I. About This Article
Suretyship is one of the most common means of securing performance of obligations in business and banking relationships. It is often used to secure performance of a loan, bank credit, commercial debt, supply obligation, sale and purchase obligation, contract of work, lease or another contractual obligation.
The main risk of suretyship is that the surety assumes responsibility for the performance of another person’s obligation. This means that if the principal debtor fails to perform the obligation, the creditor may, in certain cases, submit a claim against the surety.
The practice of the Supreme Court of Georgia treats suretyship as a personal means of securing performance of an obligation. Unlike mortgage and pledge, in suretyship the creditor does not receive priority satisfaction from a specific asset, but acquires a claim against the surety.
In practice, disputes related to suretyship often begin when the surety does not fully understand the scope of liability assumed, the maximum amount of liability, whether the suretyship is solidary, what defences the surety may raise and what consequences follow if the principal debtor breaches the obligation.
This article will help you understand what suretyship means, how it differs from mortgage and pledge, who the parties to a suretyship agreement are and what preconditions must exist for the validity of a suretyship agreement.
The article discusses the written form of suretyship, the importance of the maximum amount of the surety’s liability, securing future and conditional obligations, the accessory nature of suretyship, solidary and subsidiary suretyship, co-suretyship, the surety’s defences and the creditor’s information obligation.
It also explains when the surety’s liability may be reduced, excluded or when the validity of a suretyship agreement may become disputed, and how these issues are assessed in recent practice of the Supreme Court of Georgia.
II. What Is Suretyship?
Under Article 891 of the Civil Code of Georgia, by a suretyship agreement, the surety undertakes before the creditor to stand surety for a third person for the performance of that person’s obligation.
This means that the surety is not the original debtor of the principal obligation, but assumes responsibility for the case where the principal debtor fails to perform the obligation undertaken before the creditor.
According to the practice of the Supreme Court of Georgia, suretyship is a personal means of securing performance of an obligation. Its specific feature is that, for securing the creditor’s interest, decisive importance belongs not to a specific item, but to the surety’s solvency.
Suretyship is particularly relevant in business relationships where the creditor wants an additional guarantee that, if the debtor fails to perform, the creditor will also have a claim against another person.
III. How Does Suretyship Differ from Mortgage and Pledge?
Suretyship differs from real security instruments, such as mortgage and pledge.
In mortgage and pledge, the creditor receives a right over specific property to secure the claim. For example, in the case of a mortgage, the creditor may satisfy the claim from the sale of immovable property.
In suretyship, the creditor does not receive a priority right over a specific item. Instead, the creditor receives an additional obligation-law claim against the surety. If the principal debtor does not perform the obligation, the creditor may submit a claim against the surety, in compliance with the conditions established by law and the contract.
Therefore, suretyship is personal security, while mortgage and pledge are real security. This distinction is especially important when assessing risks because the surety is liable with their own property, whereas in mortgage or pledge the main focus is on the specifically encumbered property.
IV. Who Are the Parties to a Suretyship Agreement?
The parties to a suretyship agreement are the creditor and the surety. Participation of the principal debtor in conclusion of the suretyship agreement is not mandatory, although the agreement may also be concluded as a tripartite agreement involving the creditor, debtor and surety.
The Supreme Court of Georgia explains that a suretyship agreement is an independent agreement. It may be concluded independently of the debtor, and the debtor may not even know that such an agreement exists.
The surety may be either an individual or a legal entity. The law does not establish a special restriction in this regard. In practice, company partners, directors, related companies, family members or other persons whose solvency is trusted by the creditor often act as sureties.
In business, the riskiest suretyship cases often arise where a partner or director personally signs security for a company’s obligation without fully assessing the scale of personal financial liability.
V. In What Form Must a Suretyship Agreement Be Concluded?
Suretyship is a form-required transaction. Written form is necessary for its validity.
Article 892 of the Civil Code of Georgia requires a written declaration of the surety and indication, in the suretyship document itself, of the quantitatively determined maximum amount of the surety’s liability.
The written form requirement is a mechanism for protecting the surety. A suretyship agreement is not an obligation that should arise from an oral agreement or a general commercial relationship. A person must understand that they are assuming responsibility for another person’s obligation, and this responsibility must be reflected in a written document.
For the validity of a written agreement, the signature has particular importance. The practice of the Supreme Court emphasizes that a signature has the function of completing the document – by signing, the signatory completes their declaration of will and confirms the content of the document.
