No revocation right for guarantees signed outside business premises

In a judgment dated 22 September 2020 (case no. XI ZR 219/19), the Eleventh Civil Division of the German Federal Court of Justice (FCJ) ruled that guarantees do not fall under the area of applicability of section 312(1) German Civil Code (BGB) (consumer contracts). This means that a guarantor has no revocation right even if the contract was signed outside the bank’s business premises in the presence of a bank employee. With this ruling, the FCJ has concurred with the position that Noerr took for the claimant bank in the lower courts. The judgment has not yet been published.

Background

There has been legal uncertainty since the new version of sections 312 et seq. of the German Civil Code entered into effect on 13 June 2014 as to whether guarantees are consumer contracts within the meaning of the new version (hereinafter: ‘n.v.’) of section 312(1) Civil Code. According to this version of section 312(1) Civil Code, a contract is a “consumer contract” if its subject matter is the “non-gratuitous performance of the business”. In contrast, the previous version of section 312 Civil Code (right of revocation in door-to-door selling) only required “non-gratuitous performance” regardless of who provided the performance. The new version is based on the EU consumer rights directive, 2011/83/EU. The wording of this directive does not mention guarantees. This, together with the more specific wording of the directive and the requirements of EU law, caused a dispute in the literature as to whether guarantee contracts no longer fall under the area of applicability of sections 312 et seq. Civil Code because only the guarantor is obliged to provide performance. It was said that if guarantees are not consumer contracts, there is no revocation right for off-premises declarations of guarantee according to sections 312b, 312g and 355 Civil Code regardless of the circumstances of the signing and the guarantor’s status as a consumer. This issue had not yet been resolved in the higher courts.

In the present proceedings, the Hanseatic Higher Regional Court in Hamburg had initially ruled that the guarantor had a revocation right and dismissed the action brought by the bank that was the guarantee recipient while permitting an appeal to the FCJ on points of law.

The FCJ’s decision

In its judgment dated 22 September 2020 (case no. XI ZR 219/19), the FCJ’s Eleventh Civil Division ruled in favour of Noerr’s client, the guarantee recipient.

The FCJ found in favour of the appeal by the guarantee recipient we represented and overturned the ruling of the Hanseatic Higher Regional Court. In the grounds for its decision, the FCJ explained that guarantees do not fall under the scope of applicability of section 312(1) Civil Code n.v. Given the new version of section 312(1) Civil Code, the FCJ said it no longer wished to adhere to its earlier case law related to the previous version, i.e. that revocation of a declaration of guarantee was possible in the case of door-to-door sales. The FCJ also stated that it did not see any necessity to present the case to the European Court of Justice because it believed that the consumer rights directive was unambiguous and would not yield a different decision.

Conclusion

The FCJ has now clearly rejected the existence of a right to revoke guarantees signed outside of business premises, thereby providing the long-awaited legal certainty.

 

With its team of specialists, Noerr represents banks and credit institutions throughout Germany in a large number of legal disputes in their lending and borrowing business and has successfully conducted many landmark lawsuits. Please feel free to contact us if we can help your bank defend against actions or enforce its claims.