ASG Law

Tag: Principal Debtor

  • Continuing Surety Agreements: Upholding Surety’s Liability Despite Principal Debt Default

    This Supreme Court ruling clarifies the enforceability of continuing surety agreements in Philippine law. The court affirmed that a surety can be held liable for a principal debtor’s obligations, even if the surety agreement was executed before the specific debt was incurred. This means individuals who sign as sureties undertake a significant responsibility to ensure the debt is paid, regardless of the principal debtor’s actions or solvency. This case highlights the importance of understanding the breadth of a continuing surety agreement before signing.

    Surety on the Hook: Can Totanes Escape Liability for Antiquera’s Debts?

    Roberto Totanes contested his liability as a surety for Manuel Antiquera’s unpaid loans from China Banking Corporation (CBC). Totanes argued that the surety agreement was invalid because the credit line it was meant to secure never fully materialized. CBC, however, sought to enforce the surety agreement, holding Totanes jointly and severally liable for Antiquera’s debt. The central legal question was whether Totanes could be held liable as a surety under a continuing surety agreement, despite his claims that the principal obligation was not perfected.

    The Supreme Court, in resolving this issue, emphasized the validity and enforceability of **continuing surety agreements**. The court highlighted that factual findings by the trial court and affirmed by the Court of Appeals are conclusive and not reviewable, reinforcing the genuineness and due execution of the promissory notes signed by Antiquera, which established the principal contract of loan. It found that the suretyship agreement signed by Totanes was indeed a continuing one, meant to cover present and future debts of Antiquera.

    The court referenced the contract’s terms, highlighting that Totanes undertook and warranted the prompt payment of all overdrafts, promissory notes, and other obligations for which Antiquera might be indebted to CBC. Because the agreement was signed before the promissory note doesn’t negate its validity, the court explained. The court emphasized the significance of recognizing **the separate but interconnected nature of principal and accessory contracts** and explained a surety is bound to a particular obligation only when that principal obligation comes into existence, but the agreement is binding before the obligation happens.

    Comprehensive or continuing surety agreements are, in fact, quite commonplace in present day financial and commercial practice.

    The Court illustrated how these agreements enable financial institutions to enter into a series of credit transactions with a company, with the surety agreement already in place to secure these transactions, thus streamlining the process. Building on this principle, the court clarified the nature of a surety’s liability.

    As a surety, Totanes’ liability is joint and several with Antiquera. A surety’s role isn’t to guarantee the debtor’s ability to pay (solvency), but to ensure the debt itself is paid. The court reiterated that **suretyship involves the solidary binding** of the surety with the principal debtor to fulfill an obligation. The surety’s obligation is accessory to the principal debtor’s obligation but is direct, primary, and absolute, similar to that of a regular party involved in the undertaking.

    In essence, the surety becomes liable for the debt even without a direct interest in the obligations created by the principal obligor. The Supreme Court ultimately denied Totanes’ petition, affirming the Court of Appeals’ decision that held him liable for Antiquera’s debt. The ruling reinforces the principle that those who voluntarily enter into surety agreements, particularly continuing ones, must understand and accept the full extent of their obligations, as they can be held liable for the debts of others, even if those debts arise after the agreement is signed.

    FAQs

    What is a continuing surety agreement? It’s an agreement where a surety guarantees payment for a series of debts or obligations a principal debtor may incur in the future. This type of agreement isn’t limited to a single transaction.
    Can a surety be held liable even if the principal debt wasn’t perfected? The court found the principal debt was perfected by the promissory notes. However, in general, a surety is bound when the principal obligation exists, but the surety agreement itself can be valid even before the debt is incurred.
    What does it mean for a surety to be jointly and severally liable? It means the surety is responsible for the entire debt alongside the principal debtor. The creditor can demand full payment from either the principal debtor or the surety.
    Does a surety guarantee the solvency of the debtor? No, a surety does not guarantee that the debtor will be able to pay. The surety guarantees that the debt itself will be paid, regardless of the debtor’s financial situation.
    What was the main argument of Roberto Totanes in this case? Totanes argued that the surety agreement wasn’t perfected because the credit line it was supposed to secure didn’t materialize. He claimed he shouldn’t be held liable for Antiquera’s debts.
    How did the Court use previous decisions to justify its decision? The Court cited existing jurisprudence to support the validity and enforceability of continuing surety agreements. This reinforces the importance of these agreements in financial and commercial practice.
    What should someone consider before signing a surety agreement? One should carefully consider the extent of the obligations they are undertaking. They should fully understand that they are liable for the debt if the principal debtor defaults.
    Is a surety agreement the same as a guaranty agreement? No, they are different. A surety is primarily liable with the principal debtor, while a guarantor is only liable if the principal debtor cannot pay.

