Legal effects of the fraud originating from the co-surety on the validity of the surety contract and/or the rights of the surety: The victim of the fraud

Abstract

In case a surety concludes a contract due to fraudulent acts of his co-surety, he may find himself in a rather unenviable position. Remedies for his protection are very limiting. Namely, third parties' fraud only exceptionally leads to the annulment of the contract: if the contracting party is guilty of fraud; or the contract is gratuitous, which is very questionable for surety contract. The chances for annulment are even fewer if we apply the rules of mistake: mistake as to the debtor solvency represents a mistake as to the motif which is only exceptionally legally relevant. Finally, the right to ask damages from co-surety can also be of limited nature: firstly, there is a risk that the damages cannot be compensated; secondly, an absurd situation may occur that the victim of the fraud cannot reject the contribution claim from the co-surety but he may later on ask damages from him.

Keywords

• surety
• validity of the contract
• third party's fraud
• mistake as to the solvency of the debtor
• the relation between co-sureties