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Chapter 8 Contract 2

This document discusses suretyship contracts under Ethiopian civil code. Suretyship, or a contract of guarantee, is an agreement where a party (the guarantor) agrees to be responsible for the debt or obligation of another (the debtor) in case of default. The validity of this contract does not require the debtor's consent. Guarantee contracts must be in written form, specify a maximum amount, and not exceed contractual limits. Defects in the debtor's consent may invalidate the main contract but not the guarantee, unless the guarantor was unaware. Guarantors can be either joint, with equal liability as the debtor, or simple, with liability contingent on the creditor first pursuing the debtor. The

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96 views

Chapter 8 Contract 2

This document discusses suretyship contracts under Ethiopian civil code. Suretyship, or a contract of guarantee, is an agreement where a party (the guarantor) agrees to be responsible for the debt or obligation of another (the debtor) in case of default. The validity of this contract does not require the debtor's consent. Guarantee contracts must be in written form, specify a maximum amount, and not exceed contractual limits. Defects in the debtor's consent may invalidate the main contract but not the guarantee, unless the guarantor was unaware. Guarantors can be either joint, with equal liability as the debtor, or simple, with liability contingent on the creditor first pursuing the debtor. The

Uploaded by

Abrham G. Fetene
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 8

Suretyship

The contract of a creditor and the other party (other than the debtor) to perform the main contract
(contract between creditor and debtor) or to perform less but not more amount of the main
contract when the debtor fails to perform their obligation according to the main contract is called
suretyship or in other word, contract of guarantee. The validity of this contract does not depend
on the consent or approval of the debtor, i.e., without the approval of the debtor, the creditor and
the guarantor will make a contract of guarantee according to Art 1921 of the civil code of
Ethiopia.

We need to point out the form of the contract of the guarantee. First, it must be expressed or in
written form. Secondly, it must specify the maximum amount for which the guarantee is given
and it must lastly not be extended beyond its contractual limits.

The defect in consent and the incapacity of the debtor shall invalidate the main contract but not
the contract of guarantee unless the guarantor doesn’t know the defect.

The defect in the form and the object of the contract invalidates both the main and the guarantee
contract rendering them both void. On the other hand, the extinguishing of the main contract may
also extinguish the guarantee contract.

We have two kinds of guarantors. The joint guarantor and the simple guarantors. Joint guarantor
or co-debtor is a guarantor which has equal accountability with the debtor in any non-
performance of the main contract. A simple guarantor is a guarantor which has accountability
with some pre requirement such as creditor discussing with principal debtor and debtor fails to
discharge their obligation,

N.B: - A guarantor is presumed to be simple unless they described themselves as joint guarantor
or co-debtor.

Creditor discussing with principal debtor is the right demanded by simple guarantor, and not the
obligation of the creditor. Demanding the discussion with principal debtor by the guarantor is not
applicable if the insolvency of the debtor has been judicially established.

The guarantor has an obligation to indicate the property of the debtor which is not subject to
litigation or situated outside the country of payment or mortgaged as security for debt.
The insolvency of the debtor was due because of the failure to proceed by the credit or after the
guarantor indicated the property cost, as a result, creditor is accountable to the property,

Guarantor can also demand that the creditor can sue the principal debtor within six weeks, if the
creditor fails to do so, the guarantor shall be released.

The extinction of the main contract by any means shall release the guarantor. Substitution of the
performance of the debtor by immovable or by any satisfaction of the primary debt and voluntary
acceptance of the creditor shall release the guarantor. But, the variation of the main contract
neither releases nor change the obligation of the guarantor unless the variation grants the debtor
additional time to perform.

The liability of a guarantor is up to the maximum amount which is specified in the contract and
also guarantor is liable to the interest in the range of maximum amount unless provided in special
cases which require the guarantor to be liable beyond maximum limits if a legal cost is included.

The guarantor performing the duty of the debtor shall entitle the right of the creditor. Therefore,
creditor must transfer the document and mortgage related to the main contract. This substitution
is called subrogation. The obligation of the guarantor shall be nullified if the subrogation failed
because of the creditor.

N.B: - Secondary guarantor is guarantor of guarantor.

As principle, the indemnity to a guarantor who paid the debt must be covered by the principal
debtor, notwithstanding the guarantor failing to raise a defense that they knew or should have
known and that would have released them of the payment.

Giving notification to the principal debtor is the duty of the guarantor who paid the debt and after
notification, if there exist any damages, the guarantor has the right to claim it.

If non performance by the principal debtor before the guarantor paid the debt is attributed by
debtors own fault or negligence, the guarantor may also claim damages.

The right to demand security from the principal debtor is granted to the guarantor based on these
three conditions: -

 The debtor has been given a notice to pay the debt


 The debtor has been declared bankrupt
 The guarantor runs a considerably greater risk than when he undertook the
guarantor role because of the less than debtor has suffered.

In this case, the guarantor applies the concept of second guarantor which is also known as
counter guarantor.

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