    The Supreme Court’s decision in this case serves as a crucial reminder of the implications of surety agreements. Individuals contemplating entering into such agreements should seek independent legal advice to ensure they fully grasp the extent of their responsibilities and potential liabilities.

    For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: Roberto Totanes v. China Banking Corporation, G.R. No. 179880, January 19, 2009

  • Surety Still Liable: Insolvency of Principal Debtor Doesn’t Extinguish Surety’s Obligations

    In Gateway Electronics Corporation v. Asianbank Corporation, the Supreme Court ruled that the insolvency of a principal debtor (Gateway) does not automatically release the surety (Geronimo) from their obligations. While the insolvency proceedings stayed the collection suit against Gateway itself, Geronimo, as surety, remained independently liable for the debt. This means creditors can still pursue claims against sureties even if the primary debtor is bankrupt, highlighting the importance of understanding the full scope of obligations undertaken in surety agreements.

    When Debtors Fail: Does Insolvency Absolve the Surety, Too?

    Gateway Electronics Corporation faced financial difficulties, leading to a debt owed to Asianbank Corporation. To secure the debt, Geronimo B. delos Reyes, Jr., acted as a surety. Eventually, Gateway was declared insolvent, and the question arose: could Asianbank still recover the debt from Geronimo, or did Gateway’s insolvency release him from his obligations as well? This case explores the interplay between insolvency law and the law of suretyship, specifically examining whether a surety can escape liability when the principal debtor becomes insolvent.

    The Court began by clarifying the impact of Gateway’s insolvency. According to the Insolvency Law (Act No. 1956), specifically Section 18, the issuance of an order declaring a debtor insolvent stays all pending civil actions against the debtor’s property. This stay aims to consolidate all claims against the insolvent entity within the insolvency court for orderly distribution of assets. However, the Court emphasized that this stay applies primarily to the insolvent debtor’s assets, not to the obligations of a surety.

    Suretyship, as defined in Article 2047 of the Civil Code, involves one party (the surety) binding themselves solidarily with the principal debtor to fulfill the latter’s obligation if they fail to do so. The Supreme Court referenced Palmares v. Court of Appeals, explaining that “a surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor.” This distinction is critical. A surety promises to pay if the principal debtor defaults, regardless of the debtor’s ability to pay, making the surety’s obligation direct, immediate, and solidary.

    Building on this principle, the Court emphasized that Asianbank’s right to proceed against Geronimo as a surety existed independently of its right to proceed against Gateway. This independence stems from the nature of solidary obligations, where the creditor can pursue any one or all of the solidary debtors for the entire debt. The insolvency of Gateway, therefore, did not extinguish Geronimo’s liability as a surety. The Court highlighted that the insolvency court lacked jurisdiction over the sureties of the principal debtor, reinforcing the surety’s separate and independent obligation.

    Geronimo argued that his liability should not exceed that of Gateway, citing Article 2054 of the Civil Code, which states that a guarantor cannot be bound for more than the principal debtor. However, the Court rejected this argument, clarifying that while a surety’s obligation cannot be greater, the surety remains liable even if the principal debtor becomes insolvent. This interpretation aligns with the fundamental essence of a suretyship contract, where the surety agrees to be responsible for the debt, default, or miscarriage of the principal debtor. “Geronimo’s position that a surety cannot be made to pay when the principal is unable to pay is clearly specious and must be rejected,” the Court stated.

