This document is the preface and table of contents for "The Law of Guaranties: A Jurisdiction-by-Jurisdiction Guide to U.S. and Canadian Law", which provides an overview of guaranty law across various U.S. states, Canadian provinces, and other jurisdictions. The preface and table of contents introduce the book's editors and contributors and outline the book's organization by jurisdiction.

2. Jeremy S. Friedberg, Brian D. Hulse, and James H. Prior,
Editors
Commercial Finance Committee
Uniform Commercial Code Committee
The Law of GuarantTiesA
a Jurisdiction-by-Jurisdiction Guide
to Uu.Ss. and Canadian Law

3. Cover design by Jill Tedhams/ABA Publishing.
Page layout by Quadrum Solutions.
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1. Suretyship and guaranty—United States—States. I. Jeremy S. Friedberg, Brian D. Hulse,
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4. iii
Contents
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii
Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix
Alabama State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Haskins W. Jones, Laura J. Biddy
Alaska State Law of Guaranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Joseph L. Reece, Garrett Parks
Arizona State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Jeffrey H. Verbin, Brynn Hallman
Arkansas State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Jeb Joyce, Timothy W. Grooms
California State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Robert A. Zadek, Shadi J. Enos
Colorado State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Beat U. Steiner, Paul Kyed, Erik Lemmon, Jeremy Syz, Rob Thomas
Connecticut State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Michael F. Maglio, James C. Schulwolf, R. Jeffrey Smith, Thomas J. Welsh
Delaware State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Cynthia D. Kaiser, Thomas A. Barr
Florida State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
Edgel C. Lester, Lauren E. Sembler, Shannon B. Gray
Georgia State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
C. Edward Dobbs
Hawai`i State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283
Janel M. N. Yoshimoto, Deborah Macer Chun
Idaho State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301
Kenneth C. Howell

5. iv
Illinois State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323
Teresa Wilton Harmon, Donna Baldry, Donovan Borvan,
Geoffrey King, Irfan Siddiqui
Indiana State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349
Rebecca A. Richardson, Shiv Ghuman O’Neill, John F.W. Fleming,
Jennifer A. Pearcy, Dustin R. DeNeal, Kayla D. Britton
Iowa State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375
Thomas L. Flynn
Kansas State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397
Christopher J. Rockers, Kevin Zeller
Kentucky State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417
W. P. Wiseman, Mark A. Melvin, Reza A. Rabiee
Louisiana State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431
R. Marshall Grodner
Maine State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451
Mark K. Googins, Alistair Y. Raymond
Maryland State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477
Leslie J. Polt
Massachusetts State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499
Thomas S. Hemmendinger
Michigan State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529
Robert A. Wright
Minnesota Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 547
David B. Clark, Jeremy R. Harrell
Mississippi State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 577
H. Hunter Twiford, III, Stephen F. Schelver, Taylor A. Heck
Missouri State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595
Christopher J. Rockers, Kevin Zeller
Montana Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613
Charles W. Hingle
Nebraska State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 629
Brandon R. Tomjack, Eric J. Adams

6. v
Nevada State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 649
Jim Mace, Leslie Godfrey
New Hampshire State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 669
Connie Boyles Lane
New Jersey State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 683
Steven D. Fleissig
New Mexico State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 699
John P. Burton
New York State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 717
Penelope L. Christophorou, Catherine A. Borneo, Mbabazi Kasara,
Kathleen O’Neill, Benjamin Snodgrass
North Carolina State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 763
Kenneth M. Greene
North Dakota State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 789
Richard P. Olson, Wanda L. Fischer
Ohio State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 809
Timothy E. Grady, Amy C. Strang
Oklahoma State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 847
J. Mark Lovelace, Eric L. Johnson, Joshua L. Edwards
Oregon State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 877
Michael R. Silvey
Pennsylvania State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 895
Harvey I. Forman, Claire P. Edwards
Rhode Island State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 923
Thomas S. Hemmendinger
South Carolina State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 949
Mark S. Sharpe
South Dakota State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 985
Haven L. Stuck
Tennessee Law of Guaranties and Sureties . . . . . . . . . . . . . . . . . . . . . . . . . . . 1003
Ernest B. Williams IV, Michael B. Schwegler

7. vi
Texas State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1037
Kenneth M. Vesledahl
Utah State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1061
Carl W. Barton
Vermont State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1073
Afi Ahmadi, Margaret Platzer, Daniel Roberts
Virginia State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1087
Wilson R. Trice
Washington State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1103
Brian D. Hulse
West Virginia State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1145
Charles D. Dunbar
Wisconsin Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1157
Brent A. Stork, Jeffrey M. Barrett
Wyoming State Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1175
Gregory C. Dyekman
District of Columbia Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1191
Edmund D. Harllee, Jamie W. Bruno
Equal Credit Opportunity Act’s Restrictions Regarding Guaranties . . . . . . 1207
Laura Hobson Brown
Canadian Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1215
S. Jason Arbuck
Quebec Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1241
Keyvan Nassiry
Puerto Rico Law of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1259
Juan C. Salichs
Editors and Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1279

8. vii
Preface
We are pleased to present the first edition of The Law of Guaranties, A Jurisdiction-
by-Jurisdiction Guide to U.S. and Canadian Law. This book is the product of a joint
task force of the Commercial Finance Committee and the Uniform Commercial Code
Committee of the ABA’s Business Law Section.
The Law of Guaranties is a unique resource for commercial lenders and their
lawyers. It collects detailed information about the laws of guaranty of all 50 states, the
District of Columbia, Puerto Rico, Canada and applicable Federal statutes updated as of
late 2012. The Law of Guaranties represents a tremendous effort on the part of many
experienced and devoted lawyers over an extended period of time, often by individuals
who are leaders of the bar.
OursinceregratitudeisduetoeachofourauthorsandtotheAmericanBarAssociation’s
talented and committed staff members, who brought the project to fruition.
Special thanks are in order for Penelope L. Christophorou of Cleary Gottlieb Steen
& Hamilton LLP. Penny was the original inspiration for this project when she was the
chair of the Uniform Commercial Code Committee of theABA’s Business Law Section.
Penny was responsible for the first draft of the template used to create the chapters in
this book.
We hope you find The Law of Guaranties to be useful and welcome your input and
suggestions for future editions.
Jeremy S. Friedberg
Leitess Friedberg PC
Baltimore, Maryland
Brian D. Hulse
Davis Wright Tremaine LLP
Seattle, Washington
James H. Prior
Porter, Wright, Morris, & Arthur LLP
Columbus, Ohio
Co-Chairs, Joint Task Force on Survey of Laws of Guaranties

