What’s a surety?
Anyone who needs a loan today, for example to build a house or a new car, must also be able to offer a bank security. Collateral is required from a bank precisely when the loan amount is very high and there are doubts about adequate creditworthiness. One of these securities is the guarantee.
How a guarantee works
A guarantee involves a third party between the bank and the borrower, namely the guarantor. The guarantor hereby declares in writing to the bank in a contract the guarantee for the loan. If the borrower now defaults, the guarantor is liable for the debt. However, this does not automatically mean that the bank, as the creditor, can immediately claim the debt from the guarantor in the event of default. Rather, the debt burden, and thus also the demand for it from the borrower, remains the main culprit. In practice, this means that the creditor must always first take legal action against the borrower, including execution. The guarantor only comes into play when the execution reveals the over-indebtedness and thus the solvency of the borrower. From now on, the guarantor is liable for the debt. The amount of the liability is determined by the guarantee agreement. According to the Civil Code, a guarantee must always be recorded in writing in the contract. This demand results from §766 BGB. This written form requirement also requires the exact name of the creditor, the name of the debt and the amount of the debt by the guarantor. There is only an exception to the written form requirement if the guarantor is a so-called fully qualified merchant. Basically one must still consider with the guarantor, there are different forms of a In addition to the classic directly enforceable guarantee, there is the BGB guarantee, the deficiency guarantee, the subsequent guarantee or, for example, the rental guarantee. Due to the different types of guarantees, it is also evident that guarantees are not only used in the credit sector.
That’s what happens when a guarantor refuses
If a guarantor refuses to accept payment, the creditor may also arrange for execution against the guarantor. As a rule, a refusal does not lead to success either, since the legal possibilities, such as the defence against the collection of the claim, are not applicable here either. That is the essence of a guarantee, namely the absolute obligation. For this reason one should always consider carefully whether one would like to enter into a guarantee or not. If the debt is repaid by the guarantor, the guarantee is terminated, but the claim is not over. Rather, the payment of the debt results in a change of claims. The bank as creditor is paid and is therefore no longer part of this triangular relationship. This then continues to consist of the guarantor and the borrower. Only the guarantor is no longer the guarantor, but the creditor. As a creditor, he now has a right to claim repayment from the borrower.
Important note
Finally, it should be noted that a guarantee may also be immoral and therefore void. Such a case would be, for example, if the guarantor were completely overburdened financially by assuming the payment obligation. The assumption can also be immoral if there is a close emotional connection between the guarantor and the debtor or if the creditor exploits such a connection. This would be the case, for example, if a creditor were to take over the debts of I would demand from a spouse.