Special Act For The Protection Of Guarantors


Published: 2011-05-19

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 Article 1 (Purpose)   print
The purpose of this Act is to contribute to the solid establishment of a credit society by providing for special cases to the Civil Act with regard to guarantees to protect guarantors who provide guaranties without consideration but only out of courtesy from suffering economic and mental harm and to establish reasonable practices for contracts on guaranty for pecuniary obligations.
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 Article 2 (Definitions)   print
The definitions of terms used in this Act shall be as follows: <Amended by Act No. 10303, May 17, 2010; Act No. 10522, Mar. 31, 2011; Act No. 10689, May 19, 2011>
1. The term "guarantor" means a person who provides a guaranty under Article 429 (1) of the Civil Act (hereinafter referred to as "guaranty"), excluding the following cases:
(a) Where an enterprise under subparagraph (1) of Article 2 of the Credit Guarantee Fund Act (hereinafter referred to as "enterprise") provides guaranties on another person's debt in relation to the business in which the enterprise engages;
(b) Where the representative, a director, a general partner with unlimited liability, or an oligopolistic stockholder under Article 39 (2) of the Framework Act on National Taxes of an enterprise, or a person who has de facto control over the management of an enterprise provides guaranties on the enterprise's debt;
(c) Where a person who has a special relationship with the representative, a director, a general partner, or an oligopolistic stockholder under Article 39 (2) of the Framework Act on National Taxes of an enterprise, or a person who has de facto control over the management of an enterprise, such as a spouse or a lineal ascendant or descendant, provides guaranties on the enterprise's debt, while sharing economic advantage with the enterprise or exercising influence, directly or indirectly, over the management of the enterprise;
(d) Where a person who has a partnership with a debtor assumes the partner's debt in a relationship with the partnership;
(e) Where a person falling under any of items (b) through (d) provides guaranties for an enterprise that has assumed another enterprise's debt in relation to the latter enterprise's debt;
(f) Where a fund is established pursuant to an Act or an agency responsible for the management of such fund and provides guaranties in order to guarantee the credit of an enterprise or a private individual;
2. The term "guaranty contract" means a contract entered into between a creditor and a guarantor, irrespective of its form or title, under which the guarantor agrees to perform a debtor's pecuniary obligations if the debtor defaults on repay his/her debts;
3. The term "financial institutions" means the following entities:
(a) Banks established with authorization under the Banking Act (including persons treated as banks pursuant to Article 59 of the aforesaid Act);
(b) The Korea Development Bank established pursuant to the Korea Development Bank Act;
(c) The Export-Import Bank of Korea established pursuant to the Export-Import Bank of Korea Act;
(d) The Industrial Bank of Korea established pursuant to the Industrial Bank of Korea Act;
(e) Merchant banks under the Merchant Banks Act;
(f) Mutual savings banks under the Mutual Savings Banks Act;
(g) Agricultural cooperatives and the Nonghyup Bank under the Agricultural Cooperatives Act;
(h) Fisheries cooperatives and the Federation thereof under the Fisheries Cooperatives Act;
(i) Cooperatives under the Forestry Cooperatives Act;
(j) Credit unions under the Credit Unions Act;
(k) Community credit cooperatives and the Federation thereof under the Community Credit Cooperatives Act;
(l) Securities companies and securities finance companies under the Securities and Exchange Act;
(m) Insurance companies under the Insurance Business Act;
(n) Specialized credit finance companies under the Specialized Credit Financial Business Act (including those who have obtained permission or completed registration pursuant to Article 3 (3) 1 of the aforesaid Act);
(o) Asset management companies under the Indirect Investment Asset Management Business Act;
(p) Companies and associations specializing in investment in start-up of small and medium enterprises under the Support for Small and Medium Enterprise Establishment Act;
(q) Post offices under the Postal Savings and Insurance Act;
(r) Small and medium enterprise cooperatives under the Small and Medium Enterprise Cooperatives Act;
4. The term "credit information relevant to debts" means information about loans, information about guaranties for debts, information about over-due loans, information about subrogated repayments, information about advance payments on guaranty, and information about default.
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 Article 3 (Form of Guaranty)   print
(1) A guaranty becomes effective when a guarantor's intent to guarantee is manifested in writing, with his/her name printed and his/her seal affixed thereon or his/her signature placed thereon.
(2) Paragraph (1) shall also apply to cases where a guaranty is amended to be unfavorable to the guarantor.
(3) No guarantor who has already performed his/her liability as a guarantor may assert that his/her guaranty is void on the ground of a defect in the form under paragraph (1) or (2), to the extent of the liability that he/she has already performed.
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 Article 4 (Specification of Maximum Amount of Guaranty)   print
The maximum amount of a guaranty shall be specified in writing whenever a guaranty contract is made. The same shall apply to an extension of the guaranty.
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 Article 5 (Creditor's Duty to Notify)   print
(1) A creditor shall, if a principal debtor has not paid the principal, interest, and other debts for three months or longer or if the creditor becomes aware in advance that the principal debtor is unable to repay his/her debts by the deadline set for repayment, notify the guarantor of the fact without delay.