10. ix
Foreword
Anyone remotely familiar with the law of guaranty knows that the Restatement (Third)
of the Law of Suretyship and Guaranty (ALI 1996) is an indispensable text. It provides
a wonderful summary of what the law is generally, along with the reasons underlying
each rule. Unfortunately, no area of law is truly as uniform as any restatement makes
it seem, and that is certainly true with respect to the law of guaranty. Hence the need
for this book.
In the pages that follow, the reader will learn about the key cases, statutes, and
nuances of the law of guaranty in each jurisdiction within the United States and Canada.
That makes this book an essential tool for both transactional lawyers and litigators. The
former can use it when drafting or negotiating a guaranty, particularly one that may be
governed by the law of a jurisdiction with which the lawyer is not intimately familiar.
For as this book ably demonstrates, choice of law matters. Litigators will find this book
useful in preparing to enforce or escape liability under a guaranty. By organizing the
material by jurisdiction, and providing what is in essence a basic law review article
about the law in that locality, this book refers users to what they need to know, even if
they were unaware they needed to know it.
That is something of a Herculean task. Yet the editors have obtained the assis-
tance of notable and experienced practitioners in each jurisdiction. These authors
have produced a work that belongs on the shelf of every commercial lawyer. That is
evidenced most clearly by the highlights and practice pointers in each section. Those
highlights and practice pointers reveal how varied – and occasionally surprising – the
law of guaranty is. For example,
Anti-deficiency statutes. In Nebraska, guarantors do not get the benefit of the three-
month statute of limitations applicable to an action for a deficiency against a principal
obligor following a non-judicial foreclosure of real property. In Utah, they do.
Attorney’s fees. In Nebraska, a contractual provision providing for attorney’s fees
in connection with a lawsuit to enforce a contract is void as against public policy. The
same is true in the Dakotas.
Community property. The rules vary widely about whether the community property
of a guarantor can be reached if the guarantor’s spouse has not signed the guaranty. In
Arizona, the guarantor has no recourse to community property. In Idaho, the guarantor
does. In Washington, it depends on whether the guaranteed obligation benefitted the
community. And in New Mexico, the law is unclear on this point. Of course, the fed-
eral Equal Credit Opportunity Act and Regulation B (detailed in the chapter on federal
law) limit a creditor’s ability to simply require both spouses to sign the guaranty, so
an understanding of the marital property laws of the applicable jurisdiction are critical
when the guarantor is an individual.
Continuing guaranties. Kentucky apparently restricts the use of continuing
guaranties because it requires that a guaranty agreement either expressly reference the
instrument being guaranteed or specify both a maximum liability and a termination
date. In Alabama, in contrast, a clause in a guaranty agreement requiring the express

11. x
written consent of the obligee before the guarantor may revoke a continuing guaranty
is enforceable.
Secured transactions. Washington State has non-uniform versions of U.C.C.
§§ 9-602 and 9-624, which allow secondary guarantors to waive several otherwise
non-waivable rights under Article 9.
This brief glimpse should be sufficient to show that this book will appeal to novices
and experts alike.
December 2012
Stephen L. Sepinuck
Professor
Director, Commercial Law Center
Gonzaga University School of Law

12. 1241
Contents
§ 1 Nature of the Guaranty Arrangement . . . . . . . . . . . . . . . . . . . . . . . . . 1244
1.1 Guaranty Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1244
1.2 Guarantor versus Surety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1244
1.3 “Cautionnement Réel”(Third-party Pledge) . . . . . . . . . . . . . . . . . . 1245
1.4 Performance Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1245
1.5 Conflict of Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1245
§ 2 Quebec Law Requirements for an Entity to Enter a Guaranty . . . . . . 1246
2.1 Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1246
2.2 Partnerships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1246
2.3 Limited Liability Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1247
2.4 Banks, Credit Unions, and Trust Companies . . . . . . . . . . . . . . . . . 1247
2.5 Individuals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1247
§ 3 Signatory’s Authority to Execute a Guaranty . . . . . . . . . . . . . . . . . . . 1249
3.1 Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1249
3.2 Partnerships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1249
3.3 Limited Liability Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1249
3.4 Banks, Credit Unions, and Trust Companies . . . . . . . . . . . . . . . . . 1249
Quebec Law of Guaranties
Keyvan Nassiry
BCF LLP
1100 René-Lévesque Blvd West
25th floor
Montreal, Quebec H3B 5C9 Canada
(514) 397-8500
(514) 397-8515
keyvan.nassiry@bcf.ca
www.bcf.ca

13. 1242 The Law of Guaranties
§ 4 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1250
§ 5 Notice of Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1250
§ 6 Interpretation of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1251
6.1 General Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1251
6.2 Contract of Adhesion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1251
§ 7 Defenses of the Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1252
7.1 Defenses of the Primary Obligor. . . . . . . . . . . . . . . . . . . . . . . . . . . 1252
7.1.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1252
7.1.2 Defenses that may not be Raised by Guarantor. . . . . . . . . 1252
7.2 Defenses that may only be Raised by Guarantor . . . . . . . . . . . . . . 1253
§ 8 Waiver of Defenses by the Guarantor. . . . . . . . . . . . . . . . . . . . . . . . . . 1253
8.1 Defenses that cannot be Waived . . . . . . . . . . . . . . . . . . . . . . . . . . . 1253
8.2 Defenses that may be Waived . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1254
§ 9 Third-party Pledgors—Defenses and Waiver Thereof . . . . . . . . . . . . 1254
§ 10 Solidary (joint and severally liable) Guarantors—Contribution
and Reduction of Obligations upon Payment by a Co-obligor. . . . . . 1254
§ 11 Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1255
§ 12 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1255
§ 13 Triangular Set-off in Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1256
§ 14 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1256
14.1 Guaranty entered into with the Consent of the Primary Obligor. . . . . 1257
14.2 Guaranty entered into without the Consent
of the Primary Obligor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1257
14.3 No Remedy available against the Primary Obligor. . . . . . . . . . . . . 1257
§ 15 Enforcement of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1258
§ 16 Revival and Reinstatement of Guaranties . . . . . . . . . . . . . . . . . . . . . . 1258