    The Court then addressed Geronimo’s challenge to the admissibility of the Deed of Suretyship. The Rules of Court dictate that when a suit is based on a written document, the original or a copy must be attached to the pleading, and the genuineness and due execution of the instrument are deemed admitted unless specifically denied under oath by the adverse party. Geronimo’s failure to specifically deny the genuineness and due execution of the Deed of Suretyship meant he effectively admitted its validity. Therefore, Asianbank was not required to present the original document during the trial.

    Finally, the Court tackled Geronimo’s argument that the repeated extensions granted to Gateway without his consent should release him from liability. The Deed of Suretyship contained a provision waiving Geronimo’s right to notice of any extensions or changes in the obligations. The Court found this waiver valid and binding, negating Geronimo’s claim that he was not informed of the extensions granted to Gateway. Moreover, the Court found that Geronimo’s plea to be discharged based on the court’s equity jurisdiction was without merit, as the contract was freely executed and agreed upon by Geronimo.

    Ultimately, the Supreme Court upheld the Court of Appeals’ decision, affirming Geronimo’s liability as a surety, but with the modification that any claim of Asianbank against Gateway arising from the judgment should be pursued before the insolvency court. The Court’s decision reinforces the principle that a surety’s obligation is separate and distinct from that of the principal debtor and is not extinguished by the debtor’s insolvency. This case underscores the importance of understanding the nature and scope of suretyship agreements and the risks associated with acting as a surety.

    FAQs

    What was the key issue in this case? The key issue was whether the insolvency of the principal debtor, Gateway Electronics Corporation, released Geronimo B. delos Reyes, Jr., from his obligations as a surety to Asianbank Corporation.
    What is a surety? A surety is an individual or entity that guarantees the debt of another party (the principal debtor). If the principal debtor fails to pay, the surety is responsible for the debt.
    What is the difference between a surety and a guarantor? A surety is an insurer of the debt, while a guarantor is an insurer of the solvency of the debtor. A surety’s obligation is primary and direct, while a guarantor’s obligation is secondary and conditional upon the debtor’s inability to pay.
    Did Gateway’s insolvency affect Asianbank’s claim against Geronimo? No, the Supreme Court ruled that Gateway’s insolvency did not release Geronimo from his obligations as a surety. Asianbank could still pursue its claim against Geronimo independently of the insolvency proceedings.
    Why was the Deed of Suretyship admitted as evidence even though the original was not presented? Because Geronimo failed to specifically deny the genuineness and due execution of the Deed of Suretyship in his answer, he was deemed to have admitted it, making the presentation of the original unnecessary.
    Did the extensions granted to Gateway affect Geronimo’s liability? No, Geronimo had waived his right to notice of any extensions or changes in Gateway’s obligations in the Deed of Suretyship. Therefore, the extensions did not release him from his liability.
    Can a surety’s obligation be greater than the principal debtor’s obligation? No, Article 2054 of the Civil Code states that a guarantor (or surety) may bind himself for less, but not for more than the principal debtor. However, this does not mean the surety is released if the debtor becomes insolvent.
    What recourse does a surety have if they are forced to pay the principal debtor’s debt? The surety has a right of subrogation, meaning they can step into the shoes of the creditor and pursue the principal debtor for reimbursement. In this case, Geronimo’s right could be exercised in the insolvency proceedings.

    The Supreme Court’s decision in Gateway Electronics Corporation v. Asianbank Corporation offers a clear understanding of the distinct obligations of a surety, emphasizing their independent liability even when the principal debtor faces insolvency. It reinforces the binding nature of contractual agreements, particularly waivers within surety documents, and limits the application of equity when parties freely enter into such arrangements.

    For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: GATEWAY ELECTRONICS CORPORATION vs. ASIANBANK CORPORATION, G.R. No. 172041, December 18, 2008

  • Surety Obligations: Death of Principal Debtor Does Not Extinguish Surety’s Liability

    The Supreme Court has affirmed that the death of a principal debtor does not automatically extinguish the liability of a surety under a performance bond. This means that a surety company remains responsible for fulfilling the obligations outlined in the bond, even if the principal debtor has passed away. The creditor can still pursue claims against the surety to recover losses resulting from the principal’s failure to fulfill their contractual obligations. This ruling reinforces the solidary nature of surety agreements in Philippine law, providing security to creditors and ensuring that contractual obligations are honored, regardless of the principal’s death.

