Definition and Basic Principle of the Subsidiarity of Guarantee
The subsidiarity of guarantee is a central principle of guarantee law in German civil law. It describes the subordinate relationship between the creditor’s claim against the principal debtor and the claim against the guarantor. According to this principle, the guarantor undertakes to the creditor to answer for another party’s obligation (so-called principal debt), but as a general rule only if the principal debtor does not fulfill their obligation and the creditor has unsuccessfully attempted to collect the principal debt from the principal debtor. Subsidiarity finds particular expression in Section 771 of the German Civil Code (BGB) (defense of prior enforcement).
Legal Foundations
German Civil Code (BGB)
The legal regulations regarding guarantees are stipulated in the German Civil Code (BGB) in Sections 765 et seq. These provisions specify the nature and scope of the guarantee, the relationships between creditor, principal debtor, and guarantor, as well as the rights and obligations of the parties involved.
Defense of Prior Enforcement (Section 771 BGB)
The central manifestation of subsidiarity can be found in the defense of prior enforcement pursuant to Section 771 BGB. This allows the guarantor to refuse to satisfy the creditor as long as the creditor has not attempted to enforce judgment against the principal debtor. Therefore, the guarantor is generally only obliged to pay after the enforcement against the principal debtor has proven unsuccessful.
Limitations of Subsidiarity
The law provides for limitations or even the exclusion of subsidiarity for various types of guarantees. In particular, the following cases are noteworthy:
- Independent Guarantee (§ 773 para. 1 no. 1 BGB): When an independent guarantee is agreed upon, the guarantor expressly waives the defense of prior enforcement against the creditor. The creditor can thus make a direct claim against the guarantor, even before attempting enforcement against the principal debtor.
- Specific statutory exceptions: For example, in commercial guarantees under Section 349 of the German Commercial Code (HGB) or in certain public law guarantees, the defense may also be excluded.
Functions and Objectives of Subsidiarity
Subsidiarity primarily serves to protect the guarantor. It is intended to prevent the guarantor from being called upon to pay before the principal debtor and characterizes the guarantee contract as accessory security (i.e., security dependent on the principal obligation). The aim is to avoid burdening the guarantor more than necessary and to emphasize their subsidiary liability.
Protective Function
By being able to raise the defense of prior enforcement, the guarantor is protected from being held liable at the first sign of the principal debtor’s default. The creditor must first exhaust all reasonable enforcement measures against the principal debtor without success.
Risk Distribution
At the same time, the principle ensures an appropriate allocation of risk in the triangular relationship between creditor, principal debtor, and guarantor. The creditor receives additional security through the guarantee, while the guarantor should not be burdened prematurely or inappropriately.
Subsidiarity in Different Guarantor Scenarios
Simple Guarantee
The simple guarantee is the classic form where subsidiarity applies without limitation. The guarantor can invoke the defense of prior enforcement under Section 771 BGB and must pay only when enforcement against the principal debtor has failed.
Independent Guarantee
This form of guarantee deliberately deviates from the principle of subsidiarity: the guarantor contractually waives the defense of prior enforcement and can therefore be called upon regardless of enforcement proceedings against the principal debtor.
Co-Guarantee and Recourse
In the case of co-guarantors and joint and several liability, separate arrangements concerning the defense of prior enforcement and subsidiarity can be made. Here too, it is decisive to what extent the right to prior enforcement has been waived.
Guarantee in Consumer Contracts
In consumer protection law, a waiver of the defense of prior enforcement requires particular transparency and clarity in the contractual provisions in order to fulfill the protective purpose of the consumer (Section 307 BGB).
Exclusion and Modification of Subsidiarity
Statutory Exclusion
By entering into an independent guarantee, subsidiarity is legally excluded. It can also be excluded in other statutory instances, for example, with bill of exchange guarantees (Section 773 para. 1 no. 2 BGB).
Contractual Exclusion
Within the contractual relationship, the defense of prior enforcement may also be waived individually. Creditors often demand such waiver to ensure quicker access to the guarantor.
Contestation and Invalidity of Clauses
A contractual provision that deviates from the legal standard to the detriment of the guarantor is generally subject to content review pursuant to Sections 305 et seq. BGB and can be invalid in certain circumstances, for example, in the event of unreasonable disadvantage.
Importance of Subsidiarity for the Security Purpose
The guarantee regularly serves the purpose of securing a principal obligation. Subsidiarity ensures that this security is only activated if, in fact, there are no longer any alternative means of satisfaction from the principal debtor’s assets.
Accessory Principle
The subsidiarity of guarantee is closely connected to the principle of accessoriness of guarantee. This means that the guarantor’s obligation, in both its existence and scope, depends on the principal debt.
Procedural Aspects
Assertion of the Defense
The defense of prior enforcement must be actively asserted by the guarantor against the creditor. It is not an automatic protection but must be expressly raised during legal proceedings or in out-of-court settlements.
Consequences of Raising the Defense
Once the defense is raised, the creditor is required to pursue the principal debtor and, if necessary, initiate enforcement measures. Only after these prove unsuccessful does the guarantor’s direct liability arise.
Subsequent Elimination
If it is found after recourse against the principal debtor that enforcement is definitively or permanently unsuccessful, the defense of prior enforcement lapses and the guarantor can be required to pay.
International Comparison
In many other legal systems, the principle of subsidiarity exists, albeit under different prerequisites and scopes. While similar regulations can be found in continental European countries, Anglo-Saxon law generally rejects a universal subsidiarity and often allows the creditor direct recourse to the guarantor.
