Lithuania: can you ever be really sure of your surety?

When making substantial changes to an obligation in contractual relations, i.e. the size, the nature of the obligation, etc., the legal consequences associated with the accessory obligation (security of liabilities) should be carefully and professionally assessed.

Article 6.87 of the Civil Code stipulates that a surety is terminated if an obligation is being substantially changed and without the surety provider’s consent increases his/ her liability or creates other adverse consequences for the surety, except when the suretyship agreement provides otherwise.

Therefore, in order for a surety to end on the basis referred to in the aforementioned provision, two factors must be present:

1) a substantial change to the security of the surety must be made;
2) the result of the substantial change of the obligation must be unfavorable to the surety provider.

The specified provision does not provide a definition for a substantive change of an obligation or the explicit conditions under which an undesirable result for the surety is construed. These two circumstances must therefore be identified in each particular case under consideration. In the very recent case law of 27 June 2018, the Supreme Court of Lithuania ruled that the particular surety obligations were increased by 4.3 percent and it was not considered an essential change to the obligations. Given the case law developed by the courts, it should be borne in mind that when changing the essential conditions of an obligation in the contractual relations of parties, the legal consequences of the enforcement of the obligations should be professionally assessed, as the court makes decisions on a case-by-case basis and does not have explicit rules formulated in legal acts.

by Jurate Kugyte, Partner, Lithuania

Related Lawyers

Related Experience

Legal assistance to Dayton Group in sale of a refrigeration business in Lithuania.

Legal assistance to Lindstrom group OY during the APA procedures in Lithuania.

GDPR due diligence of a Latvian bank in cooperation with Datakom, an IT company.

Pan-Baltic legal advice to a UK based global investment fund in the course of transactions involving financing of SMEs. Advice included structuring of the security instruments, elaborating transaction structures, and assistance during negotiations and closings.

Instagram