The amount of the penalty for non-performance by the surety has its limits

Surety is a way to secure performance stipulated by the Civil Code of the Russian Federation (the CCRF) and widely practiced. Surety relationship arises on the basis of an agreement, parties to which are the creditor of the debtor’s main obligation and the surety, the third person acting on the side of the debtor and warranting the debtor’s honest behavior (Article 361 of the CCRF). The Civil Code of the Russian Federation gives an insufficiently clear definition of the limits of the surety. The debtor’s obligations’ surety is liable to the creditor to the same extent as the debtor.

These obligations include, apart from the main debt amount, the obligations of payment of interest, of compensation of litigation costs of debt recovery and other losses of the creditor cause by the debtor’s nonperformance or undue performance, unless otherwise stipulated in the surety agreement (clause 2 of Article 363 of the CCRF). But the law does not directly state the concrete limits of the surety’s liability to the debtor’s creditor, so the issue of the size of the surety’s liability is still debatable.

Readers of the publication will find out:

• What reasons the courts give for or against penalty under surety agreements
• Why the surety’s liability cannot be greater that the debtor’s liability