    The Contractor’s Demise: Can a Surety Company Evade Its Bond Obligations?

    In Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation, the central issue revolves around whether the death of a principal obligor, Jose D. Santos, Jr., under a construction contract, extinguishes the liability of the surety, Stronghold Insurance Company, Inc. (SICI), under the performance bond it issued. Republic-Asahi Glass Corporation (Republic-Asahi) contracted JDS Construction, owned by Santos, to construct roadways and a drainage system. To guarantee the faithful performance of the contract, JDS and SICI jointly executed a performance bond in favor of Republic-Asahi. When JDS Construction failed to meet the required pace of work, Republic-Asahi rescinded the contract and demanded payment from SICI under the bond. SICI refused, arguing that the death of Santos extinguished the obligation. The Supreme Court was thus tasked to determine if the surety’s liability persisted despite the principal’s death, clarifying the scope and nature of surety obligations in Philippine law.

    The resolution of this case hinges on the nature of a surety agreement and its implications under the Civil Code. As the Supreme Court emphasized, the general rule is that the death of either the creditor or the debtor does not extinguish the obligation. Obligations are transmissible to the heirs, except when the transmission is prevented by law, the stipulations of the parties, or the nature of the obligation. This principle is enshrined in Article 1311 of the Civil Code, which states:

    Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent.

    This provision underscores that contractual obligations generally survive the death of a party, unless specific circumstances dictate otherwise. Only obligations that are strictly personal or are intrinsically linked to the person of the deceased are extinguished by death.

    Furthermore, Section 5 of Rule 86 of the Rules of Court explicitly addresses claims against the estate of a deceased debtor. It allows for the prosecution of money claims arising from a contract, indicating that such claims are not extinguished by death. The provision states:

    SEC. 5. Claims which must be filed under the notice. If not filed, barred; exceptions.–All claims for money against the decedent, arising from contract, express or implied, whether the same be due, not due, or contingent, all claims for funeral expenses and expenses for the last sickness of the decedent, and judgment for money against the decedent, must be filed within the time limited in the notice; otherwise they are barred forever, except that they may be set forth as counterclaims in any action that the executor or administrator may bring against the claimants. x x x.

    The Supreme Court clarified that what is extinguished is merely the obligees action or suit filed before a court not acting as a probate court. The underlying obligations remain enforceable against the estate. Here, the monetary liabilities of Santos under the construction contract with Republic-Asahi were not intransmissible. Therefore, his death did not extinguish these obligations, which passed on to his estate. Thus, the Court stated that:

    Death is not a defense that he or his estate can set up to wipe out the obligations under the performance bond. Consequently, petitioner as surety cannot use his death to escape its monetary obligation under its performance bond.

    SICI’s liability stems from the performance bond, which explicitly binds it jointly and severally with JDS Construction. The surety bond stipulated that:

    That we, JDS CONSTRUCTION of 208-A San Buena Building, contractor, of Shaw Blvd., Pasig, MM Philippines, as principal and the STRONGHOLD INSURANCE COMPANY, INC. a corporation duly organized and existing under and by virtue of the laws of the Philippines with head office at Makati, as Surety, are held and firmly bound unto the REPUBLIC ASAHI GLASS CORPORATION and to any individual, firm, partnership, corporation or association supplying the principal with labor or materials in the penal sum of SEVEN HUNDRED NINETY FIVE THOUSAND (P795,000.00), Philippine Currency, for the payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents.

    This language unequivocally establishes SICI as a surety, solidarily liable with the principal debtor. This solidary liability is further reinforced by Article 2047 of the Civil Code, which defines a suretyship and its implications:

    Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.

    If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship.

    The consequences of solidary liability are profound, as highlighted in Article 1216 of the Civil Code:

    Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected.

