Manifestly disproportionate suretyship (Art. 2300 French Civil Code): bank and guarantor litigation

The manager of a SARL (French limited liability company) signs a personal joint and several guarantee (caution personnelle et solidaire) to secure a business loan made to his company. Three years later, the company files for insolvency, the bank calls the guarantee and claims several hundred thousand euros from a man whose only asset is the family home, which is subject to a mortgage loan. This scenario, commonplace in banking litigation, is now played out under a new regime: since 1 January 2022, manifest disproportion of a suretyship (cautionnement) has been governed by Article 2300 of the French Civil Code, which has upset the balance between the bank and the guarantor. This analysis explains how disproportion is argued, what the 2021 reform of security interests changed for each side, and how a creditor can now lock down a guarantor's commitment.

What manifest disproportion of a suretyship covers

A suretyship (cautionnement) is the contract by which a person, the guarantor (caution), undertakes to a creditor to pay a debtor's debt if the debtor defaults. In banking practice it is the principal mechanism: no significant business loan is granted to an SME without the personal commitment of its manager, often in the form of a joint and several suretyship, which deprives the guarantor of the benefits of discussion and division. How a suretyship differs from an independent on-demand guarantee (garantie autonome à première demande) is examined in our article on these two forms of security in property and B2B transactions.

The law protects the guarantor who is an individual against a commitment out of proportion to his or her means. The idea is simple: a bank must not have a guarantee signed that it knows, or should know, manifestly exceeds the financial capacity of the person giving it. A disproportionate suretyship is not simply a heavy or risky suretyship. It covers the case where, on the day of signing, the commitment was out of all proportion to the guarantor's income and assets.

This requirement of proportionality must be distinguished from two neighbouring obligations that feed the same litigation:

• the duty to warn (devoir de mise en garde) (Article 2299 of the French Civil Code), which requires the professional creditor to warn the guarantor who is an individual where the debtor's commitment is not suited to the guarantor's financial capacity;
• the annual information obligation owed to the guarantor (Article 2302 of the French Civil Code), as to the amount of the debt and the term of the commitment.

These three levers are often invoked together by a guarantor called upon to pay, but they respond to different logics and carry different sanctions. Disproportion, for its part, is assessed objectively on the basis of the figures.

From total forfeiture to reduction: what the 2021 reform changes

To understand current litigation, one must bear in mind two regimes that coexist depending on the date the suretyship was signed.

The regime before 1 January 2022

Before the reform, disproportion was governed by the French Consumer Code, first by Article L. 341-4 and then, after recodification, by Article L. 332-1. That provision protected the guarantor who is an individual and who had given a commitment to a professional creditor. Its sanction was radical: the creditor could not rely on a suretyship that was manifestly disproportionate when entered into. In other words, the bank lost its guarantee entirely, even though the guarantor could have paid part of the debt. Case law was settled on this point: no reduction was possible, it was all or nothing, and it was the whole that fell.

That same provision contained a tempering mechanism for the benefit of the bank, the so-called return to better fortune (retour à meilleure fortune): the creditor could nevertheless act if the guarantor's assets, at the time the guarantor was called upon, enabled him or her to meet the obligation. Disproportion therefore required a twofold assessment: disproportion at signing, and insufficiency of assets on the day of the demand for payment.

The regime resulting from the 2021 reform of security interests

Order No. 2021-1192 of 15 September 2021, made on the basis of the PACTE Act of 22 May 2019, reformed the whole law of security interests and brought the proportionality rule back into the Civil Code. Since 1 January 2022, Article 2300 of the French Civil Code has provided:

"If a suretyship entered into by an individual in favour of a professional creditor was, when concluded, manifestly disproportionate to the guarantor's income and assets, it is reduced to the amount up to which the guarantor could commit on that date."

Two major changes emerge, and they point in opposite directions.

First, the sanction is no longer total forfeiture but reduction. The bank no longer loses everything: the suretyship is brought down to the amount the guarantor could actually have guaranteed on the day of signing. If a manager committed to €400,000 when he could reasonably have committed only to a fraction of that sum, the bank keeps its right up to that fraction. This is a reversal of perspective in favour of the creditor, which ends the guillotine effect of the former regime.

Second, the return to better fortune has disappeared. Article 2300 retains only a single date of assessment: the date the contract was concluded. It no longer matters whether the guarantor became richer between signing and the demand for payment. On this point, the reform is rather favourable to the guarantor, whose position is crystallised on the day of the commitment.

The combination of these two developments entirely redefines the 2021 reform of security interests from the standpoint of litigation: disproportion ceases to be a weapon of mass destruction and becomes an instrument of calibration. A rule on the application of the law over time must be stressed: suretyships entered into before 1 January 2022 remain subject to the Consumer Code, with total forfeiture and the return to better fortune. Given the length of banking commitments, the courts will continue for several years to rule under both regimes.

How manifest disproportion is assessed

Disproportion is measured by comparing the amount of the commitment with the guarantor's financial capacity, assessed at the date of signing. Three questions structure the analysis.

