Surety agreements - under Dutch law

Surety - in the Netherlands

The Dutch Civil Code describes suretyship 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.

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.