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Standing surety: the creditor's sixty-day notice
People who sign as surety for a relative or a friend tend to assume that is the end of it and full liability follows whatever happens. The amended law places several duties on the creditor, and a failure to observe them bears directly on what the surety owes.
The sixty-day duty to notify
The first paragraph of section 686 of the Civil and Commercial Code provides that on the debtor's default the creditor must notify the surety in writing within sixty days of that default, and that in no circumstances may the creditor demand payment from the surety before the notice has reached them. The date of default is therefore the first thing to establish.
What follows if no notice is given
The second paragraph provides that where the creditor has not given notice within that period, the surety is released from liability for interest, damages and the ancillary charges attaching to the debt, so far as they arise after the period expires. On a debt that has run for years, that portion is often a substantial sum.
Terms that add to the surety's burden
The closing paragraph of section 691 states plainly that any agreement whose effect is to increase the surety's burden beyond what that section provides is void. A standard-form guarantee making the surety liable as a co-debtor in every case therefore does not always take effect as written. Reading the actual document matters more than accepting the creditor's account of it.
A mortgage is a different thing
Section 714 requires a mortgage to be made in writing and registered with the competent official. A mortgage therefore attaches to the property given as security, unlike a suretyship, which attaches to a person. Someone who mortgages their own land to secure another's debt and someone who signs as surety stand in different legal positions, with different defences available.
What to do on receiving a letter
First, keep the envelope and the letter together with the date of receipt, because dates are the whole substance of this. Second, find the guarantee actually signed and read which debt it secures, up to what limit, and whether it has a term. Third, establish when the debtor first defaulted, which usually appears in the creditor's own documents.
PREPARE
What to bring
- The guarantee you actually signed
- The creditor's notice, with the envelope and date of receipt
- The principal contract creating the debt
- Evidence of when the debtor first defaulted
- Title deed and mortgage agreement, where property was given as security
QUESTIONS
Questions this raises
The creditor never told me and sued two years later.
The second paragraph of section 686 releases the surety from interest, damages and ancillary charges arising after the sixty days expire, not from the debt itself. On a debt left to run, that difference often exceeds the principal, so it is a point always worth taking.
I guaranteed for a company I used to work at and have since left.
Leaving does not by itself end the guarantee. What matters is what the document says about which debt is secured, whether there is a limit or a term, and whether the debt claimed arose before or after you left, read together with section 691, which voids terms adding to the surety's burden beyond what the law allows.
LAW
The legislation
- Civil and Commercial Code, sections 686, 691 and 714
ENQUIRIES
