Complete Analysis of the Right of Defense for Demand and Search: Critical Differences Between General and Joint Guarantees and Creditor Strategies

1. Fundamental Concepts and Legal Significance of the Right of Defense

The right of defense for demand and search is a powerful defensive mechanism granted to general guarantors under Article 437 of the Korean Civil Code. Through this right, guarantors can demand that creditors “first pursue the principal debtor and execute against their assets” when faced with performance claims.

Article 437 of the Civil Code clearly states: “When a creditor claims performance of an obligation from a guarantor, the guarantor may prove that the principal debtor has the capacity to repay and that execution would be easy, and may raise the defense that the creditor should first make a claim against the principal debtor and execute against their property.”

The essence of this right is classified as a temporary right of refusal to perform, serving as a procedural defensive mechanism that limits the order of creditor pursuit rather than denying the guarantee obligation itself. It is evaluated as a core mechanism that realizes the principle of subsidiarity inherent in the guarantee system.

2. Legal Basis and Detailed Analysis of Formation Requirements

For the establishment of the right of defense for demand and search, stringent requirements must be perfectly satisfied, creating a legal structure that is substantially very favorable to creditors.

The positive formation requirements are as follows. First, the existence of a valid general guarantee relationship must be premised, and in the case of joint guarantees, this right is blocked by the proviso to Article 437 of the Civil Code. Second, specific proof of repayment capacity is required, and the guarantor must clearly demonstrate that the principal debtor realistically possesses sufficient assets necessary for debt performance. Third, the practical feasibility of execution must be proven, and mere asset ownership is insufficient—it must be demonstrated that forced execution against such assets is actually feasible.

Negative formation requirements include the existence of joint guarantee relationships, joint liability of commercial guarantees under Article 57, Paragraph 2 of the Commercial Code, application for bankruptcy or rehabilitation proceedings by the principal debtor, and the principal debtor’s disappearance. In practice, courts typically tend to reject defenses, stating that “proof that the principal debtor has repayment capacity or that execution is feasible is insufficient.”

3. Risks and Disadvantages Faced by Creditors

The right of defense for demand and search causes multifaceted disadvantages for creditors. The most serious problem is the delay in debt collection. Creditors become unable to directly pursue guarantors and must prioritize pursuing principal debtors, fundamentally blocking swift debt recovery.

Economic loss risks are also considerable. Representative examples include deterioration of the principal debtor’s financial condition over time, risks of asset concealment or arbitrary disposal during the pursuit period, and increased cost burdens due to duplicate executions.

Procedural complexity cannot be overlooked either. Creditors must clearly prove sufficient pursuit and execution attempts against principal debtors, and during this process, they must also bear the risk of statute of limitations completion. Article 438 of the Civil Code stipulates the reduction of guarantor liability “when full or partial repayment cannot be received from the debtor due to creditor negligence,” further strengthening creditors’ pursuit obligations.

4. Neutralization Strategies and Countermeasures for Defense Rights

The most reliable method for creditors to neutralize the right of defense for demand and search is to utilize joint guarantee structures. The proviso to Article 437 of the Civil Code stipulates “this shall not apply when the guarantor bears joint liability with the principal debtor,” thus not recognizing this right for joint guarantors.

Contractual exclusion measures include the insertion of explicit waiver clauses. Direct clauses such as “the guarantor waives the right of defense for demand and search under Article 437 of the Civil Code” or joint guarantee specification clauses such as “this guarantee is a joint guarantee whereby the guarantor bears joint liability with the principal debtor” can be actively utilized.

Commercial law solutions are also important considerations. Article 57, Paragraph 2 of the Commercial Code explicitly states that “guarantees for obligations arising from commercial acts are presumed to be joint guarantees,” so in commercial transactions, joint guarantees are automatically established, fundamentally blocking the right of defense for demand and search.

It is effective to actively utilize the fact that the burden of proof is imposed on guarantors by presenting specific and proactive rebuttals regarding the principal debtor’s repayment capacity or ease of execution.

5. Core Differences Between General and Joint Guarantees

Joint guarantees provide a legal structure that is absolutely favorable to creditors. The right of defense for demand and search is completely blocked by the proviso to Article 437 of the Civil Code, giving creditors the freedom to pursue either the principal debtor or guarantor first. Additionally, the benefit of division among joint debtors is excluded under Article 408 of the Civil Code, allowing claims for the entire debt against one person.

In the case of general guarantees, guarantors are granted various defensive means. Besides the right of defense for demand and search, the benefit of division under Article 439 of the Civil Code, defense rights under Article 433, and set-off rights under Article 434 are recognized.

Important considerations from the creditor’s perspective are as follows. First, when drafting contracts, “joint guarantee” must be explicitly stated. Using only the expression “guarantee” risks interpretation as a general guarantee. Second, while the presumption provision of Article 57, Paragraph 2 of the Commercial Code can be utilized for commercial transactions, explicit agreements are essential for civil transactions.

