Surety is a popular form of securing repayment of loans or loans, often used between family members or friends. However, not everyone who decides to become a guarantor is fully aware of how their responsibility is shaped. Below I will try to introduce You to important issues related to granting a surety.
What is a surety?
A surety is an agreement on the basis of which a guarantor (giving a surety) undertakes to a creditor (eg a bank) to perform an obligation in the event that the debtor (eg the borrower) fails to perform his obligation. It is a bilateral agreement concluded between the creditor and the guarantor without the participation of the debtor. The guarantor should submit his statement on granting a surety in writing. Verbal statement of the guarantor will be invalid. This regime does not apply to the creditor, his statement may be made even implicitly, eg by the adoption of a document containing a statement from the guarantor. In order for the guarantee contract to be valid, the debtor’s consent is not necessary because he is not a party to that contract.
The guarantee is so-called personal security of receivables. This means that the guarantor, in the case of non-payment of debt by the debtor, is personally liable with all his assets.
The surety is of an ancillary nature, i.e. it is closely related to the obligation that it secures. If the debt is repaid or remitted, the surety will expire. If the obligation incurred by the debtor was invalid, the surety granted will also be null and void. The only exception is when the obligation was incurred by a person who could not do so effectively due to lack of legal capacity. Then the guarantor should perform the obligation as the main debtor, if he knew or could easily find out at the time when the guarantee was lacking.
In practice, the surety is most often used to secure the monetary claims of banks and other financial institutions. The guarantor’s obligation is to pay the debtor’s financial obligations (for example, repayment of the loan or loan) in the event that the borrower or the borrower has not repaid him in accordance with the contract he concluded with the bank.
What can you vouch for?
A surety can be granted for each type of commitment. The Civil Code does not provide for any restrictions on the type of claims that may be secured in such a way.
The guarantor may vouch for all or part of the loan or loan. If the surety for the part should indicate in the content of his statement, for which the part of the guarantee eg for a given tranche or loan installment. By granting a surety, the guarantor may also limit his liability by indicating the amount to which he will be liable. If the creditor is paid that amount, his surety will expire even if the loan or loan in the remaining part has not been repaid.
The surety can be timely or indefinite. The surety is timely when the guarantor clearly states the date by which it will be valid. The surety is indefinite when the guarantor did not indicate the date in his statement. In this case, the surety for the repayment of the loan or loan is valid until it is fully repaid.
The surety can be granted for existing or future debt. The future debt is such a debt that does not exist yet when the surety is granted, for example a surety for a loan or loan not yet granted. In the case of a future debt surety, the surety becomes effective at the moment the liability arises, which secures, for example, when the loan is granted. Surety for future debt is only valid if before the emergence of this debt, it predicted the amount to which the guarantor would respond. In addition, when the surety for future debt is indefinite, it may be revoked at any time before the debt arises. The effectiveness of the appeal is not dependent on the consent of the creditor (bank).
What is the scope of the guarantor’s liability?
If the guarantor and the bank granting the loan or the loan did not agree otherwise, the extent of the guarantor’s liability results from the obligation of the borrower or the borrower. In other words, the guarantor’s liability is determined by the amount of the loan or loan guaranteed by a surety. This amount may change because the guarantor may be responsible eg for interest due to delayed repayment of the loan, costs necessary to secure or recover the loan by the bank.
The repayment of part of the loan or loan results in a limitation of the guarantor’s liability. In order to avoid the danger of paying a much higher sum than the sum of the loan or loan, it is worth to include in the surety agreement the amount to which the surety was granted (eg “I guarantee up to PLN 10,000”).
If the debtor and the creditor (bank) change the content of the loan or loan agreement in such a way that they increase the debt amount or the interest rate, the guarantor should agree to such changes because they are disadvantageous to him because they increase his liability. The lack of the guarantor’s consent results in the fact that the guarantor responds as before, ie without taking these changes into account.
The exception to this rule is the situation when the surety was granted for the so-called revolving loan, which consists in the fact that it renews itself after each payment. The conclusion by the debtor and the bank of subsequent annexes to the revolving credit agreement, consisting only in the fact that the duration of the contract is extended, without changing the terms of the loan does not require the consent of the guarantor. The same loan agreement and guarantor are responsible for the repayment of the loan, whose validity has been extended for the next period.
After the payment of the debt, the guarantor is entitled to a recourse claim.
