Fulfillment of obligations under the loan agreement by the guarantor
If you were in situation when you have paid the debt instead of the debtor as a guarantor, and the bank requires payment of additional funds, or you do not know how to act in case of non-fulfillment of the obligation to repay the debt by the debtor - this article will be useful to you.
Surety is a form of security for the performance of an obligation. Thus, in case of non-payment of the loan, the bank may apply to the property guarantor. That is why it is important to know about the peculiarities of securing a loan agreement with a guarantee, the conditions of fulfillment of the obligation to pay the debt by the guarantor, your rights in case of fulfillment of the bank's requirements and the grounds for termination of the guarantee.

Liability of the guarantor

The scope of your obligations as a guarantor must be defined in the surety agreement and agreed with the terms of the loan agreement.

The contract may establish both joint and several liability of the guarantor. In the first case, the bank may apply to the debtor directly or immediately to the guarantor. If the guarantor has fulfilled the obligations under the loan agreement, he has the right to apply to the debtor in recourse.

In the second case, the creditor is obliged to apply first to the debtor, and only after non-performance of the obligation, improper performance, for example, not in full, the creditor applies to the guarantor with the relevant requirements.

In any case, the guarantor should inform the debtor about the creditor's application to him, otherwise there is a risk of adverse consequences - the debtor will have the right to raise against your claim all the objections he had against the bank's claims.

It is a mistake to think that the guarantor is only obliged to pay the amount of the debt. Liabilities may include payment of interest, penalties, damages, unless otherwise specified in the contract.

The right of recourse to the debtor

After payment of the debt, the guarantor "becomes" a creditor and acquires the right to require the previous creditor to transfer all documents confirming the debtor's obligations.

The Supreme Court in its decision of 23.10.2019 in case № 910/23070/17 stated that: recourse obligation is a reverse claim for the return of money or property, performed by one person for another or through the fault of the latter to a third party.

The right of recourse arises in the case of partial repayment of the debt. In the case of partial fulfillment of the obligation, the loan agreement is not terminated, and therefore there is no subrogation (replacement of the creditor). Instead, the guarantor has the right to apply to the debtor with a recourse claim to return the relevant part of the amount paid.

Grounds for termination of the surety agreement

1. Termination of the principal obligation, for example, if the debtor has paid the loan amount in full

In case of a changing the terms of the loan agreement in the absence of the guarantor's consent, as a result of which the amount of debt has increased, the guarantor is liable to the extent that existed before the changes. In the event of changing the terms of the main contract, as a result of which the amount of liability does not increase, the consent of the guarantor is not required.

2. During the loan repayment period, the creditor refused to accept proper execution

3. Replacement of the debtor, if the guarantor has not vouched for a new debtor

In this case, you need to read the loan agreement carefully, because it may specify the conditions of the transfer of debt to another person and the obligation of the guarantor to be responsible for any debtor.

4. In case of expiration of the guarantee period

Most often, the surety agreement is concluded for an indefinite period, because the bank is interested in fulfilling the obligation either by the debtor or the guarantor. The guarantee will be considered terminated if within 3 years from the moment when the obligation should be fulfilled, the bank does not file a lawsuit against the guarantor.

If there is no term for fulfillment of the main obligation or it is set at the time of filing the claim, the guarantee is terminated if the bank within 3 years from the date of concluding the surety agreement does not file a lawsuit against the guarantor.

If the loan agreement provides for repayment of the debt in installments, the above terms are calculated separately for each installment.

When concluding a surety agreement, you need to carefully study its terms, analyze all the risks that may arise in case of default. Instead, all responsibility can fall on your shoulders, if you formally approach to the conclusion of the contract.

If you believe that your rights as a guarantor have been violated or you have just planned to enter into a surety agreement, we advise you to contact professional lawyers of our team of the Attorneys at Law, who after careful analysis of your documents and situation, will provide professional legal assistance to protect your rights and interests.

24 FEBRUARY / 2021

By: Olha Tur

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