Is it mandatory to pay the debt on behalf of another when a loan guarantee agreement is signed?

I was born in 1995, I am a 3rd-year student. In October 2018, my classmate said that she lost her tuition fee, she borrowed an amount at the pawnshop and asked me to sign a guarantee of 5 million VND. She left her student ID, I left nothing there. Currently, she has fled for 5 months and has not paid any money. The creditor kept claiming my debt, threatening to accuse me. By April 2019, the amount of both principal and interest is more than VND 6,500,000. I want to know how to accuse her of fraud and demand her repayment?

FDVN’s opinion:

Sincerely thank you for concerning our legal consulting service. We are glad to give you our advice on your question.

Clause 1 Article 335 of the Civil Code 2015 provides as follows: “ Guarantee means an undertaking made by a third person (hereinafter referred to as the guarantor) to an obligee (hereinafter referred to as the creditor) to perform an obligation on behalf of an obligor (hereinafter referred to as the principal debtor) if the obligation falls due and the principal fails to perform or performs incorrectly the obligation.”

The fact that you voluntarily signed a guarantee of VND 5 million has given rise to a guarantee relationship. Accordingly, in case the obligor (your friend) fails to perform or improperly performs her obligations, the guarantee accepting party (pawnshop) has the right to request the guarantor (you) to perform guarantee obligations unless the parties have agreed that the guarantor must perform the obligations on behalf of the guaranteed in cases where the guaranteed is incapable of performing the obligations (Clause 1, Article 339 of the Civil code 2015). Therefore, the pawnshop reserves the right to ask you to repay the debt on your friend's behalf when your friend is unable to pay the debt.

Pursuant to Clause 1, Article 342 of the 2015 Civil Code: “If the principal debtor fails to perform or perform incorrectly the obligation, the guarantor is obligated to perform such obligation”. So when your friend debt evasion, you are responsible for fulfilling your friend's repayment obligations.

However, the pawnshop mentioned that the interest calculated from October 2018 to April 2019 is 1,500,000 VND, it is contrary to the law on lending interest rate in accordance with Clause 1, Article 468 of the Civil Code 2015:

 “The rate of interest for a loan shall be as agreed by the parties.

The rate of interest for a loan agreed by the parties may not exceed 20% per year unless otherwise prescribed by law. According to actual conditions and at the proposal of the Government, the Standing Committee of the National Assembly shall adjust the above interest and send the report to the National Assembly at the latest session.

If the agreed interest exceeds the maximum interest prescribed in this Clause, the agreed interest shall become invalid.” 

Thus, the maximum lending interest rate per month will be: 20%: 12 months = 1.666% / 1 month.

After 6 months, for the 5,000,000 loans, the maximum interest is 499,000 VND.

In fact, the interest rate as agreed is 5% / 1 month is unlawful. Therefore, when a dispute arises, it is not recognized and the lender cannot protect his/her interest.

Therefore, as a guarantor, you must perform the responsibility to repay the debt on behalf of your friend with the original amount of  5,000,000VND and the legal loan interest rate prescribed. At the same time, you have the right to ask your friend to fulfill your obligations to you.

Above are the advice of FDVN Limited Law Firm base on studying law provisions and theories. We hope that our opinions would be useful.

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