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

Chapter 1: Common Rules

National Notes

I. Typical Personal Securities		III. Credit Insurance and
A. Dependent Personal		Guarantee Insurance –
Security – Para (1) Lit. (a)	nos. 2-4	Para (2)
B. Independent Personal		A. Credit Insurance . . . . . . . . . . . .	no. 14
Security – Para (1) Lit. (b)	no. 5	B. Guarantee Insurance –
		Para (2) Sent. (2) . . . . . . . . . . .	no. 15
II. Atypical Personal Securities
A. Binding Comfort Letters –		IV. The Aval – Para (3)
Para (1) Lit. (a) . . . . . . . . . . . . .	nos. 6-9	A. Origins . . . . . . . . . . . . . . . . . . . . . . .	no. 16
B. Stand-by Letters of Credit –		B. Qualification . . . . . . . . . . . . . . . .	nos. 17, 18
Para (1) Lit. (b) . . . . . . . . . . . . .	nos. 10-12
C. Co-Debtorship for Security
Purposes – Para (1) Lit. (c)	no. 13

1.The scope of personal securities has to be understood as broadly as possible. Not only typical forms of security (established by legislation or firm case law) but atypical personal securities are also regulated by the rules of this Part.

I. Typical Personal Securities

A.Dependent Personal Security – Para (1) Lit. (a)

2.The main typical personal security is the contract of dependent personal security (cf. supra national notes on Art. 1:101 nos. 5-10).

3.The rules on dependent personal security have been considered as a kind of general law for personal securities. In most member states the rules on dependent personal security shall be applicable to any kind of personal security if possible according to their nature

and unless otherwise agreed (BELGIUM: Dirix and De Corte no. 383; FRANCE: Cass.- com. 19 Nov. 1985, JCP E 1986 I no. 1551; GREECE: see supra national notes on Art. 1:101 no. 18; ITALY: Giusti 8 s.; NETHERLANDS: du Perron and Haentjens, Inleiding no. 6 and HR 25 Sept. 1998, NJ 1998 no. 892 sub no. 3.4; PORTUGAL: STJ 23 Nov. 1971, RT no. 1867, 23; Almeida Costa 763; Galva˜o Telles 278; SPAIN: Dı´ez-Picazo 416; Lacruz Berdejo 499).

4.By contrast, the rules on dependent personal security (Bu¨rgschaft) of the GERMAN CC §§ 765 ss. shall in general not, not even by analogy be applied to other instruments of personal security, especially not to independent personal securities (Palandt/Sprau no. 2 preceding § 765; Erman/Herrmann no. 21 preceding § 765; but see also Staudinger/ Horn no. 197 preceding §§ 765 ss. with some qualifications). Similarly, in PORTUGAL they are generally not applied to independent personal securities (STJ 27 Jan. 1993, BolMinJus no. 423, 483; STJ 11 Nov. 1999, 694/99 www.dgsi.pt; Cortez 590) nor to the aval (STJ 4 Oct. 2000, 2228/00 www.dgsi.pt; different: STJ 7 May 1993, 83594 www.dgsi.pt).

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Article 1:102: Scope

B.Independent Personal Security – Para (1) Lit. (b)

5.See supra national notes on Art. 1:101 nos. 11-18 and infra national notes on Art. 3:101.

II. Atypical Personal Securities

A.Binding Comfort Letters – Para (1) Lit. (a)

