Concept and Legal Basis of Suretyship
Suretyship is a contract under which a guarantor, for compensation or free of charge, undertakes to be liable to the creditor of another person if that person, for whom the suretyship is provided, fails to fulfill all or part of their obligation. Suretyship arises from the conclusion of a suretyship agreement or on the basis of law or a court decision. Suretyship may secure both existing and future obligations. It may also secure only part of the principal obligation. It is not allowed to guarantee an amount greater than the debtor’s actual debt. Suretyship cannot be otherwise restricted. If the amount of suretyship exceeds the debt, it must be reduced to the amount of the debt. Suretyship is an ancillary (secondary) obligation. When the principal obligation ends or is declared invalid, the suretyship also terminates.
A suretyship agreement must be made in writing. Failure to comply with the written form renders the agreement invalid.
If the obligation is not fulfilled, the debtor and the guarantor are jointly and severally liable to the creditor, unless otherwise provided by the suretyship agreement. The guarantor is liable to the same extent as the debtor (for the payment of interest, compensation of losses, and payment of penalties), unless otherwise stipulated in the suretyship agreement. Persons who have provided joint suretyship are jointly liable to the creditor, unless otherwise stated in the agreement.
Guarantor’s Liability to the Creditor
If the creditor brings a claim against the guarantor, the guarantor must involve the debtor in the proceedings. The guarantor has the right to raise all defenses against the creditor’s claim that the debtor could have raised. Even if the debtor waives their right to defend or acknowledges the obligation, the guarantor retains the right to defend. The guarantor may also exercise all other rights available to the debtor (challenging the debt, offsetting, suspending performance of the obligation, etc.), except for those rights that are strictly personal to the debtor.
A guarantor who fulfills the obligation acquires all the creditor’s rights related to that obligation. Each of several guarantors has the right to claim reimbursement from the debtor for the amount they paid. When the guarantor fulfills the obligation, the creditor must transfer to the guarantor the documents confirming the claim against the debtor and the rights securing that claim. If the guarantor does not notify the principal debtor about fulfilling the obligation, and the debtor — unaware of this — fulfills it again, the guarantor loses the right of recourse against the debtor.
The suretyship terminates simultaneously with the obligation it secures. Suretyship also terminates upon the death of the guarantor. When the debtor and guarantor become the same person, the suretyship remains valid if the creditor has an interest in its continuation. Suretyship terminates if the obligation changes substantially and, without the guarantor’s consent, this increases their liability or creates other adverse consequences, unless otherwise provided in the suretyship agreement. Suretyship also ends when the obligation is transferred to another person and the guarantor did not agree to guarantee the new debtor. It also terminates if the creditor unjustifiably refuses to accept proper fulfillment of the obligation offered by the debtor or guarantor.