VI. Why Is It Necessary to Indicate the Maximum Amount of the Surety’s Liability?
One of the most important elements of a suretyship agreement is the maximum amount of the surety’s liability.
Under Article 892 of the Civil Code of Georgia, the suretyship document must indicate the quantitatively determined maximum amount of the surety’s liability. This does not mean a general statement that the surety is liable for “all obligations” or “the entire debt”. A specific maximum amount must be indicated.
According to the practice of the Supreme Court of Georgia, the requirement to indicate the maximum amount of liability is mandatory. If the suretyship agreement does not indicate a specific maximum amount, this defect may become the basis for finding that suretyship does not exist or that liability cannot be imposed.
This issue may also raise the question of invalidity of the agreement due to contradiction with mandatory legal requirements. For more information about invalid transactions, see our blog: Unlawful Transaction – When a Contract Does Not Produce Legal Effects.
The purpose of this rule is to protect the surety. The surety must know the maximum financial risk they face. The secured obligation may increase through interest, contractual penalty, default interest or other expenses, but the surety is generally liable only within the maximum amount indicated in the suretyship document.
For this reason, it is critically important for businesses that the suretyship agreement precisely defines not only the secured obligation, but also the maximum amount of the surety’s liability.
VII. Can Suretyship Secure a Future or Conditional Obligation?
Suretyship may be used not only for an already existing obligation, but also for future or conditional obligations.
This is particularly important in banking relationships, where a general credit line agreement is often concluded first and a specific loan is issued later. In such a situation, a suretyship agreement may be concluded before the principal obligation actually arises.
The practice of the Supreme Court of Georgia explains that such suretyship is a personal means of securing a claim that does not yet exist but may arise in the future. However, the surety becomes liable only after the principal obligation actually arises and becomes due.
At the same time, where a future obligation is secured, the claim must be determinable. It must be possible to establish whether a specific obligation is covered by the suretyship. In such cases as well, it is necessary to indicate the maximum amount of the surety’s liability.
VIII. What Does the Accessory Nature of Suretyship Mean?
One of the main features of suretyship is its accessory, or ancillary, nature.
This means that suretyship depends on the principal obligation. The surety is liable not for an independent economic obligation, but for securing the obligation of the principal debtor.
If the principal obligation does not exist, has been terminated or is not due, the surety’s liability is affected accordingly. When the obligation arising from the principal contract is terminated, the surety’s obligation is also generally terminated.
The Supreme Court of Georgia notes that the accessory nature of suretyship is mandatory. The parties cannot simply exclude or modify it in a way that changes the nature of the security.
Accessory nature also means that the creditor should not have a better legal position against the surety than against the principal debtor. For this reason, the surety has the right to raise defences belonging to the principal debtor.
IX. When Is the Surety Liable for the Principal Debtor’s Obligation?
The surety is liable where there is a valid suretyship agreement, the principal obligation has arisen, the obligation is due and the principal debtor does not perform it.
If suretyship is concluded for a future obligation, the surety’s liability is activated only after the principal obligation arises and the debtor delays performance.
In solidary suretyship, subject to certain preconditions, the creditor may submit a claim directly against the surety without first attempting enforcement against the principal debtor. In subsidiary suretyship, as a rule, the creditor must first attempt to satisfy the claim from the principal debtor.
In practice, the creditor often sends a written demand to the surety, indicating the principal debtor’s breach and the amount payable. Such notice is especially important because the law imposes certain information obligations on the creditor toward the surety.
X. What Is the Difference Between Subsidiary and Solidary Suretyship?
Suretyship may be subsidiary or solidary.
In subsidiary suretyship, the creditor cannot demand performance of the principal obligation from the surety before attempting compulsory enforcement against the principal debtor. This means that the surety’s liability arises, in a certain sense, in the second order.
In solidary suretyship, the position is different. If the surety assumes liability solidarily or in another equivalent form, the creditor may submit a claim against the surety without attempting compulsory enforcement against the principal debtor, if the principal debtor is in default and has been warned without result, or if the debtor’s insolvency is obvious.
For this reason, in modern business and banking practice, solidary suretyship is much more attractive for the creditor. It allows the creditor to direct the claim against the principal debtor, the surety or several sureties.
For the surety, solidary suretyship carries higher risk because a claim may be submitted directly and quickly, without exhausting all possible enforcement measures against the principal debtor.
XI. What Is Co-Suretyship and How Is Liability Distributed Among Several Sureties?
Co-suretyship exists where several sureties participate in securing the same obligation.