a.Origins

6.The comfort letter as a personal security right is known in the legal practice of most member states. The comfort letter appeared only recently in the practice of FRANCE, PORTUGAL and SPAIN (FRANCE: Cass.com. 21 Dec. 1987, D. 1989, 112; PORTUGAL: CA Lisboa 15 Feb. 2001, 94458/00 www.dgsi.pt; SPAIN: TS 24 Nov. 1978, TS 26 Dec. 1986, TS 14 Nov. 1989, all cited by Illescas Ortiz 1295, 1296). In FRENCH literature, the comfort letter was known under various and equivalent denominations like «lettre d’intention», «lettre de confort» or «lettre de patronage» (Simler nos. 1008 ss.). Since Decree-Law no. 2006-346 of 23 March 2006 the comfort letter is recognised as a security by the legislator and the name of lettre d’intention prevails (CC new art. 2322). In DANISH law the term comfort letter (støtteerklæring) was first introduced in 1986 by Harboe Wissum (UfR 1986 B 340 ss.; Iversen 15) and there are only very few DANISH decisions (e.g. CA Vestre Landsret 21 March 1989, UfR 1989 A 618). In GREECE, although unknown to practice (there is no case law), they have been dealt with in literature, where they are translated with the term “letters declaring interest” (Velentzas 381) or “patronic statements” (Filios II/1 §126, 81-82; Georgiades § 6 no. 19 refers to both). In GERMANY comfort letters are a well known type of personal security nowadays (Fleischer, WM 1999, 666). Several GERMAN courts dealt with comfort letters (CA D4sseldorf 26 Jan. 1989, NJW-RR 1989, 1116; CA Karlsruhe 7 Aug. 1992, WM 1992, 2088; BGH 30 Jan. 1992, BGHZ 117, 127 (applying AUSTRIAN law); CA M4nchen 24 Jan. 2003, DB 2003, 711; CA Berlin 18 Jan. 2002, WM 2002, 1190).

b.Binding Character

7.Whether a comfort letter is legally binding must be ascertained, in view of the great variety of such declarations (GERMANY: examples at Lwowski nos. 445-465), by interpretation of the specific instrument (GERMANY: BGH 30 Jan. 1992, BGHZ 117, 127 at 129; CA Berlin 18 Jan. 2002, WM 2002, 1190 at 1191). Whether any legally binding liability (or merely a moral obligation) has been created and what kind of liability has been assumed by the issuer of the comfort letter depends upon the careful interpretation of the wording of the agreement (ITALY: De Nictolis 386, 396; Cass. 27 Sept. 1995 no. 10235, BBTC 1997 II 396; PORTUGAL: Soares da Veiga 380; SPAIN: Carrasco Perera, Las nuevas garant%as 636). The same is true in DENMARK and SWEDEN (DENMARK: Iversen 151 s.; SWEDEN: HD 25 June 1992, NJA 1992, 375; HD 7 April 1994, NJA 1994, 204; HD 27 Oct. 1995, NJA 1995, 586; Hellner, Avtalsr tt 79 s.; Ramberg 152 s.).

In ITALY, binding comfort letters are declarations that are considered as being legally binding upon the author of the letter (Costanza, Lettere di patronage 485 ss.; Bozzi, Le garanzie 347 s.; Cass. 27 Sept. 1995 no. 10235, Arch.civ. 1996 I 3007). In GREECE

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Chapter 1: Common Rules

binding comfort letters may either have the character of an independent personal security, thus creating for the sender an autonomous contractual obligation (Velentzas 383-384), or they may give rise to liability for culpa in contrahendo vis- -vis the receiver of the letter (Georgiades § 6 no. 21). According to both opinions, the claim for compensation in favour of the receiver is not necessarily equal to the amount of the enterprise’s debt vis- -vis the creditor as receiver of the letter. It has been accepted in SWEDEN that depending on its wording, in appropriate circumstances a comfort letter can be regarded as binding, thereby constituting a form of dependent personal security (cf. HD 27 Oct. 1995, NJA 1995, 586; Gorton, Suretyship 583 fn. 18). In ENGLAND it is asserted that the degree of protection might be less than under a security: the creditor will have to establish a sufficient causal connection between the parent company’s failure to do what it promised in the comfort letter and the creditor’s loss, which might for instance be doubtful if the subsidiary would have become insolvent anyway (Andrews and Millett no. 14-015). In FRANCE the comfort letter is according to the Supreme Court regarded now as binding, irrespective of the nature of the liability assumed by the patron (cf. Cass.com. 9 July 2002, Bull.civ. 2002 IV no. 117 p. 126, Revue des soci t s Jan.-March 2003, 124 ss.: a parent company may be bound towards the creditor by merely an obligation of care), contrary to earlier decisions imposing a liability for result (Cass.com. 26 Jan. 1999, D. 1999, 577, note Ayne`s).

