Carlos Alexandre Basílio
Lawyer at Marcos Martins Advogados
It is rare in the business environment that the signing of bilateral contracts, especially financial ones, is not conditional on the offering of guarantees, which can be the most diverse, such as surety, guarantor and mortgage, among others, provided by the debtor himself or by third parties capable of settling the entire obligation assumed.
In long-term contracts, given the continuity of the relationship, it is quite common for deals to be succeeded by various contractual amendments, the assumption of new rights and obligations, in short, the natural renewals of a long contractual relationship, whether commercial or not.
At this point it is common for the phenomenon of novation to occur, as provided for in Article 360 of the Civil Code¹, in the following cases:
I – when the debtor contracts a new debt with the creditor to extinguish and replace the previous one;
II – when a new debtor succeeds the old one, with the latter remaining in good standing with the creditor;
III – when, by virtue of a new obligation, another creditor is substituted for the old one, and the debtor settles with the latter.
The subsequent articles also state that “novation extinguishes the accessories and guarantees of the debt, whenever there is no stipulation to the contrary. However, the creditor shall not be entitled to recover the pledge, mortgage or antichresis, if the goods given as security belong to a third party who was not a party to the novation”², as well as that the novation implies the exoneration of the guarantor if done without his consent.
For this reason, when a novation of obligations occurs, the contracting parties must always pay attention to the requirements for the validity of the guarantees originally granted.
It is worth noting that there are currently two different positions in Portuguese law on the scope of guarantees in contracts. One of them defines guarantees as ancillary instruments that are necessarily linked to a specific obligation or contract. The opposite position holds that they are autonomous and independent instruments, able to be used by creditors as soon as the debtor defaults, unrelated to a specific obligation or contract.
From the perspective of the first position mentioned, the most classic and traditional of them, the extinction or novation of the main or original contract would result in the extinction of the guarantees considered accessory.
From this point of view, once the novation has taken place (whether due to the contraction of a new debt to take over the previous one, or when there is a change of creditor/debtor in the deal), the accessories and guarantees offered in the original contract would be extinguished and could not be used. Once the original contract between the parties has been novated or settled, the guarantees granted by the debtor or third party cannot be linked to subsequent deals without distinction, since they are directly and solely linked to the original obligation assumed.
In this sense, it is imperative to mention the command set out in art. 1499 of the Civil Code³:
Art. 1.499. The mortgage is extinguished:
I – by the extinction of the principal obligation.
There are some judgments from the São Paulo Court of Justice which, when dealing with this issue, endorse this view, as follows:
Considering that the mortgage exists to guarantee a principal obligation, if it can no longer be demanded, there is no basis for the guarantee to subsist;
The mortgage, although it is a real right over something else, does not exist autonomously. It is always linked and subordinated to a principal obligation⁴;
If the main obligation does not continue, the accessory mortgage guarantee is extinguished, which exists precisely to guarantee the debt, which in this case can no longer be enforced⁵.
Despite this understanding, recent positions have argued that the guarantees offered in contracts are autonomous and independent, and should not be linked to a specific contract or debt, and may be subject to enforcement by the creditor as soon as the debtor is unable to settle an obligation assumed. In other words, if the debtor owes a debt, the creditor can use the guarantee offered to pay off the existing debt.
Based on this view, novation, the assumption of new pacts and obligations, the formalization of new business frameworks, would not extinguish the guarantee offered, which could be enforced by the creditor in the event of default by the debtor.
With all due respect to the aforementioned position, we believe that guarantees offered in contracts must always comply with the criterion of subordination, and cannot be understood as autonomous and independent objects that bind the debtor (or the third party guarantor) for as long as any kind of debt with the creditor party persists.
Legislation, case law and doctrine are robust as to the characterization of the subordination of guarantees offered in contracts and the consequent extinction when there is a business novation, and the negotiating parties should always observe this provision when carrying out business, pacts or assumptions of rights and obligations subsequent to the original ones.
In any case, it is recommended that creditors and debtors always specify in their contracts and any amendments thereto, whether or not the original guarantees will be maintained, as a way of avoiding undue claims arising from poorly drafted or instrumented contracts, in order to guarantee proper protection for the assets of the parties involved.
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¹ BRAZIL. Law No. 10.406, of January 10, 2002. Art. 360. Establishes the Civil Code, DF, Jan 2002.
² BRASIL. Law No. 10.406, of January 10, 2002. Art. 364. Establishes the Civil Code, DF, Jan 2002.
³ BRASIL. Law no. 10.406, of January 10, 2002. Art. 1.499. Establishes the Civil Code, DF, Jan 2002.
⁴ TJSP; Appeal 1011870-49.2015.8.26.0309; Rapporteur: Sérgio Shimura; Judging Body: 23rd Chamber of Private Law; Jundiaí Court – 2nd Civil Court; Date of Judgment: 02/20/2018; Date of Registration: 02/20/2018.
⁵ TJSP; Appeal 1001567-67.2015.8.26.0408; Rapporteur: Heraldo de Oliveira; Judging Body: 34ª Câmara Extraordinária de Direito Privado; Foro de Ourinhos – 3ª Vara Cível; Date of Judgment: 08/30/2017; Date of Registration: 08/30/2017.
