A joint debt owed by a number of debtors either as principal debtors or as guarantors imposes on them an obligation which is borne either jointly or separately. The liability of the guarantor depends on the guarantee that he provided and the obligation he undertook. The discharge of the guarantor depends on the behaviour of the principal debtor and whether he repays the debt punctually. In the event that the principal debtor does not meet his obligations and the loan is demanded in court, the guarantor becomes a principal debtor upon the issuance of a court judgment. In the event that a guarantor pays a specific sum towards the debt and secures his discharge from the creditor, a question issue arises as to whether this automatically discharges the principal debtor and the remaining guarantors from the joint debt. The answer to the question is in the affirmative, except in the event that the creditor reserves his rights towards the remaining principal debtors.
A recent judgment of the Supreme Court examined the issue and upheld the judgment of the Court of First Instance stating that in the absence of reservation of the judgment creditor’s rights as to the judgment debt owed by the remaining joint guarantors, the discharge of the guarantor who paid a part of the debt had as a result the discharge of the others. More specifically, the judgment of the court was against seven defendants for the balance of an account and one of the judgment debtors, who was a guarantor, paid a sum towards the debt and he was discharged from his liability as a guarantor and judgment debtor. The debtor filed a bankruptcy notice against two other judgment debtors – co-guarantors, who reacted to the notice, alleging that the judgment debt was repaid through the payment of the other co-guarantor. The court held the discharge of a co-guarantor without the reservation of the creditor’s rights towards the others constitutes an automatic discharge of all the co-guarantors, and the creditor could not put forward oral testimony to allege that the remaining judgment debtors continue to remain liable for the balance of the debt. The court emphasised it is irrelevant whether or not the debt was repaid by another co-guarantor, since this could be repaid by another co-defendant or a third person. Had he wished otherwise, the creditor had to reserve his rights for the collection of the whole of the judgment debt from the remaining judgment debtors.
The Supreme Court held the approach of the Court of First Instance was correct. The Supreme Court added after the issuance of the judgment against all the defendants (guarantors) were rendered judgment debtors. Furthermore, the Supreme Court referred to English case law where two people were jointly and severally guarantors to a loan owed by a company to a bank who secured a judgment against the former jointly and severally. The judgment debt was not paid and the bank filed a bankruptcy notice by reason of failure to repay the whole of the judgment debt. Nevertheless, the notice was withdrawn, since the bank accepted the payment of half the debt in exchange for full and final discharge of obligations. Subsequently, the bank filed a bankruptcy notice against the second judgment debtor for the remaining half of the judgment debt. The English Court held that the said arrangement, the issuance of a receipt and the discharge of the first judgment debtor constituted the extinction of the debt. The principle according to which the discharge of one of the two judgment debtors burdened by a joint and several obligation to repay a debt constitutes the discharge of the other, is applied both to a judgment debt and any other obligation.