c.Qualification

8.It is not possible to provide a common legal qualification of comfort letters, since the extent and kind of liability supplied by this instrument depend on the concrete agreement of the parties (BELGIUM: Van Quickenborne no. 847; FRANCE: The Grimaldi Commission’s proposal of a CC new art. 2324 mentioned expressly that the terms vary; but this clause was not adopted by the CC new art. 2322 (as inserted by DL no. 2006-346 of 23 March 2006); Simler nos. 1009 s.; GERMANY: Reinicke and Tiedtke, Kreditsicherung 153; GREECE: Georgiades § 6 no. 21; ITALY: Cass. 27 Sept. 1995 no. 10235, Arch. civ. 1996 I 3007; Mazzoni, Lettere di patronage 564; De Nictolis 386; NETHERLANDS: Wessels 7; PORTUGAL: STJ 19 Dec. 2001, 2509/01 www.dgsi.pt; Soares da Veiga 380; SPAIN: Carrasco Perera, Las nuevas garant%as 632). The recent FRENCH provision characterises the contents of a comfort letter in a very general way as “support of the debtor in the performance of its obligation towards its creditor” (CC new art. 2322 of 2006). In appropriate circumstances comfort letters may give the creditor similar rights as a contract of dependent or independent personal security (BELGIUM: Van Quickenborne no. 848; ENGLAND: Chemco Leasing SpA v. Rediffusion plc [1987] 1 FTLR 201 (CA) where, however, it was refused to impose liability on the parent company for the creditor’s lack of compliance with an implied term, cf. Andrews and Millett no. 14-015; GERMANY: BGH 30 Jan. 1992, cit. at p. 132; Lwowski no. 441; ITALY: CFI Milano 17 Dec. 1994, BBTC 1996 II 346; De Nictolis 393; NETHERLANDS: Blomkwist 15; Wessels 7; PORTUGAL: CA Lisboa 15 Feb. 2001, 94458/00 www.dgsi.pt, treated a comfort letter as an independent personal security; Menezes Cordeiro, Direito 624; SPAIN: Carrasco Perera, Las nuevas garant%as 670). The AUSTRIAN Supreme Court qualified a binding comfort letter in one case as an independent guarantee (OGH 23 March 1988, SZ 61 no. 73 at p.365). However, in another case in which an Austrian citizen obliged himself to reimburse the Federal government and other public bodies for expenses made to

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Article 1:102: Scope

support a foreigner who, on the basis of this declaration, had been admitted to enter, and stay in, the country, the Supreme Court qualified such a declaration as a suretyship and not an independent guarantee (OGH 23 Feb. 2000, SZ 73 no. 36 at p.209 s.). In ITALY the similarity between binding comfort letters and the dependent personal security has been stressed, but the prevailing view among the authors is in favour of distinguishing it from the typical dependent personal security (Di Giovanni 121 ss.; Mazzoni, Le lettere di patronage 480) and the same trend is followed by the courts (Cass. 27 Sept. 1995, no. 10235, cit.). The main difficulty to consider a binding comfort letter fully as a dependent personal security is the absence of an express intention of the parent company to grant security, which is required by ITALIAN CC art. 1937 for the valid creation of dependent personal securities, as well as the nature of the obligation assumed by the promisor, which has not the same content as the principal obligation secured (CA Roma 4 Dec. 1979, BBTC 1981 II 88; Bozzi, Le garanzie 350). However, if according to the rules of interpretation, the intention to grant a dependent personal security can be deduced from the wording of the letter, it will have to be considered a dependent personal security (CFI Milano 17 Oct. 1994, BBTC 1995 II 346; for a recent assimilation of a binding comfort letter to a dependent personal security, by way of analogical application to it of CC art. 1938 concerning the necessary maximum amount of the security see CFI Roma 18 Dec. 2002, Giur.mer. 2003, 1661). In FRANCE a binding comfort letter can be considered as a personal security sui generis (garantie) mentioned in Ccom art. L 225-35, which seems to differ from a dependent or an independent personal security (Cass.com. 9 July 2002, Revue des soci t s Jan.-March 2003, 124 ss.). In the Grimaldi Commission’s proposal, as adopted by Decree-Law no. 2006-346 of 23 March 2006, the comfort letter (lettre d’intention) constitutes a third category of personal security (cf. new chapter III of title I on personal securities and CC new art. 2322 merely giving a definition). If the company which the issuer of a binding comfort letter had promised vis- -vis the creditor to support becomes bankrupt, the promisor is liable to the creditor for damages for nonperformance of its binding promise (AUSTRIA: OGH 23 March 1988, cit. at p.365; Leitner 522; GERMANY: BGH 30 Jan. 1992, cit. at 132; CA Berlin 18 Jan. 2002, cit. at p. 1191; Staudinger/Horn nos. 441 s. preceding §§ 765 ss.) The issuer of the letter and the company which it had promised to support are liable as solidary debtors to the creditor, like a surety and the principal debtor (AUSTRIA: Harrer 77; Leitner 525; GERMANY: BGH 30 Jan. 1992, cit. at p. 132, 134; Staudinger/Horn no. 415 preceding

