THE SURETY OR GUARANTEE CONTRACT IN BOLIVIA: WHEN IS IT POORLY DRAFTED?

COMMON MISTAKES IN DRAFTING SURETY CONTRACTS

LACK OF A CLEAR LIMIT IN SURETY CONTRACTS

A common malpractice is failing to define the scope of the surety clearly. According to current civil law, the guarantee cannot exceed the principal obligation or impose more burdensome conditions. If the maximum amount is not specified, it can lead to interpretations that harm the guarantor.

LACK OF CLARITY REGARDING THE TYPE OF SURETY

The contract must explicitly state whether the surety is joint (solidary) or subsidiary. Failure to do so may result in the guarantor assuming a heavier liability than intended, as if jointly bound, even without having agreed to such terms.

UNJUSTIFIED WAIVER OF THE BENEFIT OF EXCUSSION

One of the most serious errors is the express waiver of the benefit of excussion without proper justification or without the guarantor understanding its implications. This benefit allows the guarantor to demand that the creditor first exhaust the debtor’s assets before pursuing the guarantor.

For instance, a clause stating:
“The guarantor waives all legal benefits applicable to them,”
without further detail, is technically deficient. Not only is it vague, but it may also invalidate legitimate defenses such as excussion, even when legally applicable.

REAL CASE: CONSEQUENCES OF A POORLY DRAFTED SURETY

Imagine a company asks a third party to sign as a guarantor for a loan given to a supplier. The surety contract omits any reference to the benefit of excussion. Later, the supplier defaults. The creditor, instead of going after the debtor first, acts directly against the guarantor. Due to the lack of a clear clause, the guarantor may be unable to invoke the right of excussion and be forced to pay immediately.

However, if the guarantor had preserved that right and identified specific debtor-owned assets within the appropriate judicial district, they could have delayed payment—at least until those debtor assets were exhausted.

PRACTICAL GUIDE TO DRAFTING VALID SURETY CONTRACTS

CLEARLY STATE WHETHER THE SURETY IS SUBSIDIARY OR JOINT

This defines the guarantor’s level of liability. If joint, the guarantor can be sued immediately alongside the debtor. If subsidiary, the creditor must first attempt to collect from the debtor, applying the benefit of excussion.

RESPECT THE BENEFIT OF EXCUSSION

It must be clearly indicated whether the guarantor retains this benefit. Only certain circumstances justify its waiver, such as debtor insolvency, debts owed to the tax authority, or judicial sureties.

SPECIFY THE MAXIMUM GUARANTEED AMOUNT

The contract should state a clear and reasonable limit to prevent the guarantor’s obligation from exceeding the debtor’s principal debt.

SPECIALIZED LEGAL ADVICE FOR GUARANTEE CONTRACTS

In Bolivia, where contractual relationships often involve regional nuances, it is essential to work with a law firm specializing in civil and commercial law. Our team provides expert legal advice in drafting, reviewing, and enforcing surety contracts, ensuring compliance with current legislation and effectively protecting our clients’ interests.