| ผู้เขียน | Wirot Poonsuwan |
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Personal Guarantees Tightening Around Creditors
A recent Supreme Court Decision ruled in favor of an individual guarantor against a car hire-purchase company creditor. The high court found that a custom-made contract called “joint obligor contract” the company required the guarantor to sign to be accountable jointly with the purchaser, instead of a typical personal guarantee to secure payments of the rent by the purchaser, was in fact a personal guarantee in disguise in violation of the new guarantee law and therefore was void in its entirety. Consequently, the guarantor could not be held liable towards the company.
FIRST DEMAND TO DEBTOR, NOT TO GUARANTOR
The violation occurred as the contract’s purpose was expressly prohibited by law and ran against public order and good morals of the people of Thailand, an equivalent of public policy in a common law country. Specifically, the court established that the contract failed to abide by the new guarantee law that prohibits an individual guarantor from being liable as a joint obligor. Unlike the purchaser, the guarantor is a second-class debtor and cannot accept legal responsibility as a primary obligor facing a first demand from the creditor.
COMPANY INTRODUCED NOVEL AGREEMENT
In siding with the guarantor, the Supreme Court contemplated the status of the company as an operator of the hire-purchase business, who inherently must have been aware that the guarantee law had been amended to ban a guarantee from transforming the guarantor into a joint and primary obligor in order to protect the guarantor as a consumer vulnerable to be taken advantage of by those in the industry. The court called out the company for not making a straightforward guarantee in observance of the intent of the new law. Instead, the hire-purchase company has chosen to evade the law by exploiting its superior bargaining power and legal knowledge and arranging for the guarantor to enter into the joint obligor contract pre-drafted by the company as its standard form, in place of a guarantee contract.
INNOVATIVE CONTRACT FAILED TO ESCAPE FROM GUARANTEE
Despite zigzagging around a guarantee in a maze of creative joint obligor contract, the company did not succeed in persuading the court to uphold the elusive contract as the court said the joint obligor contract was characteristic of a guarantee and in fact was designed to serve as a guarantee. The contract offered benefits only to the company and the purchaser and nothing was beneficial to the guarantor. The court concluded that such a contract was an agreement by a third party to bind itself as a surety accepting legal obligation to pay the debt held by the purchaser. And not only that, the joint obligor contract contains provisions spelling out an agreement by the guarantor to be bound as a joint primary obligor, to consent in advance to any extension of time the company might grant to the purchaser. The contract also egregiously provides for the guarantor to continue to be fully responsible for the whole amount of the debt in cases where the company has completely forgiven the debt and released the purchaser from any liability or has given the purchaser a mere haircut to reduce the amount. As per the court, these provisions are all expressly addressed in the new guarantee law, but the company insisted on making the contract to have the guarantor shoulder more accountability and more burden than the law stipulates.
CUSTOMARY PRACTICE IN CAR HIRE-PURCHASE INDUSTRY
Factored into the Supreme Court’s interpretation of the joint obligor contract as a guarantee was a customary practice within the car hire-purchase industry that always requires a personal guarantee to accompany a hire-purchase contract to ensure complete repayment to the creditor. Notably, the avoidance of the law by the company was also singled out in the strongly worded opinion of the court as an act of bad faith with no regard to appropriate trade standards within a fair business system governed by another law on consumer case procedure.
NO SEGREGATION OF VALID CLAUSES FROM THE VOID
In its effort to find little something of value, the highest court ran through all the clauses in the joint obligor contract and opined that there were no single provisions that could be described as valid and enforceable separate from the voidness of the contract and finally declared the contract to be void in its entirety, referring to the Civil and Commercial Code which states that any act with a purpose in blatant violation of the law or with a purpose contrary to public order and good morals of the people of Thailand is void. The hire-purchase company, who was the plaintiff in the case, had no entitlement to claim any right from the joint obligor contract. The company did not have the power to sue the guarantor. The guarantor was not liable jointly with the purchaser in any way. (Supreme Court Decision No. 8425/2563 (2020).)
