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Constitutional principles in financial guarantor cases
Constitutional principles are increasingly used in contract cases to protect ‘weaker parties’ from unfair agreements. This has been particularly visible in the so-called ‘guarantor (or suretyships) cases’, a recent series of judgments across several EU countries, where, in particular, the principles of solidarity, autonomy, good faith, or morality have been invoked to free individuals from burdensome guarantee contracts. In these cases, the fact that, for example, a relative had exerted undue influence over a person to sign a contract, or the guarantor had not been duly informed about the consequences of the guarantee contract played an important role in allowing the guarantor to withdraw from her (or his) contractual obligations. The judge plays an important role to determine a balanced approach, between the creditor’s contractual autonomy and the guarantor’s rights of protection and autonomy.
A seminal case in this context is the German suretyship (Burgschaft) case already partially discussed in Chapter 3, which revolved around the validity of a personal guarantee given by a 21-year-old daughter in favour of her father’s business debt. As we saw, the daughter was allowed to withdraw from her contractual obligations as a guarantor, because she had, inter alia, not been properly informed by the bank. In this case, the constitutional principles of private autonomy and of the social state played an important role. Indeed, while the German Constitutional Court recognized that contracts must usually be upheld according to the constitutional right of private autonomy guaranteed by Article 2(1) German Grundgesetz (GG), in particular circumstances the civil courts have an obligation to intervene in favour of the weaker party based upon the constitutional right of private autonomy (Article 2(1) GG) and the principle of the social state (Articles 20(1) and 28(1) GG). Such an intervention is required if a contract presents a substantial structural imbalance of bargaining power and turns out to be exceptionally onerous for the weaker party. In the present case, the contractual imbalance existed because the financial risk in relation to the guarantee was exceptionally high and did not provide any economic benefit to the daughter. In addition, this risk was very difficult to estimate, in particular for the 21-year-old daughter, who did not benefit from a professional education and because the contract lacked clear information on significant additional costs related to the guarantee, such as information on credit interests. In this context, exact information by the bank on the financial implications of the contract would have been of particular importance. However, the bank had failed to provide information about the risk relating to the surety and in contrast downplayed the obligation resulting from the contract.
As mentioned, the German Burgschaft case was only one of several cases resolved in favour of guarantors in Member States including France, the UK, and the Netherlands. Despite reaching similar conclusions, the courts of the different countries followed different models. Comparative legal studies show that UK and Dutch courts based their judgments mostly on private law principles, such as on the duty to inform and the principle of good faith, to protect the weaker party in contract law. German and French courts instead based their decisions mainly on constitutional principles or specific legislative provisions respectively, recognizing the invalidity of significant disproportionate contractual obligations, thus granting to the weaker party a higher level of protection.
The constitutional case law is particularly interesting as an inspiration in the EU context. As we have seen before, the EU Charter grants special legal, economic, and social protection to the family (Article 33) and mentions consumer protection (Article 38), which may also serve as a basis for such a higher-level protection of weaker parties in contractual disputes. This might, however, take some time, considering also that some contrasting signs have emerged from former judgments of the ECJ (which were, however, delivered before the adoption of the Charter), as we will discuss in the next subsection.
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