References and Further Reading
In-depth information about the subsidiarity of guarantees can be found in particular in commentaries on the BGB (Sections 765-777 BGB), relevant monographs on security law, and systematic articles in legal journals focused on civil law.
This encyclopedia article highlights the subsidiarity of guarantees as a key element in guarantee law and comprehensively presents its significance for legal application, contract drafting, and security function.
Frequently Asked Questions
When does the subsidiary liability of the guarantor legally come into effect?
According to German law, the subsidiary liability of the guarantor generally only arises when the principal debtor fails to meet their payment obligations. This means the guarantor may be called upon only after the creditor has unsuccessfully reminded the principal debtor and the latter’s incapacity or refusal to perform is established (Section 765 BGB, so-called defense of prior enforcement). In certain scenarios, such as in the case of an independent guarantee (Section 773 para. 1 no. 1 BGB), subsidiarity is modified, i.e., the guarantor can be held liable without prior recourse to the principal debtor. The specific structure of subsidiarity depends on the nature and content of the guarantee declaration as well as any differing contractual agreements. Thus, the creditor must prove that all enforcement measures against the principal debtor have failed, unless an independent guarantee was agreed.
What procedural requirements apply to the subsidiarity of a guarantee?
Legally, if a creditor seeks recourse against a guarantor in court, they must explain and, where appropriate, prove that the requirements of subsidiary liability exist. This particularly means that the creditor has unsuccessfully tried to recover the principal obligation from the principal debtor, e.g. through reminders or lawsuits. Only once it is established that the principal debtor does not perform can the guarantor be held liable for payment. Furthermore, the guarantor can raise the so-called defense of prior enforcement to assert their subsidiary liability. In the case of a simple guarantee (Section 771 BGB), the guarantor must expressly assert this defense; otherwise, they could be held liable earlier. The court will then examine whether the statutory or contractually agreed prerequisites of subsidiarity are met. In the absence of such a defense, the guarantee is treated as an independent guarantee.
In which cases is the subsidiarity of the guarantee excluded?
The legal subsidiarity of a guarantee can be excluded by contract, especially by agreeing to an independent guarantee. For this form of guarantee (Section 773 para. 1 BGB), the guarantor undertakes, like a principal debtor and without recourse to the principal debtor, to fulfill the obligation. Here, the guarantor is directly and not subsidiarily liable. Subsidiarity is also excluded if the guarantee deed includes a waiver of defenses, especially the defense of prior enforcement (waiver of Section 771 BGB). Subsidiarity may also lapse due to statutory provisions, for example, in guarantees in favor of public authorities. In addition, subsidiarity does not apply in the event of the principal debtor’s insolvency if enforcement is no longer promising.
What rights and defenses are available to the guarantor within the framework of a subsidiary guarantee?
Within the framework of a subsidiary guarantee, the guarantor in particular has the right to the defense of prior enforcement (Section 771 BGB) as well as all defenses arising from the principal obligation (Section 768 BGB). With the defense of prior enforcement, the guarantor can require that the creditor takes enforcement action against the principal debtor first before calling upon the guarantor. Furthermore, the guarantor may assert any defenses that are also available to the principal debtor against the creditor, for example, the defense of limitation, set-off, or satisfaction. In subsidiary liability, the guarantor’s obligation only arises as a subordinate liability unless any particular modifications to the guarantee have been agreed. The guarantor should expressly assert these defenses in or out of court, as otherwise, they may be deemed not to have been raised.
How long does the subsidiary liability of the guarantor last?
The duration of the subsidiary liability of the guarantor primarily depends on the existence of the main obligation and the stipulations in the guarantee agreement. The liability continues as long as the creditor’s claim from the principal debt exists and the principal debtor does not fulfill their obligation. With the complete discharge or extinction of the principal debt, the guarantee and thus the subsidiary liability also end (Section 767 BGB). The guarantee may also be time-limited or capped at a certain maximum amount. Final judicial determination or acknowledgement of the claim, commencement of limitation, or satisfaction of the creditor by third parties can also impact the duration of liability. In the event of the principal debtor’s insolvency, the guarantor’s liability may be extended in accordance with statutory provisions, as enforcement against the principal debtor then becomes inadmissible.
What happens to the subsidiary guarantee if the principal debtor becomes insolvent?
If the principal debtor becomes insolvent, this has significant consequences for the subsidiary guarantee. Insolvency means that enforcement against the debtor is generally no longer possible (Section 89 InsO), so the creditor can immediately pursue the guarantor without the need for prior enforcement. As a result, the subsidiary limitation of liability is lifted, and the guarantor is liable as if they were a principal debtor. The guarantor is then entitled to recourse in the insolvency proceedings, provided they have settled the creditor’s claim (Section 774 BGB). Different rules apply for insolvency estate claims regarding registration and satisfaction, so the guarantor should carefully consider how to safeguard their rights in the insolvency process.
What special features apply to the subsidiarity of guarantees in consumer guarantees?
For consumer sureties, that is, guarantees provided by a private individual to secure the debt of another, the subsidiary liability is subject to special statutory protective provisions (§§ 305 ff. BGB and § 766 BGB). In particular, subsidiarity may not be excluded to the detriment of the surety by standard contract terms without an individual agreement. In cases of doubt, when interpreting the contract, the application of subsidiary liability (including the defence of prior enforcement) should be assumed in favor of the consumer surety. Consumers are protected from excessive claims arising from the guarantee by information and form requirements as well as a general prohibition on excessive obligations. This regularly also includes a strict interpretation of waivers in favor of the creditor.
