What liability does a guarantor have?

Question

José Manuel Alburquerque · Accepted Answer

A guarantor undertakes to pay another person's debt if that person does not pay it and, if it comes to that, is liable with all their assets, present and future. The guarantor is liable for what the document they signed says and never for more than the debtor owes. In bank loans they almost always sign as a joint and several guarantor, which allows the bank to claim the whole amount from them directly, without first going to the debtor. Whatever they pay, they can later claim back from the debtor. What a guarantee is and what assets are at stake In everyday speech, the person who signs another person's loan or contract to pay if that person does not is called a guarantor (“avalista”). The law calls this person a “fiador” (surety) and calls the guarantee (“aval”) a “fianza” (suretyship). It is governed by the Spanish Civil Code (“Código civil”), which also applies in Catalonia because the “Código Civil de Cataluña”, the Catalan Civil Code, has no rules of its own on suretyship. Suretyship is not tied to a specific asset, as a mortgage is to a flat, but covers all of the guarantor's assets. If the debtor does not pay and payment is claimed from you, your bank accounts, the attachable part of your salary or your home can be attached (seized). It is also an accessory obligation, that is, it depends on the debt it secures and ends with it. That is why you can raise against the creditor any defences that relate to the debt itself, for example that it has already been paid or that it has become time-barred. The guarantee does not end because the debtor dies. Nor are you released if the debtor, in insolvency proceedings, has the debts they cannot pay written off, what is known as the “segunda oportunidad”, the second-chance procedure. And in that case, as a general rule, you will no longer be able to recover from the debtor what you pay, because insolvency law extends the write-off to what the debtor owes you for that payment, to the same extent as the guaranteed debt. If the bank sells the loan to a fund, the guarantee goes with it. The fund can claim the same from you as the bank could and you can raise the same defences against it. What the guarantor is liable for Suretyship is not presumed and cannot extend beyond what the document says. That is why the first step is to read what you signed: If a limit was agreed, such as a maximum amount, a time limit or the principal only, you are liable up to that limit. If none was agreed, you are liable for the debt and everything that goes with it, such as ordinary interest, late-payment interest and the agreed fees. As for the costs of the court proceedings, you are liable only for those incurred after payment has been claimed from you. You are never liable for more than the debtor. If the document says otherwise, your obligation is reduced to what the debtor owes. The courts interpret guarantees strictly. A guarantee does not extend to other debts or to increases in the loan that you have not accepted. If you signed as a joint and several guarantor If the guarantor has neither bound themselves jointly and severally nor waived anything, the law allows them to require the creditor to seek payment from the debtor's assets first, which is known as the benefit of discussion (“beneficio de excusión”). But banks' loan agreements and deeds almost always state that the guarantor is liable “solidariamente” (jointly and severally) and waives that benefit. The bank can then claim the entire debt from you, from the debtor or from both at once. If there are several guarantors, banks usually make them jointly and severally liable among themselves as well, so the whole amount can be claimed from any one of them. Before signing a guarantee, it is advisable to ask for it to have a maximum amount and a time limit, although the bank does not always agree to this.