The bond is part of the collateral category. It is a contract allowing a person to stand surety for the payment of his debt by another person.
Bonding is a unilateral agreement whereby a person, the surety, agrees to pay the debt of another person, the principal debtor, to his creditor. This creditor must of course agree to the surety for the security to be valid, the agreement of the parties being an essential element of the existence of any contract.
It is important to distinguish between the notion of bond, which corresponds to the person, and the concept of bond, which corresponds to the contract.
1. Rules relating to the suretyship contract
The suretyship contract is a unilateral act, compulsorily signed and written by the surety, and must exist for a specific cause. This cause resides in the existence of the secured debt, of any advantage, or of the credit granted to the debtor, on the day of the conclusion of the contract of guarantee.
The security must be written in precise terms, including the nature of the debts and the exact amount in figures and letters.
The surety must expressly enter into the contract, his consent must be real and not flawed (by mistake, fraud or violence), as for any contract. Finally, the person who endorses a debtor must have the ability to enter into this type of contract.
The commitment of the surety may be for a fixed term, such as the closing date of the contract for the guarantee of a repayment loan, or indefinite.
The guarantee contract must obligatorily provide for the commitment of the surety when the debtor defaults. It may be a sum of money, which is the most frequent case, or an execution in kind. The bond can not be contracted for an amount higher than that which is owed by the debtor and can not involve more expensive conditions.
Finally, it is possible to provide in the contract that the commitment of the surety is executable at the occurrence of certain events, even if the cause of the contract is not affected.
2. The operation of the suretyship
When a credit institution grants a loan to a company that is subject to a bond, it must inform the surety before 31 March:
- If the contract has a definite duration: The amount of the guaranteed sum remaining to be paid as at 31 December of the previous year
- If the contract is for an indefinite period: The possibility for the surety to denounce the bond.
If the credit institution fails to comply with its disclosure obligation, the guarantor will no longer be liable for the amount of the accessories of the principal debt, such as interest, for example.
When the bond is for an indefinite duration, the surety may therefore denounce his commitment at any time but will nevertheless remain committed to all debts prior to the denunciation.
The creditor may require the implementation of the security, unless time is provided for, when the debt he owes to the debtor becomes due and the latter does not honor its commitment.
The creditor, in some cases, will then have the opportunity to turn against the debtor for a refund.