Delivered bank guarantee meets claim for building contractor’s security: OLG does not see any further requirement for the fulfillment of such claim
If the contractor requires the client to provide a builder's guarantee in accordance with Art. 650f BGB (German Civil Code), the claim for the provision of security shall be fulfilled by sending a guarantee instrument and its acceptance by the contractor. This also applies if the power of representation of the guarantee instrument’s signatories is not sufficiently verified.
In its decision of March 3, 2023 - 22 U 111/22, the Düsseldorf Higher Regional Court (“OLG”) recently dealt with the question of whether a bank guarantee signed by a banks’ employees and delivered only subsequently fulfills the claim for a building contractor security in accordance with Art. 650f BGB.
Requirements for the provision of a building contractor’s security pursuant to Art. 650f BGB
In the lawsuit, the plaintiff claimed, among other things, the provision of security in accordance with Art. 650f BGB in the amount of more than EUR 21,000. The defendant provided the plaintiff with the bank guarantee requested as security before the action was served.
The plaintiff held the opinion that the delivered guarantee did not result in a fulfillment of the claim pursuant to Art. 650f BGB, in particular that it was not possible to determine whether the bank’s employees had sufficient power of representation when signing the guarantee. Only after the bank’s directors had sent a confirmation of their power of attorney, the plaintiff considered the claim to the builder’s guarantee to have been fulfilled and declared the legal dispute concerning the claim to the guarantee to be settled. The defendant did not agree with the declaration of settlement.
The Düsseldorf Higher Regional Court took a different view. In its decision, the court emphasized that the claim to the building contractor’s guarantee had already been fulfilled when the bank guarantee had been sent to the plaintiff. The guarantee had been effectively issued. The law did not provide for further evidence in Art. 650f BGB. This also applies in particular if the power of representation of the guarantee instrument’s signatories is not sufficiently verified. Accordingly, no additional evidence or declarations would generally have to be provided in order to fulfill the claim to the builder's guarantee. The regional court rightly did not determine that the legal dispute had been settled and dismissed the corresponding action. The fulfillment of the claim was settled with the delivery of the guarantee. The Düsseldorf Higher Regional Court stated that, if the legal dispute is settled before it becomes pending in court, a determination of settlement – as requested by the plaintiff – is not possible.
Builder’s security-related issues
This year, the Munich Higher Regional Court also had to deal with questions arising in connection with builder’s securities. In its decision of June 19, 2023 (28 U 1119/23 Bau), the court already clarified that, despite a termination pursuant to Art. 650f (5) sentence 1 alt. 2 BGB, contractors also had a continuing claim for provision of a security against the customer in addition to their claim to remuneration.
Many thanks for contributing to the article to Olivia Joanna Kucal, research assistant in the Private Construction Law Practice Group.