Another success of our Head of litigation team, Kyriakos Karatsis, in a contentious case involving an allegation of discharge of a guarantor on the basis of the provisions of Section 92 of the Contract Law, Cap. 149. Our office represented the defendant – guarantor in various loan agreements between one of the biggest banks in Cyprus and a company which was, before its voluntary winding-up, the principal debtor of the loans.

The District Court of Limassol in its judgment decided that because the bank and the principal debtor orally agreed to settle the outstanding loan with the payment by the principal debtor of a certain amount in two instalments (the first with a direct payment by the principal debtor before its dissolution and the second within the context of the voluntary winding-up by depositing with the bank the proceeds from the sale of an immovable property of the principal debtor by the liquidator), obligation with which the principal debtor had fully complied with as per the oral agreement and the guarantor was therefore discharged and the bank estopped from claiming the amount guaranteed. It should be noted further that because the action against the guarantor was instigated several years after the voluntary winding-up by the creditors (the bank in this case) of the primary obligor’s company, this was considered to be an “act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor” within the meaning of Section 92 of the Contract Law, Cap. 149 since the guarantor was, inter alia, deprived of the option to pay the amount claimed under the loan and then sue the principal debtor for the equivalent.  

This decision, despite that it is of a first instance court, will be considered as an authority since Section 92 of the Contract Law, Cap. 149, has never been tested and considered so far by the Supreme Court.