Suretyship in Russia: What a Guarantor Owes and When the Obligation Ends

A surety under Russian law promises the creditor that the debtor will perform his obligation. Article 363 of the Civil Code makes the surety and the debtor jointly liable by default, so the creditor may demand payment from either, unless the law or the contract provides subsidiary liability. The surety owes what the debtor owes: the principal, interest, the cost of recovery and other losses caused by the breach, unless the contract narrows the scope.

The question that decides most disputes is when a surety is no longer liable. Article 367 gives several grounds, and one of them is a short period for the creditor to sue the surety. This guide explains the scope of liability, the grounds for termination, the effect of changes to the loan without the surety's consent and the steps that a surety or a creditor should take.

Joint Liability Is the Default

Under Article 363, if the debtor fails to perform or performs improperly, the surety and the debtor answer together. The creditor chooses whom to sue first and may sue both in the same case. A contract may provide that the surety answers only after the creditor has tried to collect from the debtor, which is called subsidiary liability, but this is unusual because it favours the surety.

The scope of liability includes interest, the court costs of recovering the debt and other losses caused by non-performance. The contract can restrict it: for instance, to the principal debt or to a maximum amount. A guarantor who signs should read the clause on scope more carefully than any other.

If several sureties secure the same debt, they are jointly liable unless the contract says otherwise. A surety who has paid may recover a proportional share from the others.

Termination When the Main Debt Ends

The suretyship ends when the secured obligation ends (Article 367(1)). Payment, set-off, release of the debtor by the creditor or novation of the debt will end it. A special rule applies if the debtor is liquidated after the creditor has already filed a claim against the surety: the suretyship continues in that case.

The death of the debtor or the reorganisation of a company debtor does not end the suretyship (Article 367(4)). The surety remains liable after such events, subject to the other rules.

If the creditor refuses to accept proper performance offered by the debtor or the surety, the suretyship ends (Article 367(5)). A surety who wants to pay should therefore make a written offer and keep proof, because a refused payment frees him.

The One-Year and Two-Year Rules

Article 367(6) sets the time limits that surprise many creditors. If the contract names a period for the suretyship, the suretyship ends when the period expires. If it names no period and the main obligation has a fixed date for performance, the suretyship ends unless the creditor sues the surety within one year after that date.

If the main obligation has no fixed date, or is payable on demand, the suretyship ends unless the creditor sues within two years from the day the suretyship contract was concluded. A demand letter does not stop the period; a lawsuit is required.

The rule has a practical consequence for banks and companies. After the debtor's default, the creditor has to file against the surety within a year even if the case against the debtor is still in progress. A creditor who waits for the first case to end may find the second claim time-barred.

Changes to the Loan Without the Surety

If the obligation is changed without the surety's consent in a way that increases the surety's liability or otherwise worsens his position, the surety answers only on the original terms (Article 367(2)). A raised interest rate, an extended term with additional charges or a new penalty are typical examples.

The contract may contain an advance consent to future changes, but the Code requires that the consent state the limits of the change, for example the maximum interest rate. A clause that allows the creditor to change anything at any time is exposed to challenge.

If the debt is transferred to another debtor and the surety does not agree to stand surety for the new debtor within a reasonable time after notice, the suretyship ends (Article 367(3)). A surety who receives such a notice should reply in writing.

Loss of Collateral and Consumer Sureties

Article 363 protects a surety when collateral that existed at the signing is lost or weakened because of the creditor's conduct. The surety is released to the extent he could have recovered from the collateral, provided he reasonably counted on it when he signed. For an individual surety, a contract that sets different consequences is void.

An individual who signs as a surety for a company often does not realise the exposure. The signature may bring personal liability for the full debt, with interest and costs, and the creditor can recover from the surety's accounts and property.

A surety who has paid acquires the creditor's rights against the debtor and may sue for reimbursement. He should collect the documents that the creditor holds, since the creditor must hand them over.

For the Creditor: Protecting the Claim

Keep the calendar of dates from the day the debt fell due. File against the surety in time, even while the claim against the debtor is pending. State the claim exactly under the terms of the contract. Attach the surety contract, the main contract, the proof of the breach and the calculation.

Send a written demand to the surety first, because the courts examine whether the creditor tried to settle the matter, but remember that the demand does not extend the period.

For the Surety: Reading the Contract Before Signing

Check the scope, the period, the right to change the main contract and the law that applies. Ask for a copy of the main contract and a statement of the debt. If the main debtor is a foreign company, ask who will pay and how the money will move.

The attorney reviews suretyship contracts before signing and represents sureties and creditors in disputes, with special attention to the terms in Article 367. First review covers the main contract and the surety's own document.

The main channel of communication with the attorney is email: attorneypetrova1@gmail.com.