The Bank that continues to grant credit to the debtor, guaranteed by a general guarantee agreement, without involving the guarantor on the matter, notwithstanding the existence of unpaid cheques and the gradual worsening of the debtor’s financial situation, could breach correctness and bona-fide’s obligations in the execution of the general guarantee agreement.
This important principle, pertaining to general guarantee agreements, was ruled by the Court of Milan in a decision issued on June 4, 2013. The Court released the guarantor, assisted by Scarpellini Naj Oleari & Partners, from its guarantee obligations because of the behaviour of the Bank that breached clause 1956 Italian Civil Code.
The Court of Milan released the guarantor for two reasons: the first, the Bank omitted to ask the guarantor for special authorization requested by clause 1956 Italian Civil Code, and, secondly, the Bank didn’t use diligence which resulted from their knowledge about the worsening of the client’s financial situation. As a matter of fact, the Bank has the professional skills, opportunities and means to verify their client’s financial position (see Supreme Court decision n. 11772/2002). Therefore, according to the Court’s opinion, it is assumed that banks should be aware of the existence of unpaid cheques.
The abovementioned Court of Milan’s decision conforms to the Supreme Court’s jurisprudence. The Supreme Court has clarified that the creditor guaranteed by a general guarantee should comply with the general duties of correctness and good faith in the execution of the agreement, according to clauses 1175 and 1375 Italian Civil Code. Subsequently, a creditor –even more so if it is a bank – can’t grant further credit, ignoring the most elementary rules of prudence and precautions to reduce the risk of insolvency of the debtor (Supreme Court decision n. 8995/2003).
With reference to the opening of current-account credit facilities, in case the debtor’s patrimonial conditions significantly worsen to those known at the time of opening the account, putting the debtor at risk of insolvency, the bank should use self-help tools that allow them to stop further credit concessions. In particular, the bank, in accordance with their obligations of correctness and good faith, that result in a duty of solidarity and protection of the other party, has to use these tools if it doesn’t want to lose its guarantee (Supreme Court decision n. 21730/2010; Supreme Court decision n. 10448/1994; Supreme Court decision n. 3003/1994).
The courts have repeatedly reiterated this principle, even if the overdraft does not exceed the credit lines, as this cannot lessen correctness and good faith obligations imposed on a bank under clause 1956 Italian Civil Code (Supreme Court decision n. 5872/1999).
The Bank argued that the guarantor knew or could have known the debtor’s financial situation, as a limited partner and attorney in fact of the company that went bankrupt. According to the judge, however, that fact could not prove anything since the guarantor was a limited partner and therefore had no opportunity to intervene in the management of the company, or have access to records and accounting books, thus precluding the possibility of checking the company’s progress.
Furthermore, the judge held that the Bank had not been able to prove any operation, deal, or act performed by the guarantor as attorney of the company and, therefore, to demonstrate a privileged knowledge by the latter about the economic and financial progress of the company.
Recently, the Court of Milan, in its decision dated 25 October 2012, ruled that guarantor’s title as a limited partner of the company was insufficient to prove the guarantor’s awarness of the debtor’s financial situation. Even in that case, the payment injunction obtained by the bank was revoked and the guarantor released (Court of Milan, decision issued on October, 25, 2012).
