Supreme Court Ruling, Division for Civil Affairs, Section 1, of June 10, 2014. Ruling 296/2014, Appeal for annulment 1846/2012

In March 2008, the appellant (URZANTE, S.L.) concluded the purchase of 300 MT of olive oil with the seller (JARAOLIVA, S.L.), providing a first demand guarantee as security for payment. JARAOLIVA, who some months later entered into insolvency proceedings without having delivered the olive oil to the buyer, assigned the credit claim represented by the sales price to BANESTO, together with the bank guarantee.

As a result, URZANTE filed an action for nullity of contract against the seller and the assignee with the Court of First Instance number 2 of Coria, seeking both the invalidation of the contract for the purchase of the oil due to fraud and, secondarily, the termination of the contract with award of damages, and the physical return of the bank guarantee provided or, where appropriate, the reimbursement of the amount plus the legal interest accrued since the date when payment was made.

The Court of First Instance upheld the claims of the claimant, which led BANESTO to appeal against that Ruling in the High Court of Cáceres. This second court upheld the appeal, partially overturning the Ruling in the first instance in respect of excluding the physical return of the bank guarantee from the judgment.

The buyer disagreed with the High Court ruling and lodged an appeal with the Supreme Court, which confirmed the decision of the High Court of Cáceres, as can be seen below.

After examining the various grounds of the appeal, the Supreme Court dismissed the appeal and highlighted the autonomy and independence of a first demand guarantee with regard to the primary obligation guaranteed. The Court said that a first demand bank guarantee is not secondary or accessory to the primary obligation to the effect that the fact of the assignee handing over the bank guarantee cannot be held to be a consequence arising from the invalidation of the contract.

It is a type of security other than ordinary which is characterized by being autonomous and independent from the underlying obligation, which links the beneficiary directly to the guarantor but does not entitle the guarantor to require the beneficiary to return the bank guarantee once the latter has it in his possession.

The Court continued, highlighting that a first demand guarantee is  not a method of payment but rather a guarantee that the price will be received, and while autonomous and independent, does not place the guarantor in a situation of ignorance and powerlessness that obliges it to accept the beneficiary’s demand when it knows that the primary obligation has not been fulfilled.

Lastly, the Court established that, although the appellant has argued that the right to allege exceptio doli corresponds only to the bank issuing the guarantee, the demand for it to be physically returned is not appropriate because it is anticipating a possible claim for payment that the beneficiary of the guarantee may make to the guarantor. The issuing bank can only assert exceptio doli against the beneficiary when it is aware of the nullity of the underlying relationship due to fraud or if the case arises that, under the guarantee, payment is made to the beneficiary and a claim is filed against the principal. In such event, the appellant in the present case could oppose payment on the grounds that the issuing bank was not acting in good faith.

For all of the above, and by way of conclusion, it must be said that a first demand guarantee is, in short, a contract of personal guarantee but without the sense of being accessory that is inherent to a common guarantee, in such a way that the payment obligation assumed by the guarantor is created as a separate obligation that  is autonomous and independent from the one arising from the contract for which fulfilment is being guaranteed; with the result that the guarantor cannot raise defences unrelated to the guarantee obligation, other than exceptio doli.