§§ 765 ss.; Bu¨low, Kreditsicherheiten no. 1623).

9.According to a DANISH author (Gomard 56 fn. 11) a comfort letter cannot in general be considered to be a personal security and in the opinion of one writer (Iversen 25 fn. 31) comfort letters can under no circumstances be similar to personal securities.

B.Stand-by Letters of Credit – Para (1) Lit. (b)

a.Generalities

10.Since stand-by letters of credit are mainly used in international commercial transactions they tend to escape a ‘pure’ national regulation in most countries. This subject matter is usually governed by the lex mercatoria (UCP 500 (1993) and ISP98 of the International

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Chapter 1: Common Rules

Chamber of Commerce in Paris) and international conventions (UN Convention on Independent Guarantees of 1995); the influence of this ‘trans-national’ law is often to be found in national laws.

b.Qualification

11.Stand-by letters of credit are similar to independent personal securities (GERMANY:

Schu¨tze nos. 93 ss.; Zahn, Eberding and Ehrlich nos. 8/10 ss.; GREECE: Georgiades § 6 no. 26; ITALY: Costa 270; Terrile 591; Pontiroli, Garanzie autonome 233 and 249; Di Meo

330; NETHERLANDS: cf. de Rooy 1115; Ebbink 543; PORTUGAL: Soares da Veiga 360). Therefore GERMAN courts apply the principles that have been developed for independent personal securities on first demand also to stand-by letters of credit (CA Frankfurt 18 March 1997, WM 1997, 1893). FRENCH opinion considers that the banker’s engagement is autonomous from the underlying contract (Ripert and Roblot no. 2386-1) and that a stand-by letter of credit is a genuine personal security (Simler no. 870 p. 901).

12.Stand-by letters of credit are mainly used in the UNITED STATES and in international trade so that national court practice in Europe is rare (for GERMANY cf., apart from the aforementioned decision, BGH 26 April 1994, WM 1994, 1063). In ENGLAND and SCOTLAND stand-by letters of credit resemble performance bonds and demand securities, which clearly are securities. They have only been considered in very few ENGLISH decisions (cf. Offshore International SA v. Banco Central SA [1977] 1 WLR 399 (CFI); Hongkong and Shanghai Banking Corporation v. Kloeckner & Co AG [1990] 2 QB

514 (CFI)). The same principles as in regular letters of credit apply because “in law a standby credit is no different from any other type of credit” (Jack, Malek and Quest no. 12.15). In ENGLAND it is highlighted that the differences to demand personal securities “lie in business practice, not in law” (Goode, Commercial Law 1018).

C. Co-Debtorship for Security Purposes – Para (1) Lit. (c)

13.See supra national notes on Art. 1:101 nos. 37-39 and infra on Art. 1:106.

