The Role of the Extrajudicial Request in Suretyship: The Revolutionary Decision of the Milan Court of Appeal

Court of Appeal of Milan, Judgment No. 3115 of 2023, November 7, 2023

This recent decision of the Milan Court of Appeal has significantly influenced the Italian legal landscape, especially in the field of suretyship and obligations. The Court established that, according to Article 1957 of the Italian Civil Code, the secured creditor fulfills its obligations by simply making a request to the guarantor within six months from the expiration of the principal obligation.

This decision emerged following an appeal against a credit institution, where the appellant sought the reform of the first-instance judgment on two main issues: the nullity of the suretyship contract and the violation of Article 1957 c.c., and the non-existence of the credit due to erroneous application of Article 633 c.p.c.

The Court deemed both reasons unfounded. In particular, it emphasized that sending an extrajudicial warning to the guarantor is sufficient to interrupt the term provided for by Article 1957 c.c., eliminating the need for judicial action. The Court clarified that in the case of a surety contract that provides for an “on first request” obligation, the creditor fulfills its obligation with a formal request within six months from the expiry of the principal obligation.

The Court also examined and rejected a second reason for appeal, related to the nature of the debt and the exceptions regarding the invalidity of the main contract. Furthermore, it dismissed the accusations of banking usury due to lack of concrete evidence.

The Milan Court of Appeal rejected the appeal, confirming the first-instance judgment. This decision establishes an important precedent in the law of obligations and guarantees, particularly regarding the timing and manner in which a secured creditor can approach the guarantor for payment.

Sureties and Timeliness: The Crucial Article 1957 c.c. in the Law of Obligations

In the complex world of the law of obligations, suretyship emerges as a fundamental tool to guarantee the fulfillment of an obligation.

It represents a personal guarantee, through which a subject, the guarantor, commits to satisfy an obligation instead of the principal debtor, should the latter fail to comply. Suretyship is therefore a bulwark of security both for the creditor, who has an additional guarantee of payment, and for the debtor, who can obtain credit more easily.

The heart of this legal discussion revolves around Article 1957 of the Italian Civil Code.

This article establishes that the creditor, in order not to lose the guarantee offered by the guarantor, must make the payment request to the latter within a set term. The law fixes this term at six months from the expiration of the principal obligation. Respecting this deadline is crucial: if the creditor does not make the request in time, they lose the right to turn to the guarantor for credit recovery.

The recent interpretation provided by the Milan Court of Appeal has clarified a fundamental aspect of this article. The Court established that an extrajudicial request, i.e., a request made outside a judicial proceeding, is sufficient to interrupt the course of the term provided by Article 1957.

This means that the creditor, to maintain their guarantee, does not necessarily have to initiate legal action against the guarantor but can simply send them a formal payment request within the six-month term.

This interpretation has significant implications. First of all, it simplifies procedures for the creditor, who can preserve their rights without having to undertake a lengthy and costly judicial path. Moreover, it protects the guarantor, who has a clear deadline within which to expect any payment requests, avoiding surprises over time.

In the broader context of the law of obligations, the Milan Court of Appeal’s decision reaffirms the importance of clarity and timeliness in communications between creditor, debtor, and guarantor. Suretyship, as a guarantee mechanism, works best when all interested parties are aware of their rights and obligations and respect them within the terms set by law.

In conclusion, Article 1957 c.c. and the recent interpretation of the Milan Court of Appeal highlight how respecting deadlines in surety contracts is essential for protecting the rights of all involved parties. This decision not only clarifies an important legal point but also contributes to making the legal system more efficient and accessible.

The case under examination is of significant importance in the Italian legal landscape, particularly regarding suretyship and the law of obligations. The first-instance judgment, contested on appeal, concerned a question of the nullity of the suretyship contract and an alleged violation of Article 1957 of the Civil Code. In addition, the non-existence of the credit was in question, with particular reference to the application of Article 633 of the Code of Civil Procedure.

Nullity of the Suretyship Contract and Violation of Art. 1957 c.c.

The appellant had raised issues concerning the nullity of the suretyship contract. The basis of this argument was the possible violation of the rules regulating the validity of such contracts, questioning the legitimacy of the creditor’s actions. Furthermore, the appellant had argued that there was a violation of the provision of Article 1957 c.c., according to which the creditor must act against the guarantor within a set term after the expiration of the principal obligation.

Non-existence of the Credit and Application of Art. 633 c.p.c.

The second issue raised by the appellant concerned the non-existence of the credit. The appellant argued that the credit did not exist or was applied erroneously, based on Article 633 of the Code of Civil Procedure. This rule concerns the procedure for disputing credits and activating legal processes for their collection.

In this case, too, the Milan Court of Appeal took a definitive stance, rejecting the appellant’s argument. The Court established that the evidence presented did not support the thesis of the non-existence of the credit. Furthermore, it deemed that the procedures followed by the creditor in applying Article 633 c.p.c. were appropriate and in accordance with the law.

The ruling of the Milan Court of Appeal No. 3115 of November 7, 2023, represents a significant turning point in the law of obligations and the banking sector, particularly regarding suretyship in Italy. This legal decision has profound implications for both banks and guarantors, significantly influencing the structure and execution of suretyship contracts.

Impact on the Law of Obligations

• Redefinition of Contractual Principles: The ruling establishes new standards for the creation and execution of suretyship contracts. This implies a greater emphasis on the clarity and specificity of contractual terms, ensuring that obligations are explicit and understandable for all parties involved.
• Responsibility and Transparency: Greater emphasis is placed on the responsibility and transparency of banks. Financial institutions are now required to provide detailed information on the risks associated with suretyship contracts, improving the guarantors’ awareness.
• Protection of Guarantors: The ruling aims to protect guarantors from unfair or unclear contractual clauses. This means that guarantors have more opportunities to challenge contractual terms they consider disadvantageous or deceptive. Impact on the Banking Sector
• Review of Contractual Practices: Banks must review their contractual practices to ensure they align with the new standards set by the ruling. This could lead to increased legal and administrative costs to ensure compliance.
• Enhanced Risk Management: Banks are encouraged to develop more effective methods of risk assessment and management when offering sureties. This could involve more stringent selection and evaluation of guarantors.
• Impact on Interest Rates: The increased focus on risk and the protection of guarantors could lead to higher interest rates on loans secured by sureties, as banks seek to offset the increased risk.

Impact on Suretyship Insurance

Higher Standards for Insurance: Insurers offering suretyship products are now subject to stricter standards. They must ensure that the coverage offered is adequate and in line with the new legal requirements.

Increased Collaboration between Banks and Insurance: The ruling could lead to closer collaboration between banks and insurance companies to develop suretyship products that are beneficial for both parties and the guarantors.

Final Thoughts

This ruling is a clear signal that the Italian legal system is evolving to offer greater protection to guarantors and to ensure that banks and insurance companies act with greater responsibility and transparency. The ruling will have a lasting impact on how obligations are managed in the banking and insurance context, emphasizing the importance of contractual clarity and justice in financial transactions.

While this decision represents a challenge for banks and insurance in terms of compliance and review of practices, it also offers the opportunity to build a fairer and more ethical banking sector that can benefit both consumers and financial institutions in the long term.