6. Case Law Analysis and Recent Court Trends

The Supreme Court has continuously maintained a strict interpretation of the right of defense for demand and search. Looking at recent case law trends, courts are moving toward further increasing the burden of proof on guarantors. Courts consistently reject abstract claims, stating “there is insufficient evidence to recognize this,” and require specific and clear proof, stating “the submitted evidence alone is insufficient for recognition.”

The specification of proof standards is also a noteworthy change. Courts comprehensively require current bank balances, real estate market appraisal values, business income and cash flows, other liquid assets, and debt and net asset calculations for proving principal debtors’ repayment capacity. Regarding ease of execution, they comprehensively review security interest establishment status, asset location identification possibilities, absence of legal obstacles in execution procedures, and possibilities of asset concealment by principal debtors.

7. Practical Risk Factors and Preventive Measures

Risk factors at the contract stage are most critical. Ambiguity in guarantee types is a serious problem, as expressions like “guarantee” alone are likely to be interpreted as general guarantees. Explicit expressions such as “joint guarantee” or “guarantee jointly” must be used. Additionally, when making comprehensive guarantee agreements, there is a risk of invalidity under the Guarantor Protection Act if specific scope and limits for future obligations are not clarified.

Risk factors at the execution stage are also important. Negligence in pursuing principal debtors becomes grounds for guarantor liability reduction under Article 438 of the Civil Code. Therefore, sufficient pursuit and execution attempts against principal debtors must be systematically documented. Failure in statute management is also a serious risk, and interruption causes must be appropriately utilized to prevent completion of the statute of limitations for guarantee obligations during the principal debtor pursuit process.

Utilizing standard contracts is effective as a preventive measure. Financial institutions and large corporations should use standard joint guarantee contracts verified by legal teams to minimize legal risks. Guarantor credit investigation is also important, requiring periodic monitoring of not only principal debtors but also guarantors’ financial conditions and repayment capabilities.

8. Creditor-Focused Strategic Approaches

At the contract stage, utilizing standard joint guarantee clauses is the most reliable method. Basic joint guarantee clauses can be clearly written as “the guarantor jointly guarantees the entire obligation with the principal debtor and cannot exercise the right of defense for demand and search under Article 437 of the Civil Code.”

Comprehensive exclusion clauses can state “the guarantor jointly guarantees this obligation with the principal debtor and waives the right of defense for demand and search under Article 437 of the Civil Code, the right of defense for negligence under Article 438, the benefit of division under Article 439, and all other defense rights and benefits recognized for guarantors.”

Commercial transaction utilization types can be written as “this guarantee is for obligations arising from commercial acts and is deemed a joint guarantee under Article 57, Paragraph 2 of the Commercial Code, which the guarantor confirms.”

Defense strategies through burden of proof reversal are also important. Active rebuttals should be made regarding principal debtors’ repayment capacity presented by guarantors, including the temporary nature of bank balances, security establishment status on real estate, instability of business cash flows, and existence of litigation or seizure risks.

9. Practical Checklist and Comprehensive Conclusions

The practical checklist for creditors is as follows.

At the contract conclusion stage, confirmation of explicit “joint guarantee” notation, insertion of explicit waiver clauses for the right of defense for demand and search, review of applicability of commercial law joint guarantee presumption, confirmation of whether subject to Guarantor Protection Act, and documentation of individual negotiation processes to avoid Terms and Conditions Regulation Act are necessary.

At the credit management stage, periodic investigation of principal debtors’ and guarantors’ financial conditions, timely notification to guarantors upon delinquency occurrence, continuous collection of evidence of principal debtors’ financial deterioration, and separate management of statute of limitations for principal and guarantee obligations are important.

At the dispute occurrence stage, advance preparation of rebuttal materials for guarantor claims, securing property appraisal and accounting expert opinions, establishing simultaneous or sequential litigation strategies against principal debtors and guarantors, and determining efficient execution order and methods are necessary.

While the right of defense for demand and search theoretically serves as a powerful defensive mechanism for guarantors, it operates practically as a structure favorable to creditors. The combination of strict proof requirements, universalization of joint guarantees, and creditor-friendly court interpretations significantly limits the effectiveness of this right.

The optimal strategy for creditors can be summarized as adopting joint guarantee structures, drafting clear contracts, swift execution, and systematic evidence collection. Particularly, explicitly stating “joint guarantee” at the contract stage and including comprehensive waiver clauses can avoid most risks.

The current legal environment focuses on commercial efficiency and creditor protection, and this trend aligns with international developments. Creditors should maximize utilization of this favorable environment while being careful not to be subject to special laws such as the Guarantor Protection Act.