III. Credit Insurance and Guarantee Insurance – Para (2)

A.Credit Insurance

14.A credit insurance, i.e. an insurance taken out by the creditor against the loss due to his debtor’s insolvency, may in fact create a kind of personal security, but is in some countries regarded as a pure insurance contract (BELGIUM: Van Quickenborne nos. 852-860; DENMARK: H 6 May 1991, UfR 1991 A 523; FRANCE: Simler nos. 24 s.; Cerini, L’assicurazione del credito interno in Francia 539 ss., 558 ss.; GERMANY: Meyer 35, with examples of general conditions of insurance concerning credits on goods in the annex; GREECE: cf. Insurance Law 2496/1997 art. 22 para 1; ErmAK/Zepos no. 35 preceding art. 847-870; Rokas nos. 155-156; ITALY: Cerini, L’assicurazione del credito interno in Francia 563; Fanelli 27 s.; LUXEMBOURG: Ravarani, Rapport Luxembourgeois 422; NETHERLANDS: De Vries 468; PORTUGAL: Law (DL) on Credit and Guarantee Insurance 183/88, last modified in 1999; STJ 9 March 1995, BolMinJus no. 445, 552; however, credit insurance is considered as having the function of a dependent or in-

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Article 1:102: Scope

dependent personal security: Menezes Cordeiro, Direito 614; SPAIN: Law 50/1980 of 8 Oct. 1980 on Insurance Contracts arts. 69-72; Tirado Sua´rez 444 ss.; SWEDEN: Walin, Borgen 137 ss.).

B.Guarantee Insurance – Para (2) Sent. (2)

15.The guarantee insurance is agreed between the debtor and the insurer, which secures vis--vis the creditor the payment of the debt in favour of the debtor. This contract is regarded in some countries as an insurance (BELGIUM: Van Quickenborne nos. 861-862; FRANCE: controversial, Simler no. 25; Larroumet/Franc¸ois nos. 16 ss.; SWEDEN: HD 9 Sept. 1999, NJA 1999, 544; Hellner, Fçrs kringsr tt 447; GREECE: cf. Insurance Law 2496/1997 art. 11 juncto art. 22 para 2; the guarantee insurance is classified in the Second Part of this Law as a special branch of insurance against damages; Rokas no. 154). In GERMANY the basic relationship between the debtor and the insurance company is considered as a special type of an insurance contract that is mostly governed by general terms and conditions concerning guarantee insurance (cf. CA Koblenz 16 Feb. 1996, VersR 1997, 1486; Meyer 118 ss.); on the basis of this contract, a security is issued to the creditor (cf. CA Koblenz, as before; Beuter no. 409 at p. 412). In ITALY the guarantee insurance is recognized by several provisions of special statutes (e.g. RD no. 827 of 23 May 1924, art. 54 as modified in 1948; RDL no. 210 of 7 Aug. 1931, art. 5; RDL no. 1113 of 7 Aug. 1931, art. 1 ss.; DPR 26 Oct. 1972 no. 633, art. 38bis; DPR no. 43 of 23 Jan. 1973, art. 87 and L no. 348 of 10 June 1982, art. 1), which, however, do not provide a general regulation. A well-established case law regards the guarantee insurance as a dependent personal security, unless differently agreed by the parties (Cass. 1 June 2004 no. 10486, BBTC 2005 II 481 ss.; Cass. 15 March 2004 no. 5239, Assicurazioni 2004, 231 ss.; Cass. 17 May 2001 no. 6757, Giust.civ. 2002, 729; Cass. 18 May 2001 no. 6823, Giur.it. 2001 I 3174; Cass. 26 June 1990 no. 6499, Giur.it. 1991 I 446; Cass. 17 May 1988 no. 3443, BBTC 1989, 429; recently also CA Milano 14 May 2004, BBTC 2004 II 619 ss. note Barilla`, Il Garantievertrag 633 ss.), whereas scholarly writings show less uniformity on the point and consider this contract sometimes as an insurance (Stolfi 67 ss.; Barbieri 502), sometimes as an ‘atypical’ contract to which the rules governing dependent personal security are substantially applicable, unless differently agreed by the parties (Volpe Putzolu 245; La Torre 103 ss.; Lipari 133 ss.; Vacca` 167; Costanza, L’assicurazione fideiussoria 2418 ss.; Bozzi, Le garanzie 65). It has been noticed that commercial practice usually tends to regulate the internal relationship between insurer and debtor according to the rules on insurance contracts and the outside relationship between insurer and beneficiary of the contract (the creditor) according to the rules on dependent personal security (Bozzi, Le garanzie 67 ss.). In PORTUGAL guarantee insurance is regulated by Decree-Law 183/88 (last modified in 1999) arts. 6-14. It is an insurance (STJ 12 March 1996, CJ(ST) IV, I-143), but it is equivalent to a dependent (CA Porto 7 May 1998, 9750894 unpublished) or independent (STJ 9 May 2002, 1014/02 www.dgsi.pt; STJ 28 May 2002, 636/02 www.dgsi.pt) personal security (STJ 19 March 2002, 2832/01 www.dgsi.pt). In SPAIN, however, after much controversy about its legal nature (Camacho de los Rı´os 81; Carrasco Perera, Comentario 653), a mixed approach prevailed, according to which the guarantee insurance (cf. L 50/1980 on Insurance Contracts art. 68) is an insurance contract, from which a security obligation arises (Carrasco Perera, Comentario 653) and therefore the rules on personal securities are concurrently