    This means Republic-Asahi could pursue its claim against SICI independently of JDS Construction, and the death of Santos does not impede this right. The Court emphasized this point, referencing Garcia v. Court of Appeals, which clarified that a surety’s liability is direct, primary, and absolute, making them equally bound with the principal.

    The Supreme Court affirmed that Republic-Asahi could sue the principal debtor and the surety, SICI, either separately or together, given the solidary nature of their liability. Santos death does not diminish Republic-Asahis right to claim against SICI. Thus, the Court upheld the CA’s decision, reinforcing the enforceability of surety obligations, even in the face of the principal debtor’s death. Therefore, a surety company must honor its commitments under a performance bond regardless of the demise of the principal obligor.

    FAQs

    What was the key issue in this case? The central issue was whether the death of the principal debtor, Jose D. Santos, extinguished the liability of the surety, Stronghold Insurance Company, Inc., under the performance bond.
    What is a surety bond? A surety bond is a contract where one party (the surety) guarantees the obligations of a second party (the principal) to a third party (the obligee). It ensures that the obligee will be compensated if the principal fails to fulfill their obligations.
    What does it mean to be solidarily liable? Solidary liability means that each debtor is responsible for the entire debt. The creditor can pursue any one of the solidary debtors, or all of them simultaneously, until the debt is fully satisfied.
    Does the death of a debtor usually extinguish their obligations? No, the death of a debtor does not generally extinguish their contractual obligations. These obligations are typically passed on to the estate of the deceased.
    What is the significance of Article 1216 of the Civil Code in this case? Article 1216 allows the creditor to proceed against any one of the solidary debtors or some or all of them simultaneously. The death of one debtor does not prevent the creditor from pursuing the others.
    What was the Court’s ruling? The Supreme Court ruled that the death of the principal debtor did not extinguish the surety’s liability under the performance bond. Stronghold Insurance Company, Inc. remained liable despite the death of Jose D. Santos.
    What is the practical implication of this ruling for creditors? This ruling provides security to creditors, ensuring that they can still recover losses from the surety even if the principal debtor dies. It reinforces the enforceability of surety agreements.
    Can a surety company use the death of the principal debtor as a defense? No, the surety company cannot use the death of the principal debtor as a defense to avoid its obligations under the performance bond. The liability remains enforceable.

    In summary, the Supreme Court’s decision underscores the enduring nature of surety obligations in the Philippines. Surety companies must be prepared to fulfill their commitments under performance bonds, irrespective of the principal debtor’s demise. This ruling protects the interests of creditors and ensures that contractual obligations are honored, fostering trust and stability in commercial transactions.

    For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation, G.R. No. 147561, June 22, 2006

  • Suretyship Agreements in the Philippines: Solidary Liability and Defenses

    Understanding Solidary Liability in Philippine Suretyship Agreements

    G.R. No. 106601, June 28, 1996

    Imagine a small business owner struggling to secure a loan for expansion. A friend steps in, signing a suretyship agreement to guarantee the loan. But what happens if the business fails to repay? This scenario highlights the critical importance of understanding suretyship agreements, particularly the concept of solidary liability, under Philippine law.

    This case, Liberty Construction & Development Corporation vs. Court of Appeals, delves into the intricacies of suretyship, solidary obligations, and the defenses available to sureties. It serves as a crucial reminder of the binding nature of these agreements and the potential financial risks involved.

    What is a Suretyship Agreement in the Philippines?

    A suretyship agreement is a contractual arrangement where one party (the surety) guarantees the debt or obligation of another party (the principal debtor) to a third party (the creditor). This agreement ensures that the creditor will be paid, even if the principal debtor defaults.

    Key Legal Concepts

    • Surety: The person or entity who guarantees the debt of another.
    • Principal Debtor: The person or entity who owes the debt.
    • Creditor: The person or entity to whom the debt is owed.

    Article 2047 of the Civil Code of the Philippines defines suretyship:

    “By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the contract is called a suretyship.”

    Solidary Liability: The Core of the Matter

    In a suretyship agreement, the surety is typically held solidarily liable with the principal debtor. This means that the creditor can demand full payment from either the principal debtor or the surety, without having to exhaust all remedies against the other. This is a critical distinction from a mere guaranty, where the guarantor is only liable after the creditor has exhausted all remedies against the debtor.

