Background
On February 9, 2012, Société Générale granted a loan to Mac Mahon’s, secured by personal guarantees from P, R, and W. After the borrower entered judicial reorganization on December 21, 2015, the bank sued the guarantors to enforce their commitments.
While the resulting judgment was on appeal, Société Générale transferred a portfolio containing the guaranteed claims to the Castanea securitization fund. MCS et associés, acting as collection entity, intervened in the appellate proceedings. The guarantors invoked the right of litigious redemption under Article 1699 of the Civil Code. The Aix-en-Provence Court of Appeal held that R and W could not exercise that right and ordered each to pay under his guarantee. R and W appealed to the Court of Cassation.
The Court’s Holding
The Court of Cassation dismissed the appeal. Reading Articles 1699 and 1700 of the Civil Code together, it held that litigious redemption is available only when the dispute concerns the substance of the asserted right.
R and W had counterclaimed for compensation based on the bank’s alleged breach of its duty to warn, asserting a loss of the opportunity not to enter into the guarantees. The Court explained that liability for such a breach requires the bank to compensate that lost opportunity but does not call the guarantee itself into question; the bank remains entitled to enforce it. The appellate court therefore correctly concluded that the counterclaims did not dispute the existence of the guarantors’ debt and could not support litigious redemption.
The Court disposed of the second and third grounds without a specially reasoned decision because they were manifestly incapable of resulting in cassation. It ordered R and W to pay costs and, under Article 700 of the Code of Civil Procedure, a total of €3,000 to Société Générale and a separate total of €3,000 to Castanea.
Key Takeaways
- Litigious redemption under Articles 1699 and 1700 requires a dispute concerning the substance of the assigned right.
- A damages claim alleging breach of a bank’s duty to warn does not, by itself, challenge the existence or enforceability of the guarantee.
- Because R and W sought compensation for a lost opportunity not to contract rather than disputing the principle of their guarantee debts, they could not invoke litigious redemption.
Why It Matters
The decision draws a clear distinction between challenging a guaranteed debt itself and seeking damages arising from the circumstances in which the guarantee was given. Only the former type of dispute can satisfy the substantive-contestation requirement identified by the Court for litigious redemption.
For guarantors facing enforcement after an assignment, a counterclaim based on the lender’s duty to warn will not alone establish eligibility for that remedy, because the counterclaim leaves the guarantee enforceable even if damages may be recoverable.