Which assets and income to take into account

Article 2300 refers to the guarantor's income and assets. All resources are therefore included: salaries, property income, income from management of a business, regular dividends, and also net assets, that is, property less existing debts and charges. A recurring point of vigilance concerns guarantors who are already committed: if the guarantor has given other guarantees, overall indebtedness must be taken into account. A guarantor who successively guarantees several bank facilities may find himself or herself in disproportion by accumulation, even if each commitment taken in isolation seemed bearable.

For married persons, the question becomes more complicated. Article 1415 of the French Civil Code limits the commitment of a spouse married under a community property regime to his or her separate property and income, unless the other spouse expressly consents, which extends the base to community property. Case law takes this configuration into account in assessing the guarantor's capacity. The bank moreover has every interest in obtaining the spouse's consent, both to widen its security and to establish the proportionality of the commitment.

The manifest nature of the disproportion

The adjective manifestly is not insignificant. The law does not penalise every disproportion, but only disproportion that is obvious, glaring, that leaps to the eye. A slight excess over the guarantor's capacity is not enough. There must be a clear gap between the commitment and the means, such that no reasonable creditor should have accepted it. This requirement limits opportunistic challenges and gives the trial judge a sovereign power of assessment in concreto.

The asset and income information form

In practice, the bank has the guarantor complete a declaratory form on his or her assets and income at the time of signing. This form is decisive. Case law has long accepted that the creditor may rely on the information declared by the guarantor, without having to verify its accuracy, unless there is an apparent anomaly. A guarantor who overstated his or her assets in order to obtain the credit cannot then rely on his or her own inaccurate declaration to argue disproportion. This common-sense rule makes the asset form the key document in the file, both in attack and in defence.

Bank and guarantor litigation: who proves what

Bank and guarantor litigation almost always arises at the stage of the demand for payment, when the guarantor, once sued, raises disproportion to escape all or part of the debt. The allocation of the burden of proof determines the outcome of the dispute. The other remedies open to individuals and businesses in a dispute with their bank are set out in our dedicated article.

It is for the guarantor to prove that the commitment was manifestly disproportionate to his or her assets and income when it was entered into. The guarantor must therefore reconstruct his or her financial position on the day of signing, which means producing tax assessments, account statements, title deeds and amortisation schedules for loans then running. The older the commitment, the more delicate this reconstruction.

Under the former Consumer Code, if the guarantor established disproportion at signing, the burden shifted to the bank: it was for the creditor to show that the guarantor's assets, on the day of the demand, enabled him or her to meet the obligation, in order to benefit from the return to better fortune. Under Article 2300, this second debate is no longer relevant since the mechanism has disappeared; the assessment concentrates solely on the date of conclusion.

The following illustration shows what is at stake in the change of regime. Imagine a manager who guarantees a cash-flow loan for his company. At signing, he declares modest assets and limited income, out of all proportion to the amount guaranteed. The company fails and the bank calls on him to pay. Under the former regime, if disproportion was upheld and the manager had not returned to better fortune, the bank lost the whole of its claim under the guarantee. Under Article 2300, the same manager will be released only from the part exceeding what he could have guaranteed originally; he will remain liable up to his initial capacity.

When the bank loses its guarantor

Several recurring configurations lead the judge to set aside, in whole or in part, the guarantor's commitment.

The first is the absence of an asset form or an incomplete form. Where the bank collected no information on the guarantor's position, it cannot shelter behind an accurate declaration, and the judge freely assesses disproportion on the basis of the evidence produced by the guarantor. A bank that has not seriously investigated its guarantor's solvency places itself in a fragile position.

The second configuration concerns cascading commitments. A manager who guarantees several successive financings of his or her group may find himself or herself, signature by signature, committed beyond anything his or her assets allow. Each new guarantee must be assessed taking account of commitments already given. A bank that stacks suretyships without reassessing overall capacity exposes itself to the sanction. The position of the manager who remains committed as guarantor after selling his or her shares is dealt with separately in our dedicated article.

The third concerns the strictly personal nature of the guarantor's status. The protective regime applies only to a guarantor who is an individual in favour of a professional creditor. A company that stands as guarantor, or an individual guarantor in favour of a non-professional creditor, falls outside Article 2300. The status of the parties is therefore a systematic preliminary point.

Conversely, the bank keeps its guarantee where the guarantor deliberately overstated his or her assets, where the disproportion does not reach the threshold of manifest, or where the guarantor had, at signing, income and assets consistent with the commitment. Under Article 2300, even where disproportion is established, the bank no longer loses everything: it keeps its right reduced to the amount that could be guaranteed, which considerably limits the creditor's losses compared with the former regime.

Securing a suretyship on the creditor's side after 2021

For a bank, a credit institution or any professional creditor, the reform is an opportunity to make its guarantees more reliable. Several reflexes are called for at the stage of taking the guarantee.

The first is documentary. The asset and income information form must be systematic, dated, signed and sufficiently detailed: annual income, composition and value of assets, outstanding credit, other suretyships in force. It is this document that will make it possible, when the time comes, to set the guarantor's own declarations against him or her and neutralise the disproportion argument. A complete form, updated at each new commitment, is the best protection.