The existence of several sureties does not automatically mean that each of them is liable only in equal shares. If several persons stand surety for the same obligation, they are generally liable as solidary debtors, regardless of whether they assumed suretyship jointly or independently.
This means that the creditor may submit a claim against any surety within the limits assumed by that surety. If the maximum amount of liability of each surety is determined separately, each surety is liable within their own maximum amount.
It is possible for several sureties to assume liability only for part of the principal obligation. In such a case, there may be several liability in relation to the entire obligation, but within the assumed share the sureties may still be liable solidarily.
XII. What Defences May the Surety Raise Against the Creditor?
The surety has legal means of defence against the creditor’s claim.
First, the surety may raise defences arising directly from the suretyship relationship. For example, the surety may argue that the suretyship agreement does not meet the written form requirement, does not indicate the maximum amount of liability or that the claim exceeds the maximum amount determined by the agreement.
In addition, under Article 899 of the Civil Code of Georgia, the surety may also raise defences belonging to the principal debtor. The surety does not lose this right merely because the principal debtor waived the relevant defence.
This rule follows from the accessory nature of suretyship. Since suretyship serves to secure another person’s debt, the creditor should not have a better position against the surety than against the principal debtor.
In practice, this means that during a dispute the surety should assess not only the suretyship agreement itself, but also the existence, amount, maturity, performance, set-off, limitation, termination or other possible defences related to the principal obligation.
XIII. What Information Obligation Does the Creditor Have Toward the Surety?
Article 902 of the Civil Code of Georgia imposes an information obligation on the creditor toward the surety.
If the principal debtor delays payment, the creditor must notify the surety. In addition, at the surety’s request, the creditor must provide information on the condition of the principal debt at any time.
According to the practice of the Supreme Court of Georgia, failure by the creditor to provide information to the surety generally does not fully release the surety from liability. However, it may become a basis for reducing the surety’s liability in the amount of damage caused by failure to provide information.
This is a very practical issue. If the surety is not informed in time that the principal debtor is in default, the surety may be limited in the ability to act promptly, demand performance from the debtor, assess risks or prevent the debt from increasing.
Therefore, it is also important for the creditor to communicate with the surety properly and document such communication.
XIV. When May the Surety’s Liability Be Reduced or Excluded?
The surety’s liability may be reduced or excluded in several cases.
First, if the suretyship agreement does not meet the form required by law or does not indicate the quantitatively determined maximum amount of the surety’s liability, the issue of impossibility of imposing liability may arise.
Second, if the creditor’s claim exceeds the maximum amount indicated in the suretyship document, the surety is liable only within that maximum amount.
Third, if the principal obligation does not exist, has been terminated, is not due or the principal debtor has a defence that excludes or reduces the claim, this may also affect the surety’s liability.
Fourth, if the creditor failed to fulfil the information obligation toward the surety and this caused damage to the surety, liability may be reduced by the relevant amount of damage.
Fifth, if the suretyship agreement was concluded by fraud, mistake, coercion or another voidable ground, the validity of the agreement may become questionable.
XV. When May the Validity of a Suretyship Agreement Become Disputed?
The validity of a suretyship agreement may become disputed on formal or substantive grounds.
Formal grounds include failure to comply with written form, improper expression of the surety’s will, absence of signature or failure to indicate the maximum amount of liability.
Substantive grounds may relate to defects in the surety’s will, such as mistake, fraud or coercion. If the surety argues that the agreement was concluded due to fraud or mistake, it must be established who influenced the surety’s will and whether the creditor knew or should have known about it.
The practice of the Supreme Court indicates that if the fraud comes from the principal debtor, the surety may have the right to challenge the agreement against the creditor only if the surety proves that the creditor knew or should have known about the fraud committed by the third person.
Therefore, in a dispute over the validity of suretyship, the surety’s subjective feeling or later economic difficulty is not sufficient. Specific facts, evidence and legal assessment of the creditor’s conduct are required.
XVI. What Happens If the Surety Performs the Debtor’s Obligation?
If the surety satisfies the creditor and pays the principal debtor’s obligation, the creditor’s claim against the principal debtor is transferred to the surety.
This rule is reflected in Article 905 of the Civil Code of Georgia. Its purpose is to ensure that the surety does not ultimately remain responsible for the financial burden connected with the principal debtor’s obligation.
In practice, if the surety pays the debtor’s debt, the surety may later demand reimbursement of the paid amount from the principal debtor within the limits in which the creditor was satisfied.
