A guarantee is often signed quickly and understood poorly. Yet the obligations it creates — and the defences it preserves — can determine whether a lender recovers and whether a guarantor is exposed far beyond what was expected.
Scope of the guarantor’s liability
Under the Civil and Commercial Code, a guarantor is liable for the debtor’s obligation only to the extent set out in the contract. Recent reforms have strengthened guarantor protections, limiting clauses that would treat a guarantor as a primary debtor and requiring clarity on the secured obligation.
Defences and rights of recourse
A guarantor may raise defences available to the principal debtor and is generally discharged where the creditor’s conduct prejudices its position. On payment, the guarantor is subrogated to the creditor’s rights against the debtor. Lenders and guarantors alike benefit from reviewing the instrument before, not after, a default.