(2) Any financial institution that has entered into a guaranty contract as a creditor shall, if the principal debtor has not paid the principal, interest, and other obligations for one month or longer, notify the guarantor of the fact without delay.
(3) A creditor shall, upon receiving a request from a guarantor, inform the guarantor of the details of primary debts and whether such debts have been repaid.
(4) Where a creditor violates an obligation described in paragraphs (1) through (3), a guarantor shall be discharged from debts to the extent of loss caused by such violation. <Newly Inserted by Act No. 10186, Mar. 24, 2010>
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 Article 6 (Continuing Guaranty)   print
(1) A guaranty may be made for debts arising under a specific contract between a creditor and a principal debtor on continuous transactions or for debts arising continuously from any other transactions of a certain kind or from any specific cause. In such cases, the maximum amount of the guaranty shall be specified in writing.
(2) In any case under paragraph (1), a guaranty contract is void if the contract does not specify a maximum amount for the guaranty.
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 Article 7 (Period, etc. of Guaranty)   print
(1) If a guaranty contract does not specify a period of guaranty, the period is deemed to be three years.
(2) The period of guaranty may be extended. In such cases, if a guaranty contract has no specified period of guaranty, such period is deemed to be the period of guaranty as at the time the contract is concluded<Amended by Act No. 10186, Mar. 24, 2010>
(3) Upon the conclusion or renewal of a contract for the period of quaranty, a creditor shall notify the guarantor of the period of guaranty that is deemed under paragraphs (1) and (2). <Newly Inserted by Act No. 10186, Mar. 24, 2010>
(4) In cases where a creditor has extended the deadline for repayment for a debtor without consent of a guarantor, either the creditor or debtor shall notify the guarantor of the fact. In such cases, the guarantor may immediately perform his/her liability as a guarantor.
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 Article 8 (Special Provisions for Guaranty Contracts Entered into by Financial Institutions)   print
(1) Any financial institution that enters into a guaranty contract as a creditor shall provide the guarantor with the credit information relevant to the debtor's debts, which has been provided by the comprehensive credit information collection agency pursuant to the Use and Protection of Credit Information Act and shall request the guarantor to print his/her name and affix his/her seal or place his/her signature on the document. The same shall apply to an extension of the period of guaranty.
(2) A financial institution that provides a guarantor with the credit information relevant to the debtor's debts pursuant to paragraph (1) shall obtain consent of the debtor.
(3) Where a financial institution fails to provide a guarantor with credit information related with debts pursuant to paragraph (1), the guarantor may request such financial institution to the credit information related with debtor's debt as at the time a guaranty contract is entered into.
(4) If a financial institution does not comply with a guarantor's request to provide him/her with the credit information relevant to debts pursuant to paragraph (3) within seven days from the date of receipt of request, the guarantor may notify the financial institution of the cancellation of the guaranty contract within one month from the date on which he/she becomes aware of the fact. In such cases, the cancellation becomes effective one month after the date on which the financial institution receives the notice of cancellation.
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 Article 9 Deleted.<by Act No. 9418, Feb. 6, 2009>   print
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 Article 10 Deleted.<by Act No. 9418, Feb. 6, 2009>   print
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 Article 11 (One-Sided Mandatory Provisions)   print
Any contract unfavorable to a guarantor in violation of this Act is void.
ADDENDA
(1) (Enforcement Date) This Act shall enter into force six months after the date of its promulgation.
(2) (Applicability) Articles 3 through 8 and 11 shall apply to guarantee contracts entered into or extended on or after the enforcement date of this Act.
ADDENDA<Act No. 9418, Fe. 6, 2009>
Article 1 (Enforcement Date)
This Act shall enter into force six months after the date of its promulgation.
Articles 2 through 5 Omitted.
ADDENDA<Act No. 10186, Mar. 24, 2010>
Article 1 (Enforcement Date)
This Act shall enter into force three months after the date of its promulgation.
Article 2 (Transitional Measures)
(1) The amended provisions of Article 5 (4) shall not apply to a creditor who violates any obligation prescribed in paragraphs (1) through (3) of the same Article before this Act enters into force.
(2) The amended provisions of Article 7 (2) and (3) shall apply, beginning with the first guaranty contract to be concluded or renewed for an additional term after this Act enters into force.
ADDENDA<Act No. 10303, May 17, 2010>
Article 1 (Enforcement Date)
This Act shall enter into force six months after the date of its promulgation. (Proviso Omitted.)
Articles 2 through 10 Omitted.
ADDENDA<Act No. 10522, Mar. 31, 2011>
Article 1 (Enforcement Date)
This Act shall enter into force on March 2, 2012. (Proviso Omitted.)
Articles 2 through 28 Omitted.
ADDENDA<Act No. 10689, May 19, 2011>
Article 1 (Enforcement Date)
This Act shall enter into force on the date of its promulgation.
Article 2 Omitted.