting dependent and independent security without time limits, respectively.

26.In PECL Chapter 7 on performance some provisions are clearly applicable to the performance of a monetary obligation. This is true especially for Articles 7:101 on the place of performance, 7:107 and 7:108 on the form and currency of payment, 7:109 on the appropriation of performance and 7:111 on non-acceptance of money.

27.PECL Chapters 8 and 9 on non-performance and remedies for non-performance are, of course, highly relevant from a practical point of view. Since there are no counterparts in the present Rules, the two chapters are fully applicable. The very first rule of Chapter 9, i.e. Article 9:101 (1) confirms the very basic principle that the creditor is entitled to recover money that is owed and due. While non-payment of a personal security undoubtedly is a fundamental non-performance in the sense of PECL Article 9:301 (1), the remedy of termination of the contract by the creditor does not provide much practical assistance. Rather, the creditor will wish to demand damages under Articles 9:501 ss. or, in the case of delayed payment, interest and damages under Articles 9:508-9:510. Other kinds of non-performance also may give rise to claims for damages.

28.PECL Chapter 10, especially Section 1 on plurality of debtors, is highly relevant for the increasing number of cases where several persons assume security, whether personal or proprietary, for the same monetary obligation. Article 1:107 of the present Rules specifies the more general rule contained in PECL Article 10:101.

The PECL rule in Article 10:106 on recourse between solidary debtors is the basis of Article 1:108 of this Part, as is expressly indicated in paras (1) and (2). These two provisions specify many details for the practical application of PECL Article 10:106.

Apart from the issues of contribution from other solidary debtors, the remaining rules in PECL Articles 10:107 to 10:111 fully apply to solidary security providers.

According to Article 1:106 of the present Rules, a co-debtorship for security purposes is primarily subject to Chapters 1 and 4 of this Part. However, subsidiarily the rules on plurality of debtors in PECL Chapter 10 Section 1 are expressly declared to be applicable.

Even broader is the general reference, if any further gaps require to be filled, which Article 1:110 makes to the rules in PECL Articles 10:106 to 10:111 as subsidiary sources.

29. PECL Chapter 11 on assignment of claims has some limited incidence for personal security rights. It confirms one traditional consequence of an assignment of a secured right, the transfer to the assignee of all “accessory rights securing ... performance” (PECL Article 11:201 (1) (b)); obviously this applies to dependent personal security. This rule is

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supplemented by Article 11:204 (c) which obliges the assignor to transfer to the assignee all “transferable rights intended to secure performance which are not accessory rights.”

30.The reverse case to an assignment of the secured credit is the substitution of a new debtor to replace the original debtor. A personal security granted for the original debtor’s obligation is, as a rule, discharged, unless the security provider agrees that its security should remain valid for the creditor (PECL Article 12:102 (3)). If the security provider refuses such agreement, the security will terminate (PECL, Comment C to Article 12:102).

31.A transfer of contract combines according to PECL Article 12:201 (2) an assignment of rights to performance with a substitution of the debtor. That means that the rules in preceding nos. 29 and 30 have to be cumulated.

32.Article 2:103 (4) and (5) of the present Rules allows the security provider to refuse performance in two cases.

First, if the contract from which the secured obligation arises is subject to avoidance by the debtor and the latter has not exercised this right – except if avoidance would be possible according to para (3). What is intended to be covered is mainly avoidance on the ground of a defect of consent by the debtor.

Second, Article 2:103 (5) allows the security provider to refuse performance if the secured obligation is subject to set-off and that set-off has not yet been declared. The Comments to Article 2:103 clarify that the right to declare set-off may be vested in the debtor or the creditor (cf. Comments nos. 13 and 14 to Article 2:103).

33. An issue of great practical importance is finally the problem of prescription of the security. One has to distinguish between the prescription of the secured claim and the prescription of the security proper.

On the first aspect two remarks have to be made. First, if the debtor after creation of the secured claim agrees with the creditor to furnish a personal security, by such an acknowledgement a new period of prescription begins to run (PECL Article 14:401 (1)). The same is true if the debtor concludes a corresponding agreement with a security provider in favour of the creditor. Second, since a provider of dependent security by virtue of the principle of dependency may invoke “any defence of the debtor with respect to ... enforceability ...” (Article 2:103 (1)), it may invoke the unenforceability of the secured claim, provided the period of prescription of that claim has in fact run. If that condition is fulfilled, the security provider can invoke this defence.

Finally, independent of the prescription of the secured claim, the claim under a personal security has also a prescription period of its own. For this, the rules of PECL Chapter 14 apply fully. The general prescription period is three years (Article 14:201).

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Chapter 1:

Common Rules

Article 1:101: Definitions

For the purposes of this Part:

(a)A dependent personal security (suretyship guarantee) is a contractual obligation by a security provider to make payment or to render another performance or to pay damages to the creditor that is assumed in order to secure a present or future obligation of the debtor owed to the creditor and that depends upon the validity, terms and extent of the latter obligation;

(b)An independent personal security (indemnity/independent guarantee) is a contractual obligation assumed for the purposes of security by a security provider to make payment or to render another performance or to pay damages to the creditor that is expressly or impliedly agreed not to depend upon the validity, terms or extent of another person’s obligation owed to the creditor;

(c)The security provider is the person who assumes the obligations under the contract of personal security towards the creditor;

(d)The debtor is the person who owes the secured obligation, if any, to the creditor;

(e)In a co-debtorship for security purposes a co-debtor acts as security provider if it obliges itself primarily for purposes of security towards the creditor;

(f)A global security (global guarantee) is a dependent personal security that is agreed to cover all the debtor’s obligations towards the creditor or the debit balance of a current account or a security of a similar extent;

(g)A consumer means any natural person who is acting primarily for purposes which are not related to his or her trade, business or profession;

(h)Proprietary security covers security rights in all kinds of property, whether movable or immovable, tangible or intangible.

Comments

A. Personal Security –		E. Debtor – Lit. (d) . . . . . . . . . . . . . . . .	nos. 37, 38
Litt. (a) and (b) . . . . . . . . . . . . . . . . .	nos. 1-6
		F. Co-Debtorship for Security
B. Dependent Personal Security –		Purposes – Lit. (e) . . . . . . . . . . . . . .	nos. 39-42
Lit. (a) . . . . . . . . . . . . . . . . . . . . . . . . . . .	nos. 7-27
		G. Global Security – Lit. (f) . . . . . . .	nos. 43-46
C. Independent Personal Security –
Lit. (b) . . . . . . . . . . . . . . . . . . . . . . . . . . .	nos. 28-35	H. Consumer – Lit. (g) . . . . . . . . . . . .	nos. 47-50
D. Security Provider – Lit. (c) . . . .	no. 36	I. Proprietary Security –
		Lit. (h) . . . . . . . . . . . . . . . . . . . . . . . . . . .	nos. 51-53

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