However, realization of such a claim may depend on the principal debtor’s solvency, documentation, proper recording of payment and whether the legal basis for the surety’s subsequent recourse claim is preserved.
XVII. What Should a Business Consider Before Signing a Suretyship Agreement?
Before signing a suretyship agreement, businesses and sureties should assess not only the text of the agreement, but also the real financial risk.
First, it should be established which obligation the suretyship secures. This may be a specific loan, general credit line, future loans, supply debt, sale and purchase price or another contractual obligation.
Second, the maximum amount of liability must be clearly determined. The surety should know the maximum liability and whether that amount includes principal debt, interest, contractual penalty, default interest or other expenses.
Third, it should be established whether the suretyship is solidary or subsidiary. This distinction practically determines whether the creditor may submit the claim directly against the surety.
Fourth, if suretyship secures a future obligation, it should be checked whether the obligation is determinable and within what limits the surety’s liability will apply to obligations arising in the future.
Fifth, the mechanism for informing the surety should be considered – how and when the surety must be notified of the principal debtor’s default.
XVIII. How TB Legal Can Help
Within our contract law services, TB Legal assists businesses and individuals with legal assessment of suretyship agreements, analysis of the maximum amount of liability, solidary or subsidiary suretyship, creditor claims, surety’s defences and validity of suretyship agreements.
Our approach is based not only on formal review of the contract text, but also on assessment of the principal obligation, creditor’s claim, court practice, evidence and possible financial risks.
If you plan to sign a suretyship agreement, already have a creditor’s demand or want to assess whether imposing a specific amount on the surety is lawful, it is important to obtain legal advice before making a decision.
XIX. Conclusion
Suretyship is an important security instrument in business and financial relationships, but it also carries high legal and financial risk for the surety.
Before entering into a suretyship agreement, it is necessary to assess precisely what obligation is being secured, what the maximum amount of the surety’s liability is, whether the suretyship is solidary, what rights the surety has to raise defences and what consequences follow if the principal debtor breaches the obligation.
The practice of the Supreme Court of Georgia shows that, in suretyship disputes, decisive importance is attached to written form, indication of the maximum amount, existence of the principal obligation, accessory nature of suretyship, creditor’s information obligation and the surety’s real awareness of the assumed obligation.
Contact TB Legal if you plan to sign a suretyship agreement, already have a creditor’s demand or want to assess the scope of the surety’s liability. We will help you analyse legal risks, choose the right strategy and protect your interests.
XX. Supreme Court Decisions Used
This article is based on the following decisions and rulings of the Supreme Court of Georgia:
- Supreme Court of Georgia, case No. AS-647-647-2018, 21 October 2019, Tbilisi.
- Supreme Court of Georgia, case No. AS-1563-2023, 8 May 2026, Tbilisi.
- Supreme Court of Georgia, case No. AS-1408-2022, 17 July 2023, Tbilisi.
- Supreme Court of Georgia, case No. AS-390-2024, 12 December 2025, Tbilisi.
- Supreme Court of Georgia, case No. AS-112-2025, 4 December 2025, Tbilisi.
- Supreme Court of Georgia, case No. AS-244-2024, 9 October 2025, Tbilisi.
- Supreme Court of Georgia, case No. AS-1054-2024, 21 February 2025, Tbilisi.
- Supreme Court of Georgia, case No. AS-1100-2024, 20 February 2025, Tbilisi.
- Supreme Court of Georgia, case No. AS-81-2021, 24 December 2024, Tbilisi.
- Supreme Court of Georgia, case No. AS-829-2023, 9 February 2024, Tbilisi.
- Supreme Court of Georgia, case No. AS-497-2024, 30 September 2024, Tbilisi.
- Supreme Court of Georgia, case No. AS-1154-2022, 31 October 2023, Tbilisi.
- Supreme Court of Georgia, case No. AS-965-2023, 20 October 2023, Tbilisi.
- Supreme Court of Georgia, case No. AS-372-2023, 6 October 2023, Tbilisi.
- Supreme Court of Georgia, case No. AS-749-2022, 10 July 2023, Tbilisi.
Disclaimer
This article has been prepared for general informational purposes only and does not constitute individual legal advice or a legal opinion. The issues discussed in this article may be assessed differently depending on the specific factual circumstances, contract terms, conduct of the parties and relevant evidence.
Before making a decision in a specific matter, it is recommended to obtain individual legal advice from a qualified lawyer.
