Recourse right of sureties under contracts in Civil Code

By Cheng Xiao, Beijing Arbitration Commission/Beijing International Arbitration Center
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A new article regarding the sureties’ right of recourse in suretyship contracts has been established in the Civil Code.

First of all, it is recognised that the nature of the legal subrogation of the surety in the suretyship contracts is the legal assignment of creditor’s rights, which means the surety not only obtains the recourse right against the debtor, but also obtains other subordinate rights of the creditor against the debtor, after assuming the suretyship liability. This enables the surety to fully exercise the recourse right.

Article 700 of the Civil Code provided that: “Unless otherwise agreed by the parties, a surety who has assumed the suretyship liability shall have the right to reimbursement from the debtor to the extent of the suretyship liability it has assumed, and be subrogated to the right of the creditor against the debtor, without prejudice to the interests of the creditor.”

In this article, “be subrogated to the right of the creditor against the debtor” is to recognise the legal subrogation of the surety. This article limits the conditions for the exercise of the right of recourse. First, the surety shall have fully performed his suretyship liability. Second, as for the scope of recourse right against the debtor, the surety can only claim the right of recourse within the limit of his/her suretyship liability that he/she has assumed.

Third, the article sets up the legal right of subrogation to ensure the full realisation of the surety’s right of recourse. By providing, “be subrogated to the right of the creditor against the debtor”, the surety replaces the creditor’s status after undertaking the suretyship liability. That is to say, it acquires all the relevant rights of the creditor against the debtor, including the security interests, the creditor’s rights, the principal rights and the accessory rights, so that the surety can make full use of his/her rights when claiming recourse right against the debtor.

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