A guarantee, as a form of debt security, is an agreement between the guarantor and the creditor stipulating that if the debtor fails to fulfill their due obligations, the guarantor will assume the responsibility or perform the debt as agreed. There are two main types of guarantees: general guarantee and joint liability guarantee. In practice, disputes often arise when the type of guarantee is not specified or is unclear. This is why presumptive rules for guarantee types exist.

I. Differences Between General Guarantee and Joint Liability Guarantee

The primary distinction between a general guarantee and a joint liability guarantee is whether the guarantor has the right to claim the “benefit of discussion” (right to require the creditor to first pursue the debtor). Under a general guarantee, due to its relative independence from the main contract, the guarantor may refuse to fulfill the guarantee until the creditor has exhausted legal actions against the debtor, including legal enforcement, to no avail. However, under a joint liability guarantee, the creditor can request the guarantor to assume responsibility directly, even if the debtor has not been pursued first. In litigation, a creditor under a joint liability guarantee may choose to sue the debtor, the guarantor, or both simultaneously.

II. Presumptive Rules for Guarantee Types Prior to the Civil Code

Before the Civil Code, Article 19 of the Guarantee Law provided that if no guarantee type was specified or if it was unclear, the default was joint liability. This rule meant that, unless clearly stated as a general guarantee, the guarantor would assume joint liability.

III. New Changes in the Civil Code’s Presumptive Rules for Guarantee Types

One of the most significant changes in the Civil Code regarding guarantees is the adjustment to presumptive rules. Article 686(2) of the Civil Code now stipulates, “If no guarantee type is specified or if the type is unclear in the guarantee contract, it is presumed to be a general guarantee.” This reverses the presumption from the Guarantee Law, where the lack of specification defaulted to joint liability.

A noteworthy point is determining when a guarantee type is deemed “unclear.” Only when contract interpretation fails to clarify the type of guarantee does it qualify as “unclear.” If interpretation indicates joint liability, then joint liability rules will apply.

For instance, if the contract stipulates that the creditor may request either the debtor or the guarantor to fulfill the debt upon the expiration of the principal debt, it aligns with joint liability characteristics and should be treated as such. Conversely, if the contract merely states, “If the debtor fails to fulfill the debt on time, the guarantor will assume responsibility,” it is considered unclear and should be classified as a general guarantee.

The revision in the Civil Code’s presumptive rule primarily reflects two motivations: 1. Presuming a general guarantee when unspecified or unclear mitigates the spread of debt risk and supports economic and social stability. 2. As a guarantee contract is typically unilateral, where the guarantor assumes obligations without reciprocal rights, this change acknowledges that guarantors often act out of goodwill. The presumptive rule prevents creditors or debtors from exploiting a guarantor's lack of understanding, thereby avoiding excessive joint liability that the guarantor did not intend to undertake.

Practical Tip

Under the Civil Code, for loan transactions, guarantors are advised to explicitly specify the guarantee period and, if preferred, state that they are providing a general guarantee. For creditors, if they wish the guarantor to assume joint liability, they must explicitly label the guarantor as a “joint liability guarantor” rather than simply as a “guarantor” in the contract.