Contract of Guarantee

The contract of guarantee is regulated in TCO Article 128 under the heading “undertaking a third party’s act”: a person who undertakes towards another the act of a third party must make good the loss arising if that act does not occur. The guarantor promises that a certain result will occur.

Key Features

• Independence: The guarantee is independent of the underlying relationship. The guarantor generally cannot rely on defences the debtor could raise against the creditor.
• Scope: If the guaranteed result (payment, performance, specific conduct) does not occur, the guarantor compensates the creditor’s resulting loss.
• Form: No special form is prescribed by law, but written form is practically essential for proof and characterisation.
• Duration: For guarantees given for a fixed period, it may be agreed that the guarantor’s liability ends if no written demand is made before expiry (TCO Article 128(2)).

Difference from Suretyship

• Suretyship is accessory; a guarantee is independent.
• Suretyship is subject to strict requirements (written form, maximum amount, handwriting, spousal consent); a guarantee is not.
• Documents titled “guarantee” to avoid the formal requirements of suretyship may therefore be treated as suretyship depending on their content.

In Practice

• Group company guarantees: Guarantees given by a parent for its subsidiaries’ debts
• Bank guarantees: The letter of guarantee is the most common form
• Guarantees in share sales: The seller guaranteeing the accuracy of its statements about the company; see Representations and Warranties

Wording such as “on first demand”, “unconditionally” and “waiving all objections and defences” strengthens independence. Personal undertakings should be drafted carefully given the risk of characterisation as suretyship.