The Madrid Provincial Court applied the doctrine of the Supreme Court judgment of April 30, 2014, no. 100/20148, and declared the rescission of a personal guarantee granted by the insolvent company to secure the loan granted by a credit institution to a related company. The court of appeal, following the Supreme Court’s doctrine, declared the onerous nature of the contextual guarantee, but rescinded the personal guarantee because the damage had been proved, as there was no record of the insolvent guarantor having received any  direct or indirect remuneration as a result of the grant of the personal guarantee.

The insolvency administration brought an action for the rescission of a personal guarantee constituted by the insolvent company to secure the loan granted by a credit institution to a related company. The commercial court’s judgment had dismissed the rescission action. The court of appeal upheld the remedy of appeal and confirmed the rescission of the personal guarantee. In short, the court of appeal concluded as follows:

  • Personal guarantees are acts of disposal for the effects of the insolvency rescission.
  • The Supreme Court judgment of April 30, 2014, ended the controversy regarding the classification of contextual guarantees for third-party debt as free or onerous, stating that “unless proven otherwise, the constitution of the coetaneous or contextual guarantee with the creation of the secured credit will be considered to correspond with the grant of the latter, and therefore onerous, since the creditor grants the credit based on the guarantee, i.e., for its credit, it receives the debtor’s promise of payment and the third party’s guarantee.”
  • That the guarantee in favor of a third party is onerous does not exclude the existence of damage. To decide whether there has been any unjustified sacrifice of the guarantor’s assets, we should examine whether there has been any attribution or benefit to the guarantor’s assets that reasonably justifies the provision of the guarantee

Following this, the court of appeal confirmed that the damage was proved when it was not recorded that the insolvent guarantor had received remuneration, whether direct or indirect, as a result of the grant of the personal guarantee. The relationship between the company guarantor and the borrower, without even stating that they form a group of companies, did not allow the declaration —based on this relationship— of this remuneration or benefit, even if indirect, excluding damage from the constitution of the guarantee. As a result, the court of appeal declared the inefficacy of the joint and several guarantee granted by the insolvent company in favor of a related company.

On the same date, the Madrid Provincial Court decided on a similar case (judgment no. 232/2014) concerning the rescission of a guarantee for third-party debt. In this case, the insolvent company had granted a mortgage over a property it owned to secure payment by several related companies of the fees accrued for a law firm’s professional services. The court of appeal considered it questionable that this was a contextual guarantee, as the mortgage had been granted to secure the payment of these professional services when many of them had already been provided. Even admitting that, although the guarantee was not entirely for pre-existing debt, its constitution could be classified as onerous; the damage was obvious because the law firm has not provided its services to the insolvent company, but to other companies and legal entities. As a result, the court of appeal dismissed the remedy of appeal and confirmed the commercial court judgment, which had rescinded the mortgage, declaring the inefficacy of this act and excluding the law firm beneficiary of the guarantee from the list of creditors.