Disproportionate Guarantee: Do the Company's Income Count?

Imagine: you are a property owner in Saint-Berthevin, and you stand as guarantor for a professional loan for your son. You sign a guarantee deed without fully realising the extent of your commitment. Then, business takes a turn for the worse, and the bank demands €150,000 from you. You wonder: Can I escape this debt by invoking the disproportionality of my commitment? The Court of Cassation, in a judgment of 5 September 2018, provides a nuanced answer that overturns many preconceived ideas.

This decision concerns Article L. 341-4 of the Consumer Code (now L. 332-1), which allows a guarantor not to honour their commitment if it was manifestly disproportionate to their assets and income at the time of subscription. But how is this disproportionality calculated? Should the income that the guarantor hopes to derive from the guaranteed operation be taken into account? And what about income already received from the guaranteed company? The Court answers clearly: no expected income, but yes to regular income, even if it comes from the guaranteed company.

For property owners, tenants, or real estate professionals, this subtlety is crucial. It can make the difference between a written-off debt and a maintained obligation. Let's analyse this decision step by step, with concrete examples from the Mayenne region.

The Facts: A Story That Happens Every Day

Mr Daniel X, manager of a precision engineering company based in Laval, stands as joint and several guarantor for a loan granted to his company by several credit institutions (Natixis Lease Immo, Finamur…). In 2010, the company goes into liquidation. The bank turns to Mr X as guarantor. He invokes the disproportionality of his commitment: he claims that, at the time of subscription, his personal assets and income were insufficient to cover the amount of the guarantee.

The case comes before the Rennes Court of Appeal, which rules in favour of the bank. The judges consider that Mr X must take into account the income he received from his company (dividends, salary) to assess his ability to repay. But Mr X retorts that this income comes precisely from the guaranteed company and is therefore uncertain. He appeals to the Court of Cassation.

The question posed to the Court of Cassation is this: can the regular income that the guarantor derives from the guaranteed company be taken into account to assess the proportionality of the guarantee? And, conversely, should expected income from the guaranteed operation be excluded?

The Reasoning of the Court — Broken Down

The Commercial Chamber of the Court of Cassation dismisses Mr X's appeal. It confirms the judgment of the Rennes Court of Appeal. Its reasoning is twofold.

First, it recalls that, to assess the disproportionality of a guarantee at the time of its subscription, expected income from the guaranteed operation cannot be taken into account. In simple terms: the guarantor cannot say 'I will make money from this loan, so I will be able to repay.' Why? Because this income is uncertain: the operation may fail. This is a protection for the guarantor.

Second, the Court clarifies that, on the other hand, regular income received by the guarantor up to the date of their commitment must be taken into consideration, even if it comes from the company whose obligations are guaranteed. In other words, if you receive a salary or dividends from your company on a regular basis, these sums count towards your financial capacity. The idea is that this income is stable, not uncertain, even though it depends on the guaranteed company.

This decision confirms previous case law, but it has the merit of clarifying the distinction between expected income (excluded) and regular income (included). It follows a logic of protecting the guarantor, while avoiding the opposite excess that would allow a guarantor to escape too easily.

What This Means for You — Concretely

For a landlord in Mayenne who stands as guarantor for a professional property loan, this decision is crucial. If you are a director of a company and you stand as guarantor, your management fees or dividends will be taken into account to assess whether your guarantee is proportionate. For example: you guarantee €200,000, and your annual income (including that from your company) is €60,000. If your personal assets are €50,000, the total of €110,000 is less than €200,000: the guarantee could be considered disproportionate. But if your regular income from the company is €120,000 per year, the balance tips in favour of the bank.

For a tenant, this decision has less direct impact. But if you stand as guarantor for a relative, know that only your stable income and assets count. Hopes of future gains (promised pay rise, expected inheritance) are not taken into account.

For a real estate professional (agent, notary, advisor), this case law requires increased vigilance when drafting guarantee deeds. You must inform the guarantor that their regular income, even from the guaranteed company, will be taken into account. In the event of a dispute, failure to provide information could lead to liability.

If you are in this situation, you must check whether, at the time of signing the guarantee, your regular income (salary, dividends, pensions) and assets were sufficient to cover the commitment. If not, you can invoke disproportionality. Note: this ground must be raised within five years of signing (limitation period).

Four Tips to Avoid This Type of Dispute

• Make a precise statement of your assets and income before signing a guarantee. List all your property, bank accounts, investments, and regular income (including from your company if you are a director). A simple table may suffice.
• Never accept a guarantee whose amount manifestly exceeds your stable financial capacity. A rule of thumb: the commitment should not exceed half of your net assets, unless your income is very high.
• Require a pre-contractual information document from the bank. The bank must provide you with a standardised information sheet (Article L. 331-2 of the Consumer Code) before signing. Keep it safe.
• Consult a lawyer before signing any significant guarantee. An outside legal eye can detect unfair terms or obvious disproportionality. In Saint-Berthevin as elsewhere, prior advice can avoid years of proceedings.

Further Reading: Related Case Law and Developments

This decision is part of a line of judgments protecting the guarantor. For example, in a judgment of 8 November 2017 (n° 16-18.677), the Court of Cassation had already ruled that expected income should not be taken into account. But it also specified that certain future income (such as a salary guaranteed by a permanent contract) could be included. The 2018 decision refines this position: only income already received on a regular basis before the commitment is taken into account.

Conversely, the Court of Justice of the European Union, in a consumer credit case, held that expected income could be taken into account if its realisation was sufficiently certain (CJEU, 11 September 2019, C-383/18). However, this case law does not apply to guarantees, which remain governed by French law.

The trend of French courts is therefore clear: they want to prevent banks from relying on hypothetical income to validate excessive guarantees. But they also do not want to allow guarantors to evade their obligations by arguing that their income, although regular, comes from the guaranteed company. A subtle but protective balance.

What You Absolutely Must Remember

FAQ:

1. Can I challenge my guarantee if my income comes solely from the guaranteed company?
Yes, but only if this income was not regular at the date of signing. If it was regular, it counts in the proportionality assessment.

2. What should I do if the bank demands payment under a disproportionate guarantee?
You must bring the matter before the judicial court within five years of signing the deed. Invoke Article L. 332-1 of the Consumer Code. Gather all evidence of your assets and income at the time of subscription.

3. Is my spouse's income taken into account?
No, unless you are married under a community property regime and the guarantee is signed by both spouses. Each guarantor is assessed individually.

4. What is the time limit to act?
The limitation period is five years from the date of signing the guarantee (Article 2224 of the Civil Code). After this period, you can no longer invoke disproportionality.

5. Can I get help from a lawyer?
Yes, this is strongly recommended. A lawyer specialising in property or banking law can assess your chances and assist you in the proceedings.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) could save you months of proceedings — and often much more. Book an appointment →