Recharacterization of a first demand guarantee as a bond

A decision dated 20 April 2017, entered by the commercial chamber of the Cour de Cassation, highlights once more the difficulty in distinguishing an autonomous guarantee from a bond.

An agreement executed between the two parties consisted in having the commitments of one of the parties guaranteed by the other, in respect of a raw materials purchasing agreement. While the surety agreement used terms conjuring up the idea of an autonomous guarantee (the instrument was entitled “first demand guarantee”, the guarantor assumed an irrevocable and unconditional commitment, and no defense was enforceable), the Cour de Cassation noted a certain clumsiness in the drafting of the agreement. More specifically, in order to confirm the decision of the Court of Appeals of Caen, which had recharacterized the relevant commitment as a bond, the Court noted that:

• on the one hand, the amount of the guarantee was not predetermined;
• on the other hand, the parties used the phrase “joint, several and indivisible bond”.

Quite curiously, the Cour de Cassation did not derive any consequence from one of the arguments on which the appellate decision had relied, i.e. the reference to a debtor default. Indeed, the agreement provided that the activation of the guarantee was conditional on the debtor’s default. Because of this, the guarantee was in no event autonomous, and the guarantor was an ancillary debtor.

Cass. com., 20 April 2017, No. 15-18.203