14. 1243
Quebec Law of Guaranties
The Province of Quebec is a civil law jurisdiction where most principles of
law applicable to private legal relationships, including those applicable to
guaranties, are codified in the Civil Code of Quebec. Case law serves to
interpret the intentions of law-makers. Accordingly, the laws of guaranties
applicable in Quebec may include certain principles that may be unfamiliar
to practitioners in the rest of Canada and the United States which are com-
mon law jurisdictions.
Introductory Note: The Province of Quebec is a civil law jurisdiction where
most principles of law applicable to private legal relationships, including those
applicable to guaranties and to various other nominate contracts, are codified in
the Civil Code of Quebec (CCQ).1
Case law serves to interpret the intentions of
lawmakers. Due to this distinctive feature of Quebec law, there exist noticeable dif-
ferences between the laws of guaranties applicable in Quebec and those applied in
the rest of Canada and the United States which are common law jurisdictions.
In order to standardize our discussion of the law of guaranties, we have adapted
the language of the CCQ and used the following vocabulary for referring to the
various parties to a guaranty and their obligations.
“Guarantor” means a person (called a “surety” in the CCQ) who, by contract,
agrees to satisfy an underlying obligation of another to an obligee upon the primary
obligor’s default on that underlying obligation. Under Quebec law and practice,
the terms “surety” and “guarantor” are interchangeable.
“Guaranty” means the contract (called a “suretyship” in the CCQ) by which the
guarantor agrees to satisfy the underlying obligation of a primary obligor to an
obligee in the event the primary obligor defaults on the underlying obligation.
“Obligee” means the person (called a “creditor” in the CCQ) to whom the under-
lying obligation is owed. For example, the lender under a loan agreement would
be an obligee vis-à-vis the borrower.
“Primary Obligor” means the person (called a “debtor” in the CCQ) who incurs
the underlying obligation to the obligee. For example, the borrower under a loan
agreement would be a primary obligor.
“Underlying Obligation” means the obligation or obligations incurred by the
primary obligor and owed to the obligee. For example, the borrower’s obligation
to make payments to a lender of principal and interest on a loan constitutes an
underlying obligation.
1. S.Q. 1991, chapter 64, hereinafter CCQ.

15. 1244 The Law of Guaranties
§ 1 Nature of the Guaranty Arrangement
1.1 Guaranty Relationships
Under Quebec law, a guaranty is a contract by which a person, the guarantor,
binds itself toward the obligee, gratuitously or for remuneration, to perform the
underlying obligation of the primary obligor if the latter fails to fulfill same.2
A guaranty may also be imposed by statute or a court order, and would be
subject to the rules described herein which govern consensual guaranties.3
The guarantor may guaranty the underlying obligation without the order
or even the knowledge of the primary obligor.4
A guaranty may be contracted only for a valid obligation, but not for
an amount in excess of the underlying obligation or under more onerous
conditions.5
Also, the guarantor is bound to fulfill the underlying obligation
only if the primary obligor fails to perform it.6
Moreover, unless the guaran-
tor expressly renounced thereto in advance or bound itself with the primary
obligor on a “solidary” 7
basis, it may invoke the “benefit of discussion,”
thus compelling the enforcing obligee to demand payment from and exhaust
its recourses against the primary obligor before seeking performance under
the guaranty for any shortfall.8
Due to all of the foregoing, the obligation of
the guarantor is typically referred to as being secondary, or “accessory,” and
“subsidiary” to the underlying (or “principal”) obligation.
In case of several guarantors guarantying the same underlying obligation
of the same primary obligor, each guarantor is liable for the entire underlying
obligation but may invoke the “benefit of division.” The benefit of division
contemplates the right of a guarantor, sued for performance of the entire
underlying obligation, to compel the obligee to divide and reduce its claim to
the pro rata share of such guarantor. The benefit of division is not available
if the guarantor renounced it expressly in advance or is otherwise obligated
towards the obligee on a solidary basis with the primary obligor.9
1.2 Guarantor versus Surety
Unlike certain common law jurisdictions which distinguish between a “guar-
antor” and a “surety,” Quebec practitioners use such terms interchangeably.
Under Quebec law, a guarantor that has obligated itself on a solidary basis
with the primary obligor would become tantamount to the common law surety.
2. Article 2333 CCQ.
3. Article 2334 CCQ; see also Commentaires du ministre de la justice, le Code civil du Québec : un mouvement
de société, published 1993 by Gouvernement du Québec, Ministère de la justice (hereinafter “Comments of the
Minister of Justice”) for such Article; for an example of a guaranty imposed by statute, see section 155 of the
Bills of Exchange Act (R.S.C., 1985, c. B-4); for an example of a court-ordered guaranty, see section 716 of the
Civil Code of Procedure (R.S.Q., chapter C-25).
4. Article 2336 CCQ.
5. Articles 2340, 2341 CCQ.
6. Article 2346 CCQ; see also the Comments of the Minister of Justice for such Article.
7. A “solidary” obligation is similar to a joint and several obligation under common law.
8. Articles 2347, 2352 CCQ.
9. Articles 2349, 2352 CCQ.

16. Quebec 1245
Like the common law suretyship, solidarity between the guarantor and the
primary obligor allows the obligee to proceed against the guarantor at once
without making any demand of the primary obligor.
1.3 “Cautionnement Réel”(Third-party Pledge)
Under Quebec law, a third party may pledge collateral in favor of the obligee
to secure the primary obligation without becoming personally liable for the
primary obligation.10
Such relationship is called cautionnement réel.11
In a
recent decision, the Court of Appeal of Quebec12
ruled that a cautionnement
réel would not entitle the third party pledgor to the benefits and defenses typi-
cally available to a guarantor pursuant to the rules governing guaranties, and
thus placing such relationship squarely under the rules governing hypothecs13
which are beyond the scope of this survey.
1.4 Performance Guaranties
Quebec law recognizes performance or completion guaranties regarding
obligations other than the payment of money. While typically entered into by
insurance companies against remuneration to support the completion of con-
struction projects, such guaranties are governed by the same rules applicable to
guaranties for payment of money.14
In this regard, unless the obligee requires
for a specific person to be the guarantor, the guarantor must be domiciled in
Canada and have and maintain sufficient property in the Province of Quebec
to meet the object of the primary obligation.15
1.5 Conflict of Laws
Under Quebec private international law, the form of a contract of guaranty is
governed by the law of the place where it is made. If the contract of guaranty
does not create a security interest, it remains valid if made in the form pre-
scribed by the law of the domicile of the guarantor upon execution.16
Quebec
law imposes no particular form for a guaranty to be valid.
Moreover, basing itself on the Convention on the Law Applicable to Con-
tractual Obligations (Rome Convention of 1980), Quebec law recognizes the
autonomy of the will of the parties where the designation of the applicable
law is concerned.17
Thus, a contract of guaranty, whether or not containing
any foreign element, is governed by the law expressly designated therein
10. Article 2681 CCQ.
11. In French, cautionnement means guaranty; réel may be roughly translated to the Latin expression in rem.
12. Roker v. Prêt relais Capital Inc., 2012 QCCA 1295.
13. Depending on whether it charges personal or real property (as understood in the common law jurisdictions), a
“hypothec” is equivalent to a security interest or mortgage.
14. Articles 2111, 2123 CCQ; KARIM Vincent, Contracts d’Entreprise, 2nd ed., Montreal, Wilson & Lafleur Ltée,
2011, at para 861; See Garantie, Cie d’assurance de l’Amérique du Nord v. Vortek Groupe Conseil Inc., 2005
CanLII 11928 (QC C.S.).
15. Article 2337 CCQ.
16. Article 3109 CCQ.
17. Dell Computer Corp. v. Union des consommateurs, [2007] 2 S.C.R. 801, 2007 SCC 34.