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applicable with insurance rules (Embid Irujo 1863). A similar approach is followed in SWEDEN: the mandatory rules of the Law on Insurance Contracts prevail but the nonmandatory rules may be replaced by the rules on personal securities (Walin, Borgen 137141). Also in ENGLISH law, it is accepted that insurance contracts, where the insured event is the default by a debtor, are equivalent to a personal security contract (Halsbury/ Salter para 110).

IV. The Aval – Para (3)

A.Origins

16.The Uniform Laws of Geneva 1930/1931 on bills of exchange and on cheques regulate these special forms of personal security. Almost all Member States are parties to the Uniform Laws of Geneva, except IRELAND and the UNITED KINGDOM. SPAIN, on the other hand, has signed but not ratified the Uniform Laws. However, Law 19/1985 on bills of exchange, promissory notes and cheques has fully adopted its contents, expressly mentioning the Geneva Conventions in its motives.

B.Qualification

17.In some countries, the rules of the civil codes on dependent personal securities cannot apply to the aval; since the avalist is no provider of dependent security, its rights and duties are regulated by the provisions on bills of exchange and cheques (BELGIUM: Cass. 3 April 1981, Arr.Cass. 1980-81, 874; Van Quickenborne no. 883; GERMANY: BGH 6 April 1961, BGHZ 35, 19, 21; Scholz/Lwowski no. 440; Staudinger/Horn no. 423 preceding §§ 765 ss.; GREECE: A.P. 1306/1984, EED 37, 87; CA Athens 8840/1984, EED

37, 300; Georgiades § 4 no. 67; NETHERLANDS: Blomkwist 15; PORTUGAL: STJ 13 Oct. 1998, 779/98 unpublished; STJ 4 Oct. 2000, 2228/00 www.dgsi.pt; while according to the majority view in the literature the aval is characterised by an imperfect autonomy, its pure autonomy is argued by: Sendim and Mendes 13). In ITALY and SPAIN, however, despite the autonomous character, which distinguishes the aval from the dependent personal security, it has been recognised that the aval has a limited accessory character due to its security function. Therefore, the rules on dependent personal securities may apply by analogy (ITALY: for CC art. 1948, 1953, 1955: Cass. 11 Sept. 1953 no. 3026, Foro pad. 1953 I 1273; Cass. 8 June 1976 no. 2090, Giust.civ. 1976 I 1225; Cass. 11 Sept. 1997 no. 8990, Giust.Civ.Mass. 1997, 1688; Cass. 7 May 1998 no. 4618, BBTC 2000 II 118; excluded are CC art. 1956 and 1957: Cass. 8 June 1976 no. 2090, cit.; Cass. 23 March 1994 no. 2782, Foro it. 1994 I 3070; Angeloni 32; Bianchi d’Espinosa 577; Tedeschi 533; SPAIN: Garcı´a Corte´s 518). In GREECE it is accepted, that an invalid aval may be converted into a dependent personal security, if the parties would have wished to contract a security, had they known the invalidity of the aval (cf. CC art. 182; Georgiades § 4 no. 71 fn. 37). By contrast, in PORTUGAL an aval may not be automatically converted into a dependent personal security for, according to CC art. 628 para 1, the contract of dependent personal security must be based on an explicit declaration; but the aval giver, according to the interpretation of the parties’ intention and declaration, can oblige himself also as a provider of security (STJ 17 May 1977, BolMinJus no. 267, 149; CA Lisboa 20 April 1993, CJ XVIII, II-138; STJ 9 Oct. 1997, 123/97 www.dgsi.pt). In

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Article 1:103: Freedom of Contract

FRANCE the aval is considered like a dependent personal security with primary liability (Simler no. 107; Cass.com. 28 Oct. 1952, JCP G 1953, II no. 7588).

