How are personal guarantees construed under Italian law?
Generally speaking, a guarantee is a form of collateral
that provides extra security to a creditor for debt collection. In fact, a guarantee “doubles the debtors”, since it creates a second obligation for the case the main one fails to be honored.
Italian laws expressly regulate a particular type of guarantee, the fidejussione (sections 1939 to 1957 of the 1942 Italian Civil Code (c.c.), which are still in force today)[1]. This is an ancient form of protection dating back from the old Roman legal system, and almost verbatim imported from secs. 2011 of the 1804 Code Napoleon[2]. The fidejussione is a typical ancillary obligation, in the sense that the grantor is co-obliged if, and to the extent the main obligation is valid and enforceable. Actually, for logical reasons, the grantor’s obligation survives the expiry of the main obligation, provided however that the creditor made a timely claim against the main debtor (i.e. within either 2 or 6 months from said expiry, depending on whether the fidejussione has been expressly made for the duration of the main obligation, or not – sec. 1957c.c).
According to the scheme, the creditor may address either the original debtor or the grantor, unless the latter has agreed to intervene at a second stage only, i.e. after at least one useless attempt by the creditor to obtain satisfaction from the original debtor.
During the decades, various forms of guarantees have developed from this basic scheme. In the finance industry, for instance, it is customary for a moneylender to ask for a very broad guarantee covering all the possible borrower’s obligations, present or future (this is known as fidejussione omnibus)[3].
Demand Guarantees under Italian law
Demand guarantees are a particular form of guarantees, particularly utilized in international trade. They are intendedly detached from the main obligation.
According to this scheme, the grantor’s obligation is autonomous from the main debtor’s underlying one/s. This means that a guaranteed person may exercise their rights towards a grantor in a much safer way. The same way checks and drafts operate in respect to an underlying payment obligation.
Usually, a demand guarantee may be triggered by a simple written request (we talk of Demand or First Request Guarantees, in fact), without the risk of being paralyzed by claim relating to the ground business. This happens to be the case in a Letter of Credit confirmation, and in the various type of bonds utilized in the construction industry.
Initially, Italian courts were somehow reluctant to recognize validity to a demand guarantee, exactly due to said feature, and to the fact that there was no specific traceable regulation in the law. Soon, however, this kind of guarantees was considered as perfectly viable, on account of the principle of freedom of contract, and the protection assured to contracts that seek to satisfy legitimate interests. The leading case is Court of Cassation S.U. no. 3947/10 in ATER Perugia v Viola Costruzioni[4].
It is worthwhile noting that, in the eye of an Italian court, a “demand guarantee” not necessarily amounts to an “autonomous guarantee”. There are indeed cases where a first demand guarantee remains clearly linked to the main obligation. The same 2010 decision in Ater Perugia made it clear that a first demand guarantee is to be deemed as an autonomous guarantee, unless one can argue otherwise in the light of the overall analysis of the guarantee deal[5].
The current state-of-art of Italian case-law on personal guarantees.
Recapping, the current state-of-art of Italian case-law is the following-
- a guarantee may be either ancillary or autonomous;
- the fact that a guarantee is qualified “at first demand” (or by analogous expressions such as “without recourse”, et similia) amounts to just a hint of its autonomous nature;
- an ancillary guarantee (usually called fidejussione) is regulated by statute, whereas an autonomous one (usually, but misleadingly called Demand guarantee) is generally governed by contract.
Guarantee Duration. Distinguishing between ancillary, and autonomous guarantees.
In respect of duration, to distinguish an ancillary guarantee from an autonomous guarantee turns out to be one of the most debated issues in recent years.
The point is that sec. 1957 c.c. – that conditions the grantor’s liability upon the creditor’s proactive attitude towards the main debtor, as said above – is generally deemed not to apply to autonomous guarantees. In fact, sec. 1957 is regarded as an expression of the ancillary character of a fidejussione, conflicting with the autonomous character of a demand guarantee[6].
However, a divergent opinion has been held in the case Nazionale Assic. of 2020[7] invoking the general need of a certain minimum degree of grantor’s protection, irrespective of the guarantee’s nature.
In practice, how is it advisable to set a Demand Guarantee Duration?
In conclusion, from a practical point of view–
- it is advisable for a first-demand grantor to expressly set the duration of his/her commitment towards a beneficiary. The recourse to standard forms – such as the URDG – Uniform Rules on Demand Guarantees by the ICC[8] – may help in this respect, since they regularly cover the point.
- In case the guarantee remains silent about its duration, it is advisable for a beneficiary to take action against the main debtor, first, in order to be able to address the grantor, later. The deadline is 6 months starting from the moment the main obligation becomes due. It is possible to agree, either expressly or impliedly that it is not necessary to file a lawsuit in this respect[9]. It remains to be seen whether the parties, by describing the guarantee as at “first demand”, imply such a derogation, or not[10].
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[1] Sec. 1939 does not give a general definition of fidejussione. Instead, it defines the fidejussore (grantor), as the subject who personally commits towards a creditor, in case one of said creditor’s debtors fails to comply to a given obligation.
[2] 2011 C. Nap. “Celui qui se rend caution d’une obligation, se soumet envers le créancier à satisfaire à cette obligation, si le débiteur n’y satisfait pas lui-même”.
[3] In order to avoid unreasonable restrictions to the detriment of a grantor, in 1992 it was established that a fidejussione omnibus is null and void if it does not specify its maximum amount. In the following years a judicial trend consolidated, in asking for the respect of a fair ratio between said maximum, and the main debtor’s reasonably expected exposure.
[4] In decision no. 3947/10 the judges held a construction performance bond as valid per se, as an ‘autonomous’ commitment intended (not to guarantee for the main debtor’s possible failure, but) to protect the guaranteed subject against given adverse events. The doctrine stems from work on Garantievertrag (Guarantee Contract) by Rudolf Stammler, a German professor of law, active in the late XIX century.
[5] This doctrine has been followed in the case Banca Agricola Ragusa (Cass. 34678/24) concerning a typical collateral offered to a bank by a shareholder, in respect of the possible exposure of the latter’s company.
[6] As in ATER Perugia case in Cass. 3947/10, above mentioned. More recently, see Cass. 37655/2021 in Atradius v ENEL; Cass. 5423/22 Lazarus; Cass. 28590/24 UBI Leasing.
[7] Cass. 5598/20 in Nazionale Assic. in which insurers were denied their right against two partners who had granted for a company, later gone bankrupt, because of they did not timely file their credit with the judicial liquidator of said company. On the occasion, the judges reproposed almost verbatim the reasoning made by Cass. 16825/16 in Sacop (this relates, indeed, to a slightly different occurrence, i.e. grantor’s release under sec. 1956 c.c. in case the main debtor’s situation deteriorates due to creditor’s reckless behavior). Recently Cass. 34678/24 in Banca Agricola Ragusa has stated – still verbatim – the same, even though it was not a matter of applying sec. 1957 to an autonomous guarantee.
[8] The latest revision dates to 2010 (Publ. No. 758). See also the 2021 Publ. 814, ISDGP – International Standard Demand Guarantee Practice, which was endorsed by UNCITRAL in 2022.
[9] As recently stated by Cass. 16938/24 in NPL2018. See also Court of Appeal Milan in PLC Impianti (decision no. 386 of Feb. 03, 2023), and Adda West River (decision no. 2561 of Aug 28, 2023).
[10] The Court of Cassation opted for the negative in Sacop (16825/16), and more recently in Lazarus (5423/22).