The guarantor who repaid the loan or loan is entitled to recourse claim against the borrower or the borrower. As the lawyers say, the guarantor then enters the right of a satisfied creditor (bank), that is, he becomes a new creditor for the debtor and may demand that he return the money paid to repay the loan or loan. In such a situation, in order to enable the guarantor to recover such money from the debtor, the bank should issue, upon the guarantor’s request, all documents related to the surety granted.
The guarantor must also remember to immediately notify the debtor that he has paid off the loan or loan for him. If he did not, and the debtor paid off the debt in the bank, he would not be able to demand reimbursement of what he had paid to the bank, unless the debtor, paying off the debt, knew that he had previously made the surety.
What else is worth remembering when granting a surety?
Being a guarantor should be saved in the agreement guarantee that the loan repayment or loan guarantor is responsible only when the execution to the borrower if the borrower was ineffective. According to art. 881 of the Civil Code, if there is no such objection, the guarantor is liable to the bank as a jointly and severally liable debtor. This means that at the moment when the loan or loan became due, the bank, according to its own, may demand the payment of all or part of the debt from the borrower / borrower or from the guarantor.
When granting a surety for a loan or a loan, also stipulate in the guarantee contract the obligation and manner of notification by the bank of any delay or delay in repayment of the debt for which the surety was granted. Then the guarantor will not have to check whether the debtor regularly repays the loan or loan. In accordance with the Banking Law, the bank is obliged to immediately notify, in a manner specified in the contract, persons who are debtors for the collateral of the loan, if the borrower delays its repayment. This obligation should also be properly applied to bank loans granted by the bank. In the event that the bank fails to notify the guarantor about the delay in repayment of the loan or loan, it is liable for damages if the guarantor suffered damage as a result of the lack of such information.
If you have provided a surety for repayment of a loan or loan, please also remember that it will adversely affect your credit rating when you apply for a loan or loan from the bank. Your data as a guarantor is transferred to the Credit Information Bureau (BIK). In addition, if you fail to perform a guarantee obligation, you can be entered / entered into the bank’s debtor register.
In order to pursue claims against the guarantor, the bank may issue a bank enforcement order, which significantly facilitates the initiation of enforcement. More information on this topic can be found here: “Bank enforcement title – how does it work?”
Surety and the matrimonial property regime.
If there is a property separation system between the spouses, each of the spouses manages its property independently and can independently conclude a surety agreement without the participation of the other spouse. Due to the granted guarantee, he is then solely responsible for his personal property.
If the spouses are in the system of joint property and one spouse independently, without the consent of the other, has entered into a surety agreement, the creditor may demand satisfaction only from the personal property of the guarantor and from his remuneration for work or income derived from other gainful activities, as well as from the benefits obtained from rights to copyrights and related rights, industrial property rights and other rights of the creator, and when the surety was granted in the scope of running the enterprise, also from the assets that are part of this enterprise.
When the spouse has entered into a surety agreement with the consent of the other spouse, the creditor may demand satisfaction from the property of the joint spouses. The spouse who agrees to grant a guarantee does not reply with his personal property. The answer to the question of what constitutes the personal spouse’s property can be found here: “Taking out a loan or a loan without the consent of the spouse”.
In a situation where the spouses granted a guarantee together, they are liable to the creditor (bank) with their personal property and common property.
Surety and bankruptcy or death of the debtor.
The declaration of liquidation of the debtor does not result in the expiration of his credit obligations. What is more, as of the day when the bankruptcy is declared, the debtor’s monetary obligations, which have not yet come to an agreed date, become payable, which means that the bank may demand their payment.
In view of the fact that the declaration of liquidation of the debtor does not lead to the expiration of its credit obligations, the surety granted remains in force and the bank may assert debt from the guarantor. When the guarantor of the bankrupt debtor pays the bank debt, he can claim a recourse claim from the bankrupt. His receivables in this respect are placed on the list of claims in the bankruptcy proceedings in the amount in which he paid the bank.
The exception to the rule that the declaration of liquidation of the debtor does not result in the expiry of the credit claim is the situation when before the day of its announcement the bank did not pay the debtor money under a loan or loan agreement. Then contracts of this type expire. If they were secured by a surety, the guarantor’s liability will also expire.
The death of the debtor (the borrower or the borrower) does not release the guarantor from the liability for repayment of the loan or loan. The guarantor is responsible for their repayment together with the heirs of the deceased debtor. However, the guarantor can not rely on the limitation of the heir’s liability provided for in inheritance law.