Circumstances Leading to the Discharge of a Guarantor

Circumstances Leading to the Discharge of a Guarantor

Upon the conclusion of a guarantee contract, the guarantor becomes liable to the creditor, and this liability serves as security for the creditor. However, the guarantor may be released from this responsibility for various reasons. Any circumstances that result in the extinction of the principal debtor’s obligation also affect the guarantor’s obligation. Moreover, due to the ancillary nature of the guarantor’s undertaking, there are situations in which the debt remains on the principal debtor’s account while the guarantor’s liability is extinguished.

Challenges in Proving the Discharge of a Guarantor Before Judicial Authorities

In light of these characteristics, the principal situations that lead to the discharge of a guarantor are examined below.

• Discharge of the Principal Debtor Through Performance of the Obligation: When the debt is paid by the debtor to the creditor, the debtor’s obligation is extinguished and the purpose of the contract of guarantee comes to an end. Accordingly, payment of the debt, as well as any act deemed equivalent to payment or performance of the obligation, results in the discharge of the guarantor.
• Release of the Principal Debtor by the Creditor: When the creditor releases the principal debtor from liability, the guarantor, whose obligation is ancillary in nature, is also discharged. Likewise, where the creditor and the debtor replace the original obligation with a new one, the former obligation is extinguished. In such cases, the guarantor is also released unless the contract expressly stipulates that the guarantor shall not be discharged, as provided under Article 293 of the Civil Code.
• Discharge of the Guarantor Due to Breach of Contract by the Creditor: If the creditor breaches the underlying contract that forms the basis of the guarantee, the principal debtor, as a party to that contract, is released from liability. Consequently, the guarantor should no longer bear responsibility toward the creditor under a contract that has been breached by the creditor.
• Refusal of the Creditor to Accept Payment From the Guarantor: Pursuant to Article 409 of the Commercial Code, upon the debt becoming due, the guarantor may compel the creditor to accept payment, even if the guarantee was originally subject to a deferred term. Article 410 of the Commercial Code further provides that the creditor’s refusal to accept payment constitutes immediate and automatic grounds for the discharge of the guarantor.
• Refusal of the Creditor to Deliver the Securities of the Debt: Although the guarantor’s undertaking may be intended as assistance to the principal debtor, it is not gratuitous. The contract of guarantee is a commutative contract. Upon payment of the debt, the guarantor becomes subrogated to the rights of the creditor and must be able to effectively recover the amount paid from the principal debtor. Delivery of the securities securing the debt to the guarantor is an essential condition for enabling such subrogation. If the creditor refuses to deliver the security to the guarantor, the guarantor’s right of subrogation is jeopardized. For this reason, Article 410 of the Commercial Code provides that, where the debt is secured, the creditor’s refusal to deliver the security to the guarantor results in the immediate discharge of the guarantor.
• The Guarantor’s Rights in Respect of the Securities of the Debt: Upon payment of the debt, the guarantor benefits from the right of subrogation to the creditor. This subrogation includes the right to make use of the securities securing the debt that belong to the principal debtor. Accordingly, after payment, the guarantor is entitled to take possession of such securities in order to preserve priority in recovering the claim over other creditors of the principal debtor. Article 411 of the Commercial Code fully recognizes the guarantor’s rights with respect to the securities of the debt.

Frequently Asked Questions About the Discharge of a Guarantor