17. 1246 The Law of Guaranties
(or the designation of which may be inferred with certainty from the terms
thereof).18
If no law is designated in the guaranty, Quebec courts would apply the law
of the country with which the guaranty is most closely connected, in view of
its nature and the attendant circumstances.19
A guaranty containing no choice
of law clause would be presumed to be most closely connected with the law
of the jurisdiction where the party who is to perform the prestation which is
characteristic of the contract (i.e., the guarantor) resides or, if the guaranty is
made in the ordinary course of business of an enterprise of the guarantor, the
latter’s establishment.20
§ 2 Quebec Law Requirements for an Entity to
Enter a Guaranty
2.1 Corporations21
Under Quebec law, all legal persons, including corporations,22
have full enjoy-
ment of civil rights and, unless prohibited by law, are capable of exercising
all their rights (which include the right to contract).23
While the Business
Corporations Act (Quebec) does allow for the articles of the corporation to
restrict its “business activity,”24
it is seldom the case in practice. Moreover, the
statute provides that, unless otherwise provided in its bylaws or in a unanimous
shareholder agreement, the board of directors of a Quebec corporation may,
on behalf of the corporation, enter into a guaranty securing the performance
of an obligation of any person.25
2.2 Partnerships
Under Quebec law, general partnerships and limited partnerships are not con-
sidered to be legal persons and are thus not endowed with juridical personality.26
However, a partnership has been characterized as an entity separate from its
members, with the ability to sue and be sued and the capacity to contract in
its own name.27
Accordingly, since a partnership represents a group of natu-
ral or legal persons, the absence of juridical personality would not prevent
18. Article 3111 CCQ.
19. Article 3112 CCQ.
20. Article 3113 CCQ.
21. We have limited this survey to Quebec law corporations. Corporations existing under the Canada Business
Corporations Act are dealt with in the Canada (All Provinces Except Quebec) Survey.
22. Pursuant to section 10 of the Business Corporations Act, R.S.Q., chapter S-31.1, a corporation is a legal per-
son.
23. Articles 301, 303 CCQ.
24. Section 5(9) Business Corporations Act, R.S.Q., chapter S-31.1.
25. Section 115(3) Business Corporations Act, R.S.Q., chapter S-31.1.
26. Article 2188 CCQ; Laval (Ville de) v. Polyclinique médicale Fabreville, s.e.c., [2007] J.Q. no 2309, EYB 2007-
117003 (C.A.).
27. Articles 2221, 2225 CCQ.

18. Quebec 1247
a partnership, represented by a duly authorized partner, from entering into a
contract of guaranty.
2.3 Limited Liability Companies
Quebec law does not contemplate limited liability companies, but would
otherwise recognize a valid guaranty governed by foreign law entered into
by such entities.
2.4 Banks,28
Credit Unions, and Trust Companies
A credit union established in Quebec has the power to enter into a guaranty in
favor of third parties for the benefit of its members. If the obligee is the Bank
of Canada, the Government of Canada or any Canadian Crown corporation,
the guaranty must be authorized by the Minister of Finance at the request of
the Autorité des marchés financiers (AMF), the body mandated by the govern-
ment of Quebec to regulate the province’s financial markets.29
Under Quebec law, every company that is expressly authorized by its
articles of incorporation to act as tutor or curator to property, liquidator, syndic,
sequestrator, adviser to a person of full age or trustee is a trust company. Every
Quebec trust company may, in addition to such activities, carry on any acces-
sory activity or activity related to that of administrator of the property of others
or of financial intermediary and, in particular, may enter into a guaranty.30
2.5 Individuals
A natural person must be mentally competent31
and have capacity to enter
into any contract, including a guaranty. In Quebec, upon attaining the age of
majority at 18 years, a person ceases to be a minor and has the full exercise of
all his civil rights which includes entering into contracts.32
A minor, legally
emancipated,33
may also execute a guaranty. The CCQ also provides for certain
rules of capacity applicable to the execution of contracts by persons of full
age under protective supervision.34
Regardless of his or her matrimonial regime,35
a spouse may enter into a
guaranty without the consent of the other spouse if no hypothec secures the
guaranty.36
The guarantor’s matrimonial regime determines whether the writ-
28. Canadian banks are dealt with in the Canada (All Provinces Except Quebec) survey.
29. Sections 5(2), 77, 81.1 An act respecting financial services cooperatives, R.S.Q., chapter C-67.3.
30. Sections 1, 170(6) An act respecting trust companies and savings companies, R.S.Q., chapter S-29.01.
31. Thibodeau v. Thibodeau, [1961] S.C.R. 285.
32. Article 153 CCQ.
33. Article 172 to 176 CCQ.
34. See the tutorship and curatorship rules set forth in Articles 256 ff. CCQ.
35. In Quebec, matrimonial rights of a spouse result from marriage or civil union but do not extend to a de facto
spouse. At the time of writing, such exclusion of de facto spouses is being challenged before the Supreme Court
of Canada.
36. Article 397 CCQ; unless the spouse enters into a contract for the current needs of the family, it would not bind
the noncontracting spouse. However, if the contact is entered into for current family needs, the noncontracting
spouse may renounces to any obligations thereunder by so informing the counterparty (i.e., obligee) prior to the
execution of the contract.

