Surety in a takeover contract – do the evidence regulations of article 1326 of the Civil Code have to be applied?

A takeover contract often goes hand-in-hand with surety from a third party to guarantee a specific commitment by the vendor or buyer (e.g. deferred payment of the price by the buyer, indemnification obligations of vendor, etc.).

Because the commitment is created in relation to the guarantor and not in relation to the creditor, the surety guarantee is a unilateral contract. Precisely because of its unilateral nature, this surety is subject to the evidence regulations of article 1326 of the Civil Code (unless the surety relates to traders, artisans or farmers). The surety instrument must be written by the guarantor himself or must contain the statement ‘good for’ and the amount of the debt, in full, in letters, followed by his signature. This legal requirement applies in order to avoid, within the unilateral contract, the creditor, who shall have the only copy of the instrument, abusing a blank document signed by the debtor or modifying the figures fraudulently. Non-compliance with article 1326 of the Civil Code shall nullify the instrument in which the surety commitments are contained.

If the surety guarantee, however, is contained within a reciprocal contract, e.g. in the takeover contract itself, the evidence regulations of article 1326 of the Civil Code need not be fulfilled (E. DIRIX, Zekerheidsrechten, Mechelen, Kluwer, 2006, 268; Antwerp 18 January 1993, DAOR 1993, issue 27, 87; Cass. 27 October 2000, Dec. Cass. 2000, 1670; Brussels 26 June 2003, Rev.not.b. 2005, issue. 2984, 185 – 191, with note P-P. RENSON; Crt. Dendermonde 5 March 2004, RGDC, 2005, 299; Crt. Brussels 25 November 2011, JLMB 2012, issue 40, 1901). In such a case, the commitment with regard to surety is integrated in a reciprocal contract that is subject to the evidence regulations of article 1325 of the Civil Code (specifically the creation of as many originals as there are parties with separate interests) and thus eliminates the risk of modification or manipulation after signing by the debtor.

It is therefore generally accepted that the statement ‘good for’ is not relevant if the surety guarantee is contained within a reciprocal contract. If, in such a case, the physical person who signs as the guarantor also signs as the primary debtor (e.g. in his capacity as the business manager or director of a company), this person must sign twice and clearly indicate that he is signing once in his role as representative of the company and the second time in his personal capacity. In practice, problems often arise in relation to surety provided by business managers or directors, when it is unclear in which capacity the person concerned is signing, so vigilance is called for.

It may be worth considering whether the evidence regulations of article 1326 of the Civil Code can be left unfulfilled if the surety guarantee is contained within a contract that is not of a reciprocal nature but where originals have been signed by and provided to all parties with a separate interest. This, however, is subject to discussion within legal doctrine. Nevertheless, one could argue that if article 1325 of the Civil Code is fulfilled, the conditions of article 1326 are superfluous, given that the aforementioned concerns regarding modification or manipulation by the creditor, after signing by the debtor, are met (E. Dirix, “Borgtocht” in X. (ed.), Overeenkomstenrecht, Antwerp, Kluwer, 2000, 497 – 520.)

Naomi Glibert, intui attorneys

For a general and comprehensive discussion of surety, see: N. Glibert & A. Verschaeve, “Borgtocht” in D. Blommaert, J. Cerfontaine, J. De Bruycker, V. Sagaert en R. Steennot (eds.), Larcier Wet en Duiding – Economisch recht (Privaat Bank en Zekerheden), Brussels, Larcier, 2014, 154-183.