Useful information about surety bonds

Your contact

Effect of an offset waiver agreed in advance

In its judgement of 2 May 2012 (BGE 4A_678/2011), the Federal Tribunal decided that a waiver of the right of offset declared in advance by the principal debtor in favour of the creditor also applies for the surety if the offset waiver was agreed before the conclusion of the contract of suretyship or with the consent of the surety.

In the case underlying the judgement, a bank granted a loan to a company. Under the loan agreement the company waived its right of offset. The agreement was signed on behalf of the company by its sole director, who then submitted a declaration of suretyship in his own name to the bank in which he accepted joint and several liability for the repayment of the loan plus interest. When the company went bankrupt, the bank called in the surety bond and demanded the repayment of the loan by the director. The surety raised the defence that the principal debtor was harmed by the business conduct of the creditor, and asserted the right to offset corresponding claims for damages against the outstanding loan amount. In dispute and to be decided by the Federal Tribunal was whether the surety had to accept the offset waiver declared in advance by the company.

Under the contract of suretyship, the surety promises the creditor of the principal debtor to become liable for repaying the debt. According to the Swiss Code of Obligations (SCO), the surety is entitled and obliged to plead all the defences that are open to the principal debtor vis-à-vis the creditor, and he can even plead defences that were waived by the principal debtor. If the surety culpably fails to raise such a defence, he loses his right of recourse against the principal debtor (Art. 502 SCO). As far as offsetting is concerned, the surety may not himself set off a claim of the principal debtor against the creditor’s claim in order to extinguish his debt under the surety bond, but he has the right to refuse performance where the principal debtor has a right of offset (Art. 121 SCO). But what is the situation if the principal debtor has waived the right of offset in advance? Can the surety refuse performance in this case?

The objective of both articles (Art. 502 and 121 SCO) is to give the surety a well-founded right to refuse performance. These articles follow the basic idea that the position of the surety may not be unilaterally worsened by a later agreement between the creditor and the principal debtor. Therefore, if the principal debtor waives its right of offset after the conclusion of the contract of suretyship and without the consent of the surety, the surety has the right to refuse performance. However, if the surety – as in this case – is aware of the offset waiver when entering into the contract of suretyship, the Federal Tribunal does not allow him to plead the above defences. The surety must accept liability for the obligation as it was incurred by the principal debtor and must accept the principal debtor’s waiver of the right of offset.

Difference between surety bonds and guarantees

In the case under discussion at hand, the Federal Tribunal did not have to decide on the question of the difference between surety bonds and guarantees.

Differentiation between these two security agreements often causes trouble, but is of central importance in the practice. While a guarantee agreement has no requirement as to form, a surety bond is subject to strict formal requirements intended to protect the surety. Non-compliance with these formal requirements usually results in the invalidity of the surety bond. A general formal requirement for a surety bond is a written declaration by the surety and the mention of the maximum amount for which the surety is liable in the surety bond itself. If the maximum amount is more than CHF 2,000, a public deed of the declaration of suretyship by a natural person must also be drawn up.

The main criterion for differentiation is accessoriness, i.e. whether the security interest shares the fate of the principal debt and is dependent on the latter. The effect of accessoriness is that the obligor may plead all defences open to the principal debtor vis-à-