19. 1248 The Law of Guaranties
ten consent of the noncontracting spouse is required in case the guaranty is
secured by a hypothec.
There are three major matrimonial regimes governing spouses in Quebec:
(1) separation as to property created by marriage or civil union contract,37
(2)
community of property,38
and (3) partnership of acquests.39
Regardless of the
guarantor’s matrimonial regime, the written consent40
of the noncontracting
spouse is always required if the collateral charged by such hypothec includes
the immovable property41
used as family residence. Where the guarantor’s mat-
rimonial regime is the separation as to property or the partnership of acquests,
the consent of the noncontracting spouse is not required if the hypothec charges
any other immovable property.42
Where the guarantor’s matrimonial regime
is the community of property, the consent of the noncontracting spouse is
generally required if the hypothec charges any immovable forming part of
the community.43
Upon dissolution of the guarantor’s marriage or civil union, an unsecured
obligee would have ordinary recourse to the assets of the guarantor regardless
of whether such assets are dividable with the noncontracting spouse. In case
of dissolution of the marriage or civil union, the net value of the assets of the
guarantor may be reduced by compensation (i.e., set-off) against obligations
owing by the guarantor to the other spouse. Conversely, such assets may
increase if the guarantor holds a claim against the noncontracting spouse.
Particular rules are provided in the CCQ for partition of marital assets. For
instance, the creditor of a guarantor married in partnership of acquests who
waives his rights to partition in prejudice of the creditor’s rights may apply
to the court to challenge the waiver.44
Moreover, it is prohibited under Quebec law to proceed with a gift mortis
causa outside a will or a marriage or civil union contract.45
Therefore, if the
guarantor co-owns immovable property with the noncontracting spouse, upon
death of the guarantor, the latter’s share in such property will be automati-
cally included in the estate and continue to remain subject to recourse by the
obligee. The foregoing likely constitutes a distinction with joint tenancy rules
in common law jurisdictions.
37. Articles 485, 521.8 CCQ.
38. Statutory regime for spouses married before July 1, 1970;Articles 1272-1425i of the Civil Code of Lower Canada
and Article 492 CCQ.
39. Statutory regime for spouses married since July 1, 1970; Articles 448-484 CCQ.
40. Articles 401 ff. CCQ.
41. “Immovable property” is equivalent to real property under common law. Given the complexity of the rules
applicable to each matrimonial regime, we have limited this survey to personal guaranty secured by immovable
property and have not dealt with hypothecs over movable property (i.e., personal property). By way of example,
subject to some exceptions, an unregistered investment portfolio may be generally pledged by the guarantor
without the consent of the noncontracting spouse.
42. Articles 461, 486 CCQ.
43. Article 1292 of the Civil Code of Lower Canada.
44. Article 470 CCQ.
45. Article 1819 CCQ.

20. Quebec 1249
§ 3 Signatory’s Authority to Execute a Guaranty
3.1 Corporations
As a legal person, a corporation is represented by its “senior officers,” who
bind it to the extent of the powers vested in them by law, the corporation’s
articles or bylaws.46
The obligee may presume that a corporation is exercis-
ing its powers in accordance with its articles and bylaws and any unanimous
shareholder agreement, that its directors and officers validly hold office and
lawfully exercise the powers of their office, and that a contract (such as a
guaranty) executed by a director, officer, or other mandatary of the corporation
has been validly entered into.47
3.2 Partnerships
The partners of a general partnership created under Quebec law may appoint
one or more fellow partners or even a third party to manage the affairs of
the partnership. The manager may execute a guaranty if within its powers.48
Also, notwithstanding any contrary provision in the partnership agreement,
each partner, even if excluded from management duties, is a mandatary of the
partnership in respect of third parties in good faith and may bind the partnership
for a guaranty signed in its name in the ordinary course of business.49
In a limited partnership, only the general partner is authorized to bind
the partnership.50
3.3 Limited Liability Companies
As indicated above, Quebec law does not contemplate limited liability com-
panies.
3.4 Banks,51
Credit Unions, and Trust Companies
The obligee may presume that a credit union is pursuing its mission and exer-
cising its powers in accordance with its articles and bylaws, that the officers of
the cooperative are validly holding office and lawfully exercising the powers
arising therefrom, and that a contract (such as a guaranty) which emanates
from an officer is valid and binding.52
The obligee may presume that a trust company is exercising its powers in
accordance with its articles and bylaws and any unanimous shareholder agree-
ment, that its directors and officers validly hold office and lawfully exercise
46. Article 312 CCQ.
47. Section 13(4) Business Corporations Act, R.S.Q., chapter S-31.1.
48. Article 2213.CCQ.
49. Article 2219 CCQ.
50. Article 2236 CCQ.
51. Canadian banks are dealt with in the Canada (All Provinces Except Quebec) survey.
52. Section 71 An act respecting financial services cooperatives, R.S.Q., chapter C-67.3.

21. 1250 The Law of Guaranties
the powers of their office, and that a contract (such as a guaranty) executed by
a director, officer, or other mandatary of the trust company has been validly
entered into.53
The directors and officers of a trust company are deemed to be
mandataries of the company.54
§ 4 Consideration
Unlike the other Canadian jurisdictions where an exchange of sufficient con-
sideration is essential in order to create an enforceable contract, consideration
(as understood in most common law jurisdictions) is not required for a contract
to be binding under Quebec law. From a civil law perspective, instead of an
exchange by the parties of valuable rights, a concurrence of wills is required
to form a valid bilateral contract.55
In the Province of Quebec, the element of
contract law that offers some similarity with consideration is the cause of the
contract.56
The cause of a contract of guaranty is the lawful reason that moti-
vates the guarantor to enter into such contract and it need not be expressed.57
For instance, in the case of a guaranty entered into as part of a financing, the
guarantor’s motivating factor would likely be the direct or indirect benefit
drawn from the extension of credit by the lender to the borrower.
§ 5 Notice of Acceptance
As is the case with all contracts, a guaranty obligation is formed when and
where acceptance is received by the offeror, regardless of the method of com-
munication used, and even if the parties may have not yet agreed on secondary
terms.58
The exchange of consents is accomplished by the express or tacit
manifestation of the will of the obligee to accept a guaranty offered by the
guarantor.59
53. Sections 5 An act respecting trust companies and savings companies, R.S.Q., chapter S-29.01 (which refers to
the Business Corporations Act, R.S.Q., chapter S-31.1).
54. Section 107 An act respecting trust companies and savings companies, R.S.Q., chapter S-29.01.
55. TANCELIN Maurice, Des obligations en droit mixte du Québec, 7th ed., Montreal, Wilson & Lafleur Ltée, 2009,
para 255 ff; see also analysis in Royal Institution for the Advancement of Learning v. Hutchison, (1931) 50 B.R.
107, and in Banque canadienne impériale de commerce v. Mallette et Co., [1987] R.J.Q. 96 (C.A.).
56. Other than the cause, the other three Quebec law requirements to form a valid contract are capacity, consent, and
object (i.e., juridical operation); Article 1385 CCQ.
57. Articles 1371, 1410 CCQ. Article 984 of the former Civil Code of Lower Canada made “a lawful cause or
consideration” one of the four requisites to the validity of a contract.
58. Article 1387 CCQ.
59. Article 1386 CCQ.

