Personal guarantees by right in personam
When a person turns to a financial organisation for a loan, the bank may ask for personal guarantees to ensure that the loan will be repaid. One of the most common forms is a surety.
A surety is a commitment made by a third party, called the surety, to repay the debt instead of the borrower should the borrower become unable to honour his commitments.
Who is concernedThis concerns all persons that do not have sufficient movable or immovable assets to cover the repayment of debt by a tangible guarantee and for whom the banks require additional guarantees.
The following can stand surety:
- any 'capable' natural person, in the legal sense of the term, i.e. legally of age, not under guardianship or supervision, and having all of his mental faculties;
- any legal person (company).
How to proceed
Types of surety
There are different categories of surety:
- simple surety: the financial organisation can only take legal action against the natural/legal person that stands surety when the borrower is definitively deemed unable to repay his debt and when the rights of recourse available against him have already been used. If more than one natural/legal person has stood surety, they are each only liable in proportion to their commitment;
- joint surety, where the natural/legal person standing surety will be called on to repay the borrower’s debt as soon as the borrower defaults;
- mutual guarantee provided by a mutual guarantee institution which will become liable for repayments should the borrower default.
Joint and several surety
It is customary to request a 'joint and several surety'.
The notion of joint surety means not only that the natural/legal person that stands surety undertakes to pay the debt out of his own assets instead and in place of the borrower, but that the person may also, if the bank requests so, have to pay the total outstanding debt. The notion of joint and several surety also implies that, if more than one natural/legal person stands surety, they stand surety for the bank as a whole and each of them is committed for the whole debt. Consequently, the bank may take legal action against only one of the sureties and the surety sued shall pay for all of the others;
The notion of several surety means that, if the person acting as surety should die, each of his/her heirs shall be liable for the full amount of the debt.
Form of the surety
The surety agreement must be in writing. It is customary to draw it up as a 'private deed', i.e. directly between the lending institution and the natural/legal person standing surety. When a natural person stands surety by private deed (i.e. a deed which is not notarised), a specific handwritten notation must appear in the surety agreement.
In the case of collateral security, when the guarantee provided to the creditor by the natural/legal person standing surety involves one or more specific assets, the deed must be notarised.