The Supreme Court of Ukraine equated guarantor and debtor in their obligations and rights

When becoming guarantor of your relative or friend who enters into loan agreement to buy a car, house or start a business very few think about situation in which this friend does not repay the loan in time. It is really important because Ukrainian legislation and latest judicial practice shows that guarantor has almost the same rights and responsibilities as debtor. This was confirmed by the Letter of Higher Specialized Court of Ukraine for Civil and Criminal Cases dated 16.01.2012 which in particular included decisions of the Supreme Court of Ukraine which are obligatory for application by all courts and relate to guaranty. We prepared general analysis of the issue.

Thus in Decision number 6-84cs11 of the Supreme Court of Ukraine dated 19.12.2011 the court came to conclusion that creditor can demand repayment of debt by either debtor or by each of guarantors without demanding repayment by the debtor.

Some time earlier courts (in particular the High Specialized Court of Ukraine in case which was reviewed by the Supreme Court) considered that claims of creditors to guarantors without demanding repayment from debtor had no legal ground and therefore denied the claims.

But in the abovementioned decision the Supreme Court of Ukraine pointed out to the courts that according to Article 554 of the Civil Code of Ukraine guarantors and debtor usually have solidary responsibility. And according to Section 1 of Article 543 solidary obligation of debtors entitles a creditor to demand fulfillment of obligation by either all the debtors at once or by each one separately. In this case there is no so called obligatory procedural co-participation and therefore a creditor can demand repayment from each debtor separately. Moreover in this situation we have different and independent contractual relations: between creditor and debtor which are base on loan agreement and between creditor and debtor based on contract of guaranty.

However “every cloud has a silver lining”. If guarantor is an independent party in relations with creditor he can object creditor’s demands in accordance with Section 2 of Article 55 of the Civil Code if such demands were rejected by a debtor. According to Section 1 of Article 559 of the Civil Code change of obligation without consent of guarantor which resulted in increase of his responsibility causes termination of guaranty.

Thus increase of interest rate by a creditor without consent of guarantor discharges the latter from liability for non-fulfillment or improper fulfillment of obligations by debtor (due to Decision of the Supreme Court of Ukraine № 6-67cs11).

According to Article 360-7 of the Code of Civil Procedure of Ukraine decisions of the Supreme Court of Ukraine made because of different application of law for similar relations are obligatory for state authorities and all courts. So there is hope that from now on courts will pay more attention to mentioned rights and obligations of creditor and guarantor and won’t make mutually excluding decisions in described cases.

Publication date: 30/01/2012

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