22. Quebec 1251
§ 6 Interpretation of Guaranties
6.1 General Principles
A guaranty must be expressly made through a written or verbal contract, and
it may not be presumed.60
The general principles of interpretation applicable
to all contracts (set forth in Articles 1425 to 1432 CCQ) would also apply to a
guaranty. In interpreting a guaranty, its nature, the circumstances in which it
was formed, the interpretation which has already been given to it by the parties
or which it may have received, and usage are all taken into account.61
In case of doubt or if the guaranty is a contract of adhesion, Quebec courts
apply a rule similar to the common law doctrine of contra proferentem:62
the guaranty is construed strictly in favor of the guarantor and against the
obligee.63
6.2 Contract of Adhesion
Under Quebec law, a contract of guaranty in which the essential stipulations
were imposed or drawn up by the obligee, on its behalf or upon its instructions,
and were not negotiable is a contract of adhesion.64
An example is the form of
guaranty often drawn by a lending institution on a standard form, where the
guarantor has little or no part in the negotiation of the agreement.
In a guaranty that is a contract of adhesion, the following types of clauses
are generally unenforceable:
(i) an external clause, unless it was expressly brought to the attention
of the guarantor on the date of execution of the guaranty, or unless
the guarantor otherwise knew of it;65
(ii) an illegible or incomprehensible clause that causes damage to the
guarantor, unless an adequate explanation of the nature and scope
of the clause was given to the guarantor;66
and
(iii) an abusive clause. A clause is considered abusive if it is excessively
and unreasonably detrimental to the guarantor and is therefore not
in good faith.67
60. Article 2335 CCQ; see also the Comments of the Minister of Justice under suchArticle. The foregoing is contrary
to the general principal of Article 1386 CCQ which provides that the exchange of consents may be either express
or implied.
61. Article 1426 CCQ.
62. For an application of this doctrine by the Supreme Court of Canada, see Manulife Bank of Canada v. Conlin,
[1996] 3 S.C.R. 415.
63. Article 1432 CCQ.
64. Article 1379 CCQ.
65. Article 1435 CCQ.
66. Article 1436 CCQ.
67. Article 1437 CCQ.

23. 1252 The Law of Guaranties
§ 7 Defenses of the Guarantor
7.1 Defenses of the Primary Obligor
7.1.1 General
Whether or not he is bound on a solidary basis with the primary obligor, the
guarantor may assert against the obligee all the defenses of the primary obli-
gor, except those that are purely personal to the primary obligor or that are
excluded by the terms of guaranty.68
The foregoing principle results from the
accessory nature of the contract of guaranty.69
Accordingly, the defenses dealing with the extinction (or reduction) of the
primary obligation are available to both the primary obligor and the guarantor.
Extinction of debt may occur by total payment of the underlying obligation,70
the expiry of an extinctive term,71
novation,72
prescription,73
compensation,74
confusion,75
release,76
impossibility of performance77
or discharge of the pri-
mary obligor.78
The guarantor may also raise as a defense the nullity of the guaranty due
to the primary obligor’s defect of consent79
upon the formation of the contract
of guaranty.
7.1.2 Defenses that may not be Raised by Guarantor
The guarantor may not assert defenses that are purely personal to the primary
obligor or that have been excluded by agreement in the guaranty. Defenses
that are purely personal to the primary obligor include the incapacity80
and the
bankruptcy of the primary obligor. However, pursuant toArticle 2340 CCQ, if
the guarantor has knowledge of the incapacity of the primary obligor, it may not
68. Article 2353 CCQ.
69. As indicate above, the guarantor is bound to fulfill the underlying obligation only if the primary obligor fails to
perform it.
70. Article 1553 CCQ.
71. Article 1517 CCQ. An obligation with an extinctive term is an obligation which has a duration fixed by law or
by the parties and which is extinguished by expiry of the term.
72. Articles 1660 ff. CCQ. Pursuant to Article 1665 CCQ, novation effected in respect of the primary obligor gener-
ally releases its guarantors.
73. Articles 2875 ff. CCQ. “Prescription” is equivalent to statute of limitation under common law. Pursuant toArticle
2899 CCQ, a judicial demand or any other act of interruption of prescription against the primary obligor or against
a guarantor interrupts prescription with regard to both.
74. Articles 1672 ff. CCQ. “Compensation” is equivalent to set-off under common law. Pursuant to Article 1679
CCQ, a guarantor may set up compensation for what the obligee owes to the primary obligor, but the latter may
not set up compensation for what the obligee owes to the guarantor. Set-off is discussed in more details under §
13 below.
75. Articles 1683 ff. CCQ. Pursuant to Article 1684 CCQ, confusion of the qualities of obligee and primary obligor
in the same person avails the guarantor. However, confusion of the qualities of guarantor and creditor or of
guarantor and primary obligor does not extinguish the primary obligation.
76. Articles 1687 ff. CCQ.
77. Article 1693 CCQ; the defense of impossibility of performance is similar to the defense of force majeur or Act
of God.
78. Articles 1695 ff. CCQ.
79. Pursuant to Article 1407 CCQ, a person whose consent is vitiated has the right to apply for annulment of the
contract.
80. Article 1398 CCQ.

