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How to avoid payment for expired contract of guaranty?

Question: How to avoid payment for expired contract of guaranty in the following situation: “Two years ago my friend asked me to become his loan guarantor since he was planning to invest in his business modernization. I agreed and on the 20th of June 2009 signed contract of guaranty which could be concluded only after complete repayment of the loan. According to the loan agreement the debt was to be repaid until the 15th of December 2009. At first the borrower would pay timely but in October of 2009 his business failed and he did not repay a part.”

On the 10th of June 2011 a bank filed a claim to court against me (guarantor) and debtor demanding to repay the rest of the amount. Until this moment the creditor had no claims. This became an unpleasant surprise since repayment of debt under the loan in which I act as a guarantor will result in significant expenses and negatively influence on my business. It is understood that I would like to avoid such financial loses but I still haven’t figured out whether it is possible.”

Answer of Inna Lishchyna, lawyer of law firm “Pravova Dopomoga”:

“The contract of guaranty provides that debtor is obligated to repay the loan until the 15th of December 2009. Prolongation of loan repayment results in increase of guarantor’s liability which according to Section 1 of Article 559 of the Civil Code of Ukraine causes termination of contract of guaranty. Besides according to Section 4 of Article 559 of the Civil Code of Ukraine guaranty is terminated if a creditor has no demands after 6 months since the end term of main obligation fulfillment.

Thus, we have two grounds to terminate the contract of guaranty: term of loan obligation fulfillment which is specified in the contract (the 15th of December 2009) and term which started after 6 months since the day of main obligation fulfillment.

In this case I would recommend you to file a counter claim about recognition of contract of guaranty as terminated or a separate statement. It depends on jurisdiction at the location of defendant.”

Electronic version of the article is available on the magazine’s website under the link - http://statuspress.com.ua/conflict-of-interests/vzyat-na-poruki.html.

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