In this explanatory Judgment the Court has elucidated an array of issues concerning suretyships.
One of the main purposes of this Judgment was to protect the rights of creditors against unscrupulous attempts to undermine this kind of securing arrangements (suretyship). This purpose is served, in particular, by para 37. It is devoted to the interpretation of Art 367(1) of the Civil Code, which runs that the suretyship shall be terminated in the event of a change of that obligation, entailing an increase of liability or other unfavourable consequences for the surety, without the latter’s consent. The Judgment explains that this rule purports not to indemnify a surety from any liability, but to protect him from being forced to pay more than he promised to the creditor. Therefore, a change in the underlying obligation (i.e. an increase in the amount of debt, interest, change of time periods and the like) does not in and of itself terminate the suretyship – the surety should be still liable to the creditor on the initial conditions (i.e. the original amount of debt, original interest, and within the original time periods).
This explanation consolidates the position of the Presidium of the Court enunciated in its judgment of 18 October 2011 № 6977/11. At the same time, the Plenary Session of the Court points out to the opportunity for the surety to be relieved of his obligations by way of reference to Art 367(1) of the Civil Code, if he proves that the issuance of suretyships is his professional activity, he is not an affiliated person of the debtor, and the change of the underlying obligation was so material that as a result of such change it became clearly unrealisable.
Likewise, the Court says that the fact of debtor’s obligations being subject to constant changes is not a ground for holding a bond-related suretyship to be terminated (para 42).
The interests of creditors are also served by the presumptions that in the event of limiting the liability of the surety by a certain amount a partial payment of the debtor terminates his obligation as to the unsecured part, and that in the event of there being several obligations, one of which is secured by the suretyship and others are not, the debtor’s payment (unless it is indicated otherwise) shall be taken to discharge an unsecured obligation (para 32).
Para 10 aims to minimize the number of cases when the contract of suretyship is deemed not to be concluded on the grounds of absence of essential conditions of the secured obligation in the contract. At the same time, it is pointed out that an anticipatory consent of the surety to be liable for a changed amount of an obligation should contain specific limits to such change. Absent such limits, the surety shall be liable only in accordance with the original terms of the obligation (para 16).
Among other most important explanations are the following:
- suretyship may also secure obligations which may arise in the future out of the transactions having condition precedent or condition subsequent, as well as overdue (mature) and non-contractual obligations (paras 2 and 3);
- surety who performed his obligation should enjoy the right to present a reverse claim against the debtor by way of subrogation, and not by way of recourse (para 13);
- the death of the surety does not terminate the suretyship, and his heirs shall be liable within the value of the property inherited (para 20);
- in case of competition of claims of a creditor who is pledgeholder, one the one hand, and a surety who partially performed his obligation, on the other hand, they shall be deemed to be joint pledgeholders, but the surety may not act to the detriment of the creditor (para 30);
- in the event of unscrupulous change of court jurisdiction (venue) by way of conclusion of a contract of suretyship providing for an alternative jurisdiction, which is not convenient to the debtor, a court may relegate the case in accordance with the original jurisdiction (para 6);
- reorganisation of a company, which is a surety, may not be a ground for demanding of the latter to fulfill its obligations before time (paras 19 and 22);
- creditor may not bring a suit against a surety regarding specific performance of the underlying obligation secured by him, if such obligation is not a pecuniary one, but consists, for instance, in delivery of goods; a claim against surety, as well as his own obligation, are always pecuniary (para 12).
Separate sections of the Judgment are devoted to peculiarities of application of rules on suretyship in the context of bonds and bankruptcy procedures.