24. Quebec 1253
use same in its own defense. The Court of Appeal of Quebec81
has confirmed
that in the absence of a specific provision in the text of the guaranty, Quebec
law would not release the guarantor from the performance of the guaranty
when the primary obligor is adjudged bankrupt.
7.2 Defenses that may only be Raised by Guarantor
Certain defenses are only available to the guarantor.82
They include the benefit
of discussion, the benefit of division, the death of the guarantor,83
the nullity
of the guaranty contract (e.g., defect of consent), the breach by the obligee
of its duty to inform the guarantor, the loss of the guarantor’s benefit of sub-
rogation, the breach by the obligee of its duty to act in good faith,84
and the
compensation (set-off) of the obligations of the guarantor with the obligations
of the obligee to the primary obligor.
§ 8 Waiver of Defenses by the Guarantor
8.1 Defenses that cannot be Waived
Under Quebec law, the guarantor cannot renounce in advance to its right to be
provided with information or to the benefit of subrogation.85
Given that both
such rights are of public order, the guarantor may always raise any violation
thereof as a defense in any action for performance of the guaranty.
The first defense relating to the duty to inform is based on the duty of the
obligee to act in good faith as confirmed by the Supreme Court of Canada.86
At the request of the guarantor, the obligee must provide it with any useful
information respecting the content and the terms and conditions of the primary
obligation and the progress made in its performance.87
The obligee’s duty to
inform the guarantor has been often limited by case law to situations where
the guarantor is in a vulnerable position as regards information, from which
damages may result.88
With respect to the second right, if the guarantor can no longer be usefully
subrogated to the rights of the obligee as a result of the latter’s actions, the
81. St-Michael v. Kutlu, EYB 1994-59180 (C.A.). See also section 179 Bankruptcy and Insolvency Act, R.S., 1985,
c. B-3 providing that an order of discharge does not release a person who at the time of the bankruptcy was a
person who was a surety or in the nature of a surety for the bankrupt.
82. For a more detailed description of defenses of the guarantor , see POUDRIER-LEBEL, Louise, La libération de la
caution, Service de la formation permanente du Barreau du Québec, Développements récents en droit commercial
(1996): La réforme du Code civil, rétrospective, deux ans plus tard, Cowansville (Qc), Yvon Blais, 1996.
83. Article 2361 CCQ.
84. Articles 6, 7 and 1375 CCQ.
85. Article 2355 CCQ.
86. Bank of Montreal v. Bail Ltée, [1992] 2 S.C.R. 554; the court confirmed the general theory of the obligation to
inform, based on the duty of good faith in the realm of contracts.
87. Article 2345 CCQ; the principle is also inspired from the decision of the Supreme Court of Canada in National
Bank v. Soucisse et al., [1981] 2 S.C.R. 339.
88. Trust La Laurentienne du Canada Inc. v. Losier, EYB 2001-22029 (C.A.).

25. 1254 The Law of Guaranties
guarantor may be discharged to the extent of the damages suffered.89
Subroga-
tion is discussed in § 12 below.
8.2 Defenses that may be Waived
Most forms of guaranties governed by Quebec law provide for the waiver
of defenses based on the benefit of discussion, the benefit of division, or the
defenses of the primary obligor that are not purely personal to it.
One defense that is surprisingly not waived on a consistent basis in forms
of guaranties used in Quebec deals with the guarantor’s right to terminate
a guaranty attached to the performance of special duties upon cessation of
such duties.90
In Épiciers Unis Métro-Richelieu Inc., division “Éconogros”
v. Collin,91
the Supreme Court of Canada ruled that once the guarantor has
proven that the guaranty was contracted in connection with the special duties
he performed (for example, the duties of a director or officer of the primary
obligor), the guaranty would be deemed terminated, without notice to the
obligee, as soon as such special duties have ended. A guaranty so terminated
would then be limited to the amount of underlying obligations existing at the
time of cessation of the special duties of the guarantor.92
The Court confirmed
that the foregoing principle is not of public order and may thus be overridden
by contract.
§ 9 Third-party Pledgors—Defenses and
Waiver Thereof
As indicated in section 1.3 above, under Quebec law, a third party pledgor is
no longer entitled to the benefits and defenses typically available to a guaran-
tor pursuant to the rules governing guaranties.
§ 10 Solidary (joint and severally liable)
Guarantors—Contribution and Reduction of
Obligations upon Payment by a Co-obligor
Where several persons are solidary guarantors of the same primary obligor
for the same debt, each of them is liable for the whole debt and may no longer
invoke the benefit of division.93
Solidarity between co-obligors is presumed
89. Article 2365 CCQ.
90. Article 2363 CCQ.
91. [2004] 3 S.C.R. 257, 2004 SCC 59.
92. Article 2364 CCQ.
93. Article 2352 CCQ; under the benefit of division, a guarantor may require the obligee to divide its claim and to
reduce it to the amount of the share and portion of each guarantor.

26. Quebec 1255
where the obligation is contracted for the service or carrying on of an enterprise,
and it otherwise exists if so stipulated by the parties or imposed by law.94
Pursuant toArticle 2360 CCQ, where several persons have become guar-
antors of the same primary obligor for the same debt, the guarantor who has
paid the debt has in addition to the action in subrogation,95
a personal right
of action against the other guarantors, each for his share and portion.96
The
personal right of action may only be exercised where the guarantor has paid
in one of the cases in which he could take action against the debtor before
paying. Where one of the guarantors is insolvent, its insolvency is appor-
tioned by contribution among the other guarantors, including the guarantor
who made the payment.
Upon receipt of payment, express release granted by the obligee to one of
the guarantors releases the other guarantors to the extent of the remedy they
would have had against the released guarantor. Nevertheless, no payment
received by the obligee from the guarantor for its release may be imputed to the
discharge of the primary obligor or of the other guarantors, except as regards
the guarantors, where they have a remedy against the released guarantor and
to the extent of that remedy.97
§ 11 Reliance
The doctrine of reliance-based estoppels is not recognized under Quebec law.
Accordingly, reliance is not required to claim under, or otherwise enforce a
guaranty.
§ 12 Subrogation
Under Quebec law, a person who pays in the place of a debtor may be sub-
rogated to the rights of the creditor, but such person may not have more rights
than the subrogating creditor.98
Pursuant toArticle 1656(3) CCQ, subrogation
takes place by operation of law, in favor of a person (i.e., the guarantor) who
pays a debt to which he is bound with others or for others and which he has
an interest in paying. Once subrogation has occurred, the guarantor would
replace the obligee and is entitled to claim payment of the underlying obliga-
tion from the primary obligor (as well as other guarantors).
94. Article 1525 CCQ.
95. Pursuant to Article 1656(3) CCQ, subrogation takes place by operation of law in favor of a person who pays a
debt to which he is bound with others or for others and which he has an interest in paying.
96. See also Schwitzguebel v. Cadieux, REJB 2002-30735 (C.A.) at para. 31.
97. Article 1692 CCQ; payment made by a guarantor to obtain the release of its guaranty should not be considered
payment of the underlying obligation of the primary obligor except for the other guarantors who have a claim
against the released guarantor (see Comments of the Minister of Justice underArticle 1692 CCQ); see also Banque
Nationale du Canada v. Picard, EYB 2007-123123 (C.S.) at para 10.
98. Article 1651 CCQ.

