Claims to a guarantor

In our practice, we regularly collect debts both from a principal debtor and a guarantor. Sometimes issues like determining jurisdiction, termination of a guarantee, and death of a guarantor arise.

As a rule, a claim is filed simultaneously against a principal debtor and a guarantor to one court, either under the general rules of jurisdiction or forum conventionale. However, in case of bankruptcy or rehabilitation of a principal debtor-legal entity, a court may have an alternative view on determining jurisdiction.

For instance, a court concluded that a claim against a guarantor should be considered by a court that had made a decision on the bankruptcy of the principal debtor. The court believed that the claim against the guarantor arose from the breach of obligations by the principal debtor, thus, any dispute related to the principal debtor should be considered within the bankruptcy. Therefore, the court issued a ruling on transfer of the case to another court’s jurisdiction.

We appealed the ruling to a higher court. The higher court agreed with our arguments that (i) the claim against the guarantor arose from the joint liability of the guarantor and (ii) the claim had nothing to do with the bankruptcy and thus did not fall under paragraph 8 of Article 35 of the CPC. Consequently, the higher court ruled that the claim against the principal debtor should be terminated, however, the claim against the guarantor the case should be considered on the merits.

In almost every case, the guarantors try to recognize the guarantee as terminated. This is especially true for cases where the contract secured by the guarantee had been terminated by the creditor due to improper performance by the debtor. At that the guarantors refer to paragraph 1 of Article 403 of the Civil Code (termination of obligations upon termination of a contract) and paragraph 1 of Article 336 of the Civil Code (termination of a guarantee upon termination of a primary obligation).

There is a clear guidance of the Supreme Court of the Republic of Kazakhstan on this issue: a guarantee ensures the fulfillment of an obligation, while the termination of the contract caused by improper performance of the debtor cannot be recognized as the basis for termination of guarantee; but vice versa such termination of the contract indicates that the guarantor becomes liable under the guarantee.

In this regard, the courts, as a rule, do not accept the arguments of the guarantor that a guarantee is terminated if the primary obligation is terminated.

The majority of guarantors are individuals (shareholders or managers of the principal debtor). Sometimes, unfortunately, guarantors die. Therefore, there may be an issue of establishing an heir and replacing the defendant.

In practice, the following actions are available: (1) contacting a notary chamber in order to find out about pending probate case, followed by requesting a court to replace the debtor; (2) directly requesting a court to establish legal successor.

Usually, when replacing a debtor, the courts determine whether an heir has accepted the inheritance, whether the heir has been deprived of the inheritance (for example, under a will), whether a property has actually passed to the heir.