For some legal acts, one spouse needs the consent of the other spouse. In the absence of consent, the other spouse may annul the legal act. Under certain circumstances, this also applies to the provision of security deposits.
On 20 March 2020, the Supreme Court rendered an interesting judgment on the validity of an appeal for the annulment of a guarantee, in which the central question was whether the guarantee was commercial or private. It concerned a situation in which a (de facto) director, under pressure from a creditor threatening to file for bankruptcy, provided a guarantee.
I will first discuss the legal arrangement. Next, I will discuss the ruling of the Supreme Court.
Difference between a corporate and a private guarantee
A private guarantee is said to have been entered into if the guarantee contract is entered into by a natural person who was not acting in the course of his profession or business, or for the normal exercise of the business of which he is a director, or who alone or with his fellow directors holds the majority of the shares (Article 7:857 of the Dutch Civil Code). In all other cases there is a business guarantee.
Spouse’s consent required when providing private guarantee
Due to the fact that a guarantee can have far-reaching financial consequences, the legislator considered it necessary to protect the spouse of the private guarantor. Article 1:88 paragraph 1 opening words and under c of the Dutch Civil Code stipulates that the consent of the other spouse is required in the event of a guarantee:
“agreements that, other than in the normal course of his profession or business, bind him as guarantor or joint and several co-debtor, or as security for a debt of the third party”.
According to paragraph 5 of the article, the authorisation for the legal act is not required if it is carried out by a director of a public limited liability company or of a private limited liability company, who alone or with his fellow directors holds the majority of the shares in that company and provided that it is carried out for the purpose of the normal conduct of that company’s business.
Case nullification of guarantee by spouse
The following facts led to the recent judgment of the Supreme Court.
A B.V. (Ltd.) specialising in asbestos abatement (hereinafter ‘the B.V.’) hires staff from a temporary employment agency. The B.V. has a parent company that holds all the shares and is the sole director. There is also a married couple. The wife holds 89.9% of the shares in the parent company and is sole director. The spouse (hereinafter referred to as ‘the spouse’) holds 10.1% of the shares in the parent company. He acts as a de facto manager.
The temporary employment agency had to establish that the B.V. was in arrears with payments and threatened to file for the bankruptcy of the B.V. The temporary employment agency was prepared to defer payment.
of payment of two weeks, but demanded that the B.V.’s parent company and the spouse stand surety. The husband finally let us know:
‘You informed me that (…) I will only waive my right to file a petition for bankruptcy if I personally stand surety for the claim of €38,062.35.
I therefore have no choice but to confirm that I (…) personally stand surety for the aforementioned claim (…)’.
Two months later the B.V. went into liquidation. At that time the B.V. still owed € 33,498.35 to the temporary employment agency. The spouse called for the destruction of the deposit issued by her husband. She claimed not to have given permission for this.
Judgment of court: private surety, but no setting aside
The temporary employment agency goes to court and demands payment of the spouse on the basis of the security deposit. The spouse defends himself by claiming that the bail has been destroyed.
The court grants the temporary employment agency’s claim. It is true that the spouse should have given permission because it concerns a private bail, but it is unacceptable by standards of reasonableness and fairness to invoke the annulment, because it is implausible that she would not have known about the bail, nor is it plausible that the spouse acted entirely on her own.
Judgment of the Court: guarantee in rem
The spouse appeals. The Court also finds that the spouse must pay under the guarantee, but assesses the guarantee in a different way. The Court of Appeal was of the opinion that the guarantee was businesslike. According to the Court of Appeal, the guarantee relates to payment obligations concerning the hiring of personnel and that activity falls under the normal exercise of the B.V.’s business.
Judgment of the Supreme Court on the annulment of a guarantee
The husband institutes cassation before the Supreme Court. He argues that the guarantee did not relate to the normal operation of the company and points out that the aim was to prevent a petition for bankruptcy and to create liability for an existing claim against the B.V. for which there was previously no liability, without this being offset by a performance by the creditor that would give the B.V. or the person providing security a (financial) advantage.
The Supreme Court agrees with the spouse’s argumentation. The Court has misunderstood that the guarantee was not entered into in order to be able to continue the hiring of personnel. Rather, the aim was to provide security for an already existing payment obligation and to avert a bankruptcy petition. The Court should have examined whether this falls within the normal course of business, but did not do so. Therefore, the Supreme Court referred the case to another Court of Appeal to decide on the matter.
Deposit sometimes annullable
The difference between business and private suretyships plays a role in more ways than one. For example, a bank has a special duty of care in relation to private suretyships. Furthermore, in the case of private suretyships, certain protection provisions must be observed, of which the spouse’s consent, as discussed above, is just one example.
Attorney at law on surety
If you have any questions about guarantees or other securities, please contact the specialists of Leeman Verheijden Huntjens Advocaten.