The second reflex concerns the consistency of the commitment. A prudent creditor checks that the amount guaranteed remains in a defensible proportion to the declared means. In case of doubt, it is better to calibrate the commitment at a tenable level than to obtain a signature that will be reduced by the judge. Since Article 2300, the aim is no longer to maximise the amount displayed but to secure an amount that can genuinely be guaranteed.

The third reflex concerns related obligations. Proportionality does not dispense with the duty to warn under Article 2299 or the annual information under Article 2302. A perfectly proportionate suretyship may nevertheless be weakened if the bank failed in its duty to warn towards a non-sophisticated guarantor, which may give rise to damages set off against the debt. Securing a guarantee therefore depends on all of these obligations, not on proportionality alone.

The fourth reflex concerns the spouse. Obtaining the express consent of a spouse married under a community property regime, in the form required by Article 1415 of the French Civil Code, widens the base of the security and supports the proportionality of the commitment. This is a simple precaution that changes the solvency analysis.

Conclusion

The 2021 reform of security interests has rebalanced the balance of power without reversing it. By replacing total forfeiture with reduction, Article 2300 of the French Civil Code has ended the all-or-nothing effect that made the bank lose its whole guarantee for even a partial excess. The creditor no longer loses everything, it loses the excess. In return, the disappearance of the return to better fortune freezes the guarantor's position on the day of signing. Litigation thus shifts towards an exercise in calibration: how much could the guarantor really have guaranteed at the outset?

The position is clear. For the guarantor, disproportion remains a serious defence, but it no longer releases entirely; one must now reason in terms of a residual amount and combine disproportion with breach of the duty to warn, which is more effective for compensation. For the creditor, security lies in documentary rigour from the moment the guarantee is taken: a complete, dated asset form is worth more than an ambitious but indefensible guarantee ceiling.

Whether one is defending a bank or a guarantor called upon to pay, the first check to make is the date the suretyship was signed: it determines the applicable regime, the nature of the sanction, and therefore the whole litigation strategy. Before enforcing or challenging a guarantee, have the date and the regime of the commitment precisely characterised by a lawyer, because a 2021 suretyship and a 2022 suretyship are not argued in the same way.

Frequently asked questions

What is a manifestly disproportionate suretyship within the meaning of Article 2300 of the French Civil Code?

It is a suretyship whose amount glaringly exceeds the income and assets of the guarantor who is an individual on the day it was concluded, assessed against a professional creditor. The disproportion must be manifest, that is, obvious; a mere excess is not enough. Since 1 January 2022, Article 2300 of the French Civil Code has penalised this disproportion by reducing the commitment to the amount the guarantor could have guaranteed, and no longer by wiping it out entirely.

What does the 2021 reform of security interests change for a disproportionate guarantor?

Before 1 January 2022, a manifestly disproportionate suretyship was deprived of all effect under the Consumer Code: the bank lost its entire guarantee. Since Article 2300 of the French Civil Code, the sanction is only a reduction to the amount that could be guaranteed at the outset. In return, the return to better fortune mechanism has disappeared, so that the guarantor's position is assessed solely on the day of signing.

Does the bank lose its entire guarantee in the event of disproportion since 2022?

No. This is the main contribution of the 2021 reform of security interests for creditors. Under Article 2300, a disproportionate suretyship is reduced, not annihilated: the bank keeps its right up to what the guarantor could have guaranteed when it was concluded. Only suretyships signed before 1 January 2022 remain subject to the total forfeiture of the former Consumer Code.

Who must prove disproportion in bank and guarantor litigation?

The burden of proof lies on the guarantor: it is for him or her to show that the commitment was manifestly disproportionate to his or her assets and income on the day of signing, by producing tax assessments, statements and title deeds. Under the former regime, if disproportion was established, the bank had to prove the return to better fortune in order to act. Under Article 2300, this second debate has disappeared and only the date of conclusion counts.

Can the asset and income information form save the bank's suretyship?

Yes, it is often the decisive document. Case law accepts that the creditor may rely on the information declared by the guarantor in the asset form, without verifying it, unless there is an apparent anomaly. A guarantor who overstated his or her assets to obtain the credit cannot then invoke disproportion on the basis of his or her own inaccurate declaration. A complete, dated and signed form is therefore the creditor's best protection.

Can a company's suretyship be set aside for disproportion?

No. The protection of Article 2300 of the French Civil Code benefits only the guarantor who is an individual and who has given a commitment to a professional creditor. A company that stands as guarantor cannot invoke disproportion on this basis. The status of the parties, individual and professional creditor, is a systematic preliminary point to any challenge.

Does a suretyship signed before 2022 fall under Article 2300?

No. Suretyships entered into before 1 January 2022 remain governed by the Consumer Code, with total forfeiture and the return to better fortune. Article 2300 of the French Civil Code applies only to commitments given from that date. Checking the date of signing is therefore the first reflex, because it determines the applicable regime and the possible outcome of the dispute.