Surety (borgtocht) in the Netherlands
The Dutch Civil Code (Burgerlijk Wetboek) describes suretyship (borgtocht) as an agreement in which a third party undertakes towards a contractual creditor to perform the contractual obligations of a debtor. Such a suretyship agreement is entered into between the surety and the creditor. The debtor of the secured obligation is not required to be a party to such an agreement. It is even thinkable that such a surety agreement is entered into without the knowledge or consent of the debtor.
Article 7:850 of the Dutch Civil Code states the following:
1. A surety agreement is an agreement under which one of the parties ("the surety") has engaged himself towards the other party ("the creditor") to perform an obligation which a third party ("the principal debtor") is or will be due to the creditor.
2. For the validity of a surety agreement it is not required that the principal debtor is aware of the existence of the involved suretyship.
3. The statutory provisions for joint and several obligations apply to a surety agreement as far as the provisions of the present Title do not derogate from them.
Regarding the nature of the obligation secured with a suretyship agreement under Dutch law, article 7:854 of the Dutch Civil Code provides:
Where the object of the secured obligation of the principal debtor is another performance than the payment of a sum of money, the surety agreement is regarded to be entered into as security for the creditor's debt-claim for damages in money, indebted by the principal debtor when he has not performed his principal obligation to the creditor, unless the surety agreement explicitly provides otherwise.
Liability of the surety under Dutch law
In case the secured obligation can only be performed by the debtor, the surety may be liable for the damages caused by the breach of that obligation by the debtor.
It is not required under Dutch law that there should be a consideration in order for a suretyship agreement to be valid. Under Dutch law the surety is liable only if the debtor fails to perform his own obligations. Article 7:855 of the Dutch Civil Code provides:
1. The surety is not obliged to perform his surety obligation prior to the moment that the principal debtor has failed to comply with his obligation towards the creditor.
2. The creditor who, in accordance with article 6:82 of the Civil Code, has given formal notice to the principal debtor that he demands performance, must at the same time inform the surety about this.
Surety obligations under Dutch law are accessory
The obligations under a suretyship agreement under Dutch law are accessory.
Therefore, the suretyship is dependent upon the existence of the underlying secured obligation of the debtor. So, if the underlying obligation is void, rescinded, set aside, performed, or has expired under a statute of limitations, the surety is released from his suretyship.
The surety may raise all defences against the creditor which the original debtor has, to the extent that such defences have any bearing to the existence, contents or time of performance of the obligations of the original debtor. Article 7:852 of the Dutch Civil Code provides in this regard:
1. The defences which the principal debtor can invoke against the creditor, can also be invoked by the surety against the creditor if they relate to the existence, the content or the time of performance of the obligation of the principal debtor.
2. If the principal debtor is entitled to nullify a voidable legal act, from which the secured obligation has arisen, and he has been subjected by the surety or creditor to a reasonable period within which he must exercise this right of nullification, then during this period the surety is entitled towards the creditor to suspend the performance of his surety obligation.
3. As long as the principal debtor rightfully suspends the performance of his obligation towards the creditor, the surety may also suspend the performance of his surety obligation.
How does suretyship under Dutch law compare to an English-law guarantee?
Under English law, a "guarantee" is a secondary and accessory obligation by a third party to pay a creditor if the principal debtor defaults. This broadly resembles Dutch suretyship, though the legal frameworks that govern each differ considerably.
Under English law, a guarantee is a three-party arrangement. The surety either undertakes to discharge the principal debtor's debt when the debtor fails to do so, or commits to "seeing to it" that the debtor performs, with the consequence that the surety becomes liable in damages if the debtor does not. The Statute of Frauds 1677 requires that such a guarantee be made in writing.
Dutch suretyship and an English guarantee share the feature of accessority: in both systems, the surety's obligation depends on the continued existence of the underlying debt. However, Dutch law codifies this accessory character explicitly in the Civil Code, whereas English law derives it primarily from case law and general principles of contract. Moreover, English law draws a further distinction between a guarantee and an indemnity, a separation that has no direct equivalent in Dutch statutory law.