18.The ENGLISH, SCOTS and IRISH Bills of Exchange Acts do not specifically provide for a security comparable to the aval. In practice, either a formal security to honour the bill is provided separately or the bill will be endorsed by a “stranger”, i.e. a person not belonging to the sequence of endorsers (Jahn 85); according to the Bills of Exchange Act 1882 sec. 56, such an endorser is liable as (any other) endorser to a holder in due course. Although such an endorsement is in substance a security the Statute of Frauds cannot be set up as a defence to the claim (ENGLAND: G. + H. Montage GmbH v. Irvani [1990] 1

WLR 667 (CA); Banco Atlantico SA v. British Bank of the Middle East [1990] 2 Lloyd’s Rep 504 (CA)).

(Hauck)

Article 1:103: Freedom of Contract

The parties may exclude the application of any of the rules in this Part or derogate from them or vary their effects, except as otherwise provided in Chapter 4 of this Part.

Comments

1.Freedom of contract. Article 1:103 reflects and repeats the essence of PECL Article 1:102 which proclaims the principle of freedom of contract. Strictly speaking, this repetition would be unnecessary since all of the rules of PECL are an integral part of this Part (cf. supra, Introduction nos. 13 ss.), unless and insofar as they are derogated from in this Part. However, since this Part will be published separately and practitioners insisted on having clarification of this essential starting point, the practical essence of the freedom of contract, as it applies in the present context, is repeated in Article 1:103. This provision should be interpreted in the same way as PECL Article 1:102.

2.Exclusion of these rules. The first branch of Article 1:103 deals with a situation which does not yet become practical. It is based upon the assumption that the rules of this Part are binding upon the parties, e.g. if enacted by national or European legislation. For such a case, the text makes it clear that the rules are not mandatory and can therefore be excluded altogether by the parties.

3.Derogation from these rules. By contrast to what has been said in the preceding comment, the two next clauses of Article 1:103 may become relevant even outside the situation addressed by the first clause.

Illustration

Creditor C and surety S have initially agreed that their mutual relations shall in future be governed by the present Rules. However, the parties agree that S may not invoke Article 2:103 (4) and (5).

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Chapter 1: Common Rules

4.Specific exception. One major exception from the general power to derogate from the rules of this Part or to vary their effect is contained in Chapter 4 on protection of consumer providers of personal security. The reasons are obvious.

5.General exceptions. In addition to the preceding specific exception, restrictions of the freedom of contract result from the general rules of PECL.

6.Good faith. Firstly, PECL Article 1:201 (1) imposes on the parties the general obligation to act in accordance with good faith and fair dealing; the parties cannot exclude or limit this duty (para (2)).

7.A more specific protective rule is to be found in the chapter on validity of contracts. PECL Article 4:109 offers several remedies for a contract that has been concluded by a “weak” party. Such weakness, which must have existed at the time of conclusion of the contract, may be due to a dependency on or a relationship of trust with the other party; economic distress or urgent needs; or personal weaknesses such as improvidence, ignorance, inexperience or lack in bargaining skills (Article 4:109 (1) (a)). In addition to these objective or subjective factors on the part of the weak person, there must have existed additional subjective factors on the part of the other contracting party: the latter must have known or ought to have known of the aforementioned factors on the part of the weak party and in view of the circumstances and the purpose of the contract must have taken advantage of the weak party’s situation “in a way which was grossly unfair” or must have taken an excessive benefit (Article 4:109 (1) (b)).

