1. No collateral obligation survives the termination of the contract if it has been specifically given for the default of the loan repayment obligation under the terminated contract unless otherwise clearly spelled out in the terminated contract.

Facts of the case

On May 2017* the bank issued a foreign currency loan (the “FCY loan“) to the company under the suretyship of two sureties as collateral of the company’s loan repayment obligation. The extent of sureties’ liabilities was also denominated in a foreign currency.

On May 2018 the bank restructured the loan debt into the local currency by concluding a separate loan agreement**, which terminated the FCY loan agreement as of the effective date of this May 2018 loan agreement (the “LCY loan“). Therefore, no loan was disbursed under the latter agreement.

In 2019 the bank sued the company and the sureties to collect the outstanding interest in a joint and several manner.

The court of first instance granted the relief.

The court of appeal instance refused to collect from the sureties in a joint and several manner.

The Supreme Court’s position

The termination of the FCY loan agreement resulted in the cessation of the suretyships. It is impossible to agree with the bank’s arguments that [the issuance of] the suretyship was a collateral for the obligation, not for the contract, and that the company’s loan repayment obligation did not cease. Because it was the suretyship that was provided precisely for the default of the loan repayment obligation under the FCY loan agreement. This is clearly spelled out in the suretyship agreements. After the FCY loan agreement had been terminated, the [loan repayment] obligation collateralized by the suretyship also ceased.

The Supreme Court upholds the resolution of the court of appeal instance.

————————————

*) Note that the loan was issued prior to the adoption of PD-5177 of 2 September 2017 on the liberalization of foreign exchange policy. The liberalization entailed an abrupt increase in the foreign exchange rate as from 5 September 2017 (see the archives of the exchange rate dynamics).

**) This restructuring can take place by modifying an existing obligation or by novation. The facts of the case lean more towards the novation model of restructuring due to the existence of animus novandi, i.e. when the bank and the company have clearly expressed their will to cease the old obligation arising from the FYC loan agreement and replace it with the new one arising from the LCY loan agreement. See: #Glossa 2022-Pavlov, art. 414 N. 1.8 P. 1287.

At the same time, the LCY loan agreement could have explicitly provided for the retention of suretyship and suretyship in rem (if any) with the consent of the sureties (pledgors) when the debtor and the surety (pledgor) are not in una persona (Art. 347 III CC). See: Evgeny Krasheninnikov Grazhdanskoye pravo i protsess. Izbrannyye trudy / Ye. A. Krasheninnikov i dr.; otvetstvennyy redaktor Yu. V. Baygusheva. — Moskva: Urait, 2022. P. 623.

Because of the absence of an accessory nature of the guarantee (Art. 300 CC) and the (standby) letter of credit (Art. 6 I CC and Art. 4 (b) UCP 600) Art. 347 III CC does not apply to them.

Nevertheless, restructuring by changing the currency of the obligation is not novation per se, by virtue of the “no presumption of novation” principle, but is a modification of the obligation. See: the decision of the Cour de cassation (ch. civile) 17 déc. 1928, DH 1929. 1. 100. cit. in Terré François et al, Droit Civil: Les Obligations, Dalloz, 2019, p. 1791 and the Tribunal fédéral’s decision ATF 107 II 479, c. 3 JdT 1982 I 355 cit. in CR CO I-Poitet, art. 116 N 6.