In international commercial contracts governed by English law, the label "guarantee" therefore does not automatically carry the same meaning as the Dutch term borgtocht. Dutch legal doctrine holds that practitioners entering into cross-border security arrangements must consider which law governs the instrument and how each legal system characterises the obligation in question. Consulting a Dutch lawyer is advisable when the governing law or the nature of the security obligation is in doubt.
What is the difference between a warranty and an indemnity in the Netherlands?
In international contracts, a warranty covers unknown risks that existed at the time of contracting, while an indemnity addresses specific, foreseeable events. Dutch practice increasingly imports these English-law concepts, particularly in share purchase agreements.
A warranty, in the English-law sense used in many international transactions, is a contractual statement about the state of affairs at the time a contract is concluded. Breach of a warranty, in principle, gives rise only to a claim for damages, not to a right to terminate the contract. This contrasts with a "condition" under English law, which is so fundamental that even a minor breach entitles the innocent party to treat the contract as terminated.
An indemnity operates differently. It is a contractual protection against a defined, foreseeable risk. The seller of shares in a company, for example, may give the buyer an indemnity against a specific tax liability that both parties know may crystallise after completion. Because an indemnity responds to an identified event rather than an unknown state of affairs, courts in the Netherlands and under English law treat it as a more targeted instrument than a warranty.
The legal consequences of an indemnity depend on whether it qualifies as a "claim in debt" or a "damages claim." A claim in debt arises when the contract fixes a sufficiently determinable sum, and the creditor need only prove that the specified event occurred. Crucially, rules on remoteness of damage and the duty to limit loss do not apply to a claim in debt. A damages claim, by contrast, requires proof of actual loss and is subject to those limiting principles. Leading Dutch commentators take the view that it is therefore preferable to frame an indemnity as a "promise to pay" a determinable amount rather than as a promise to "hold harmless," since the latter formulation may be interpreted as a damages obligation rather than a debt obligation.
Assignment of secured obligation under Dutch contract law
If the creditor assigns the secured obligation, his rights under the suretyship agreement are automatically also transferred to the assignee.
How do notification obligations affect guarantee claims in the Netherlands?
Under Dutch law, a buyer who discovers a breach of warranty or guarantee must notify the seller within a reasonable time. Failure to do so can reduce the damages recoverable or, if the contract so stipulates, forfeit the claim entirely.
Article 7:23 of the Dutch Civil Code contains a statutory notification obligation for purchase agreements. However, parties to commercial contracts, in particular share purchase agreements, frequently exclude or modify this provision. Dutch courts have held that where Title 7.1 of the Civil Code is excluded entirely, a contractual notification clause will not automatically be read as an implementation of Article 7:23(1) of the Dutch Civil Code. To avoid ambiguity, the contract should expressly state that the agreed claim periods deviate from that article.
The consequences of late notification also require explicit drafting. Dutch case law distinguishes two outcomes. First, a late notification may reduce the seller's damages obligation to the extent that the delay caused or increased the loss, which is treated as contributory negligence under Article 6:101 of the Dutch Civil Code. Second, and more severe, a right may lapse entirely if the contract expressly provides for forfeiture. Courts in the Netherlands have confirmed that forfeiture does not follow automatically from a notification obligation; the contract must state this consequence in clear terms.
In practice, guarantee periods in Dutch acquisition contracts typically run between one and three years. Case law generally accepts that, unless otherwise agreed, a claim notified within the guarantee period is timely. However, there is also case law taking the stricter position that the buyer must still notify promptly within that period, on pain of losing the right to claim. Given this divergence, commercial parties are well advised to state in the contract whether the guarantee period is also the maximum notification window, or whether a separate shorter notification deadline applies within that period.