27. 1256 The Law of Guaranties
§ 13 Triangular Set-off in Bankruptcy
Regardless of the affiliation, if any, between the parties, Article 1679 CCQ
specifically allows for a triangular set-off by stipulating that a guarantor may
compensate (i.e., offset) its obligations under the guaranty with what the
obligee owes to the primary obligor. The foregoing is consistent with the
underlying principle that the guarantor may raise against the obligee all the
defenses of the primary obligor, except those which are purely personal to the
primary obligor or that are excluded by the terms of the guaranty.99
Instead of referring to the requirements of mutuality under legal set-off or
a “close connection” required under equitable100
set-off as both are understood
in common law jurisdictions, compensation under Quebec law is effected if
both obligations are certain, liquid, and exigible and the object of both of
which is a sum of money or a certain quantity of fungible property identical
in kind.101
Pursuant to subsection 97(3) of the Bankruptcy and Insolvency Act,102
the
law of set-off or compensation applies to all claims made against the estate of
the bankrupt and also to all actions instituted by the trustee for the recovery
of debts due to the bankrupt in the same manner and to the same extent as if
the bankrupt were plaintiff or defendant, as the case may be, except insofar
as any claim for set-off or compensation is affected by the provisions of such
Act respecting frauds or fraudulent preferences.
§ 14 Indemnification
Since the CCQ stipulates the rules allowing the guarantor to recover an
indemnification from the primary obligor, contracts of indemnification are
rarely used in the Province of Quebec except in cases involving performance
guaranties entered into by insurance companies.103
99. Article 2353 CCQ.
100. In D.I.M.S. Construction inc. (Trustee of) v. Quebec (Attorney General), [2005] 2 SCR 564, the Supreme Court
of Canada put a decisive end to an ongoing debate under Quebec law on the application of the rules of equitable
set-off in bankruptcy by ruling that equitable set-off does not apply in Québec.
101. Article 1673 CCQ.
102. R.S.C., 1985, c. B-3; see also section 21 of Companies’ Creditors Arrangement Act, R.S.C., 1985, c. C-36. In
the D.I.M.S. decision referred to above, the Supreme Court of Canada found that subsection 97(3) B.I.A. must
be applied in Quebec on the basis of civil law and not common law rules (at para, 64 of the decision).
103. See, for example, Cie d’assurances d’hypothèques du Canada v. Construction Sylt et Fortier, J.E. 88-903
(C.A.).

28. Quebec 1257
14.1 Guaranty entered into with the Consent of the
Primary Obligor
The guarantor may claim from the primary obligor the amount in capital,
interest, and costs paid under a guaranty entered into with the consent of the
primary obligor, as well as any damages resulting therefrom.104
If such guarantor is sued for payment or the primary obligor is insolvent,
or if the primary obligor has undertaken to obtain a termination of the guaranty
within a certain time, the guarantor may take action against the primary obli-
gor, even before paying under the guaranty.105
The same rule applies where
the debt becomes payable by the expiry of its term (disregarding any exten-
sion granted to the primary obligor by the obligee without the consent of the
guarantor), or where, by reason of losses incurred by the primary obligor or
of any fault committed by the primary obligor, the guarantor is at appreciably
higher risk than at the time the guaranty was entered into. If successful, such
action typically results in the primary obligor depositing cash collateral with
the court or otherwise granting other security to the guarantor.106
14.2 Guaranty entered into without the Consent of the
Primary Obligor
Conversely, if the primary obligor did not request or consent to the guaranty, the
guarantor may only claim the amount from which the primary obligor actually
benefits, namely, the sum which the primary obligor would have been bound
to pay to the obligee, including damages, if there had been no guaranty.107
14.3 No Remedy available against the Primary Obligor
A guarantor having paid a debt who fails to so inform the primary obligor
has no remedy against the primary obligor if the latter pays it subsequently.108
Also, the guarantor has no remedy if at the time of the payment the primary
obligor had defenses that could have enabled it to have the debt declared
extinguished. In these circumstances, the guarantor has a remedy only for the
sum the primary obligor could have been required to pay, to the extent that
the primary obligor could raise other defenses against the obligee to cause
the debt to be reduced.
Based on the principle of restitution,109
the guarantor retains his right of
action for recovery against the obligee in all such cases.
104. Article 2356 CCQ.
105. Article 2359 CCQ.
106. BOUSQUET, Jean-Pierre, Le contrat de cautionnement, in Obligations et contrats, Collection de droit 2010-2011,
École du Barreau du Québec, vol. 5, Cowansville, Éditions Yvon Blais, 2010, p. 335.
107. However, the obligee’s costs subsequent to indication of the payment are payable by the primary obligor; Article
2356 CCQ.
108. Article 2358 CCQ.
109. Pursuant to Articles 1492 and 1699 CCQ, restitution of payments takes place where a person is bound by law to
return to another person the property he has received, either unlawfully or by error, or under a juridical act which
is subsequently annulled retroactively or under which the obligations become impossible to perform by reason
of superior force.

29. 1258 The Law of Guaranties
§ 15 Enforcement of Guaranties
Since the guarantor is bound to fulfill the underlying obligation only if the
primary obligor fails to perform it,110
the only condition to the obligee’s enforce-
ment is the occurrence of such default by the primary obligor when the under-
lying obligation is exigible. The contract of guaranty may create additional
conditions, such as receipt of a notice of default by the guarantor.111
If the guarantor does not voluntarily pay the amount claimed under the
guaranty, the obligee may initiate a personal action by instituting judicial
proceedings to cause the property of the guaranty to be seized and sold112
. If
the guaranty is secured by hypothec or other security interest, the obligee may
also enforce and realize on its security.113
§ 16 Revival and Reinstatement of Guaranties
Although rare, certain forms of guaranty agreements used in the Province of
Quebec include a revival or reinstatement clause. While likely valid under Que-
bec law, a reinstated guaranty may be deemed a new obligation of the guarantor
subject to the rules of novation which may find application.114
Consideration
should be given to reserving the hypothec securing the guaranty; otherwise,
in case of novation, it may not be transferred to the new obligation.115
110. Article 2346 CCQ; see also Banque Nationale du Canada v. Notre-Dame-du-Lac (Ville), EYB 1990-63566
(C.A.).
111. See, for example, Compagnie d’assurance London Garantie v. Girard et Girard Inc., REJB 2004-53445 (C.A.).
112. Article 2646 CCQ.
113. Article 2748 CCQ.
114. Articles 1660 ff. CCQ.
115. Article 1662 CCQ.