8.The weak party’s primary remedy in the above-mentioned situation is the avoidance of the contract (Article 4:109 (1)). However, alternatively the weak party is entitled to ask a court to adapt the contract so as to bring it in accordance “with what might have been agreed had the requirements of good faith and fair dealing been followed” (Article 4:109 (2)). However, not only the weak party, but also the other contracting party may apply to the court for adaptation of the contract after the weak party has sent a notice of avoidance (Article 4:109 (3)).

National Notes

I. Freedom of Contract . . . . . . . . . . .	no. 1	III. General Mandatory Rules . . . . .	nos. 3, 4
II. Specific Mandatory Rules . . . . .	no. 2

I. Freedom of Contract

1.Contracts of personal security are regarded as part of the law of contract in all member states (cf. ENGLAND: Moschi v. Lep Air Services Ltd [1973] AC 331, 346 (HL); DENMARK: Pedersen, Kaution 15; FRANCE: Simler nos. 122 ss. for dependent personal security and nos. 930 ss. for independent personal security; GERMANY: Horn, B4rgschaften nos. 4 and 7; ITALY: Sacco, Autonomia contrattuale 796 ss.; Roppo 23 ss.; Piazza 5;

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Article 1:104: Creditor’s Acceptance

NETHERLANDS: du Perron and Haentjens, Inleiding no. 3 with references; PORTUGAL: Almeida Costa 770 ss.; SPAIN: Vicent Chulia´ 375 s.; SWEDEN: Walin, Borgen 36 ss.). Consequently, the rights and obligations of the parties under these contracts are determined primarily by the agreement of the parties (cf. ENGLAND: Moschi v. Lep Air Services Ltd [1973] AC 331, 339 (HL); ITALY: Giusti 6 ss., 10 ss.).

II. Specific Mandatory Rules

2.Mandatory rules specifically concerning the contract of personal security – which, however, do have a limited scope of application only – are found in the member states typically in matters concerning consumer protection. For these matters, see infra national notes on Arts. 4:101 ss. A noteworthy exception relates to specific formal requirements which in some member states exist for personal securities provided both by consumers and non-consumers (cf. infra national notes on Art. 4:105).

III. General Mandatory Rules

3.As another consequence of the fact that contracts of personal security are regarded as part of the law of contract in all member states (cf. supra no. 1), mandatory rules of general contract law are applicable to these contracts. Therefore, general mandatory contract law rules on matters such as illegality apply also to personal security contracts (cf. ENGLAND: O’Donovan and Phillips nos. 4-66 ss.; ITALY: Bonelli, Le garanzie bancarie 86 s.; NETHERLANDS: cf. supra no. 1; PORTUGAL: Almeida Costa 772; SPAIN: Roca Trias 147, 154 ss.).

4.The most important general mandatory rules of general contract law applicable to contracts of personal security are the protective rules of general contract law: throughout the member states, protection in matters such as acting against good morals, mistake, undue influence, duress etc. is usually based on the general mandatory protective rules of contract law and of the law of obligations (cf. AUSTRIA: Schwimann/Mader and Faber CC § 1346 nos. 14-31; ENGLAND: O’Donovan and Phillips chapter 4; DENMARK: ContrA § 36; Pedersen, Kaution 29; FINLAND: ContrA § 36; FRANCE: Simler nos. 132 ss.; GERMANY: Staudinger/Horn nos. 71-77 preceding §§ 765 ff; IRELAND: White 539; ITALY: Sacco and De Nova (Sacco) I 22 ss., II 59 ss.; Roppo 399 ss., 779 ss., 811 ss., 825 ss.; Bussani 97 ss.; PORTUGAL: Almeida Costa 88 ss.; SCOTLAND: Stair/

Clark nos. 891 ss.; SPAIN: Roca Trias 154 ss., 156 ss.; Carrasco Perera a.o. 106 s.; SWEDEN: ContrA § 36; Walin, Borgen 37; see also national notes on Art. 4:101 nos. 16 ss. and on Art. 4:103 nos. 27 ss.).

(Bo¨ger)

Article 1:104: Creditor’s Acceptance

The creditor is regarded as accepting an offer of security as soon as the offer reaches the creditor, unless the offer requires express acceptance, or the creditor without unreasonable delay rejects it or reserves time for consideration.

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