    Example: If a company takes out a loan of P1,000,000 and its CEO signs a suretyship agreement, the bank can go after either the company or the CEO for the full amount if the loan is not repaid.

    Liberty Construction & Development Corporation vs. Court of Appeals: A Case Study

    The case involved Liberty Construction & Development Corporation (LCDC), which obtained credit accommodations from Mercantile Financing Corporation (MFC). Spouses Abrantes acted as sureties for LCDC, and Builders Wood Products, Inc. (BWP) assigned a trade acceptance as additional security. When LCDC failed to pay, MFC sued LCDC, the spouses Abrantes, and BWP to recover the outstanding amount.

    The Journey Through the Courts:

    1. Regional Trial Court (RTC): The RTC ruled in favor of MFC, finding LCDC, the spouses Abrantes, and BWP jointly and severally liable for the debt.
    2. Court of Appeals (CA): The CA affirmed the RTC’s decision with a modification, reducing the penalty rate from 3% to 2% per month.
    3. Supreme Court (SC): LCDC and BWP appealed to the Supreme Court, questioning the factual findings of the lower courts.

    The Supreme Court, however, denied the petition, emphasizing that it can only review questions of law, not questions of fact, unless there is a clear showing of abuse, capriciousness, or arbitrariness. The Court found no such showing in this case.

    The Court highlighted the well-established principle that factual findings of trial courts, especially when affirmed by the Court of Appeals, are generally binding on the Supreme Court. The petitioners failed to provide sufficient evidence to overturn these findings.

    “The Court has repeatedly held that petitions for review under Rule 45 of the Rules of Court may be brought only on questions of law, not on questions of fact.”

    The Supreme Court also emphasized the importance of honoring contractual obligations. The spouses Abrantes, as sureties, were bound by the terms of the suretyship agreement they had voluntarily entered into.

    “In the case before us, we are convinced that both lower courts had carefully considered the questions of fact raised below, and that both the assailed Decision and the decision of the trial court are amply supported by the evidence on record.”

    Practical Implications and Key Lessons

    This case reinforces the importance of understanding the implications of entering into a suretyship agreement. Sureties must be fully aware of the extent of their liability, especially the concept of solidary liability. Before signing any such agreement, individuals should seek legal advice to fully understand their rights and obligations.

    Key Lessons:

    • Due Diligence: Thoroughly investigate the financial stability of the principal debtor before agreeing to act as a surety.
    • Understand the Terms: Carefully review the terms of the suretyship agreement, paying particular attention to the scope of the liability and any potential defenses.
    • Seek Legal Advice: Consult with a lawyer to fully understand the legal implications of the agreement.
    • Solidary Liability: Be aware that as a surety, you can be held liable for the entire debt, even if the principal debtor is also capable of paying.

    Frequently Asked Questions (FAQs)

    Q: What is the difference between a guaranty and a suretyship?

    A: In a guaranty, the guarantor is only liable after the creditor has exhausted all remedies against the debtor. In a suretyship, the surety is solidarily liable with the debtor, meaning the creditor can go after either party for the full amount of the debt.

    Q: Can a surety raise defenses available to the principal debtor?

    A: Yes, a surety can generally raise defenses that are inherent in the debt itself, such as fraud or lack of consideration. However, the surety cannot raise defenses that are personal to the principal debtor, such as insolvency.

    Q: What happens if the principal debtor pays part of the debt?

    A: Any payment made by the principal debtor reduces the liability of the surety by the amount paid.

    Q: Can a surety be released from liability?

    A: Yes, a surety can be released from liability under certain circumstances, such as if the creditor releases the principal debtor without the surety’s consent, or if the terms of the agreement are materially altered without the surety’s consent.

    Q: What should I do if I am asked to be a surety?

    A: Carefully consider the risks involved, conduct due diligence on the principal debtor, and seek legal advice before signing any agreement.

    ASG Law specializes in contract law and suretyship agreements. Contact us or email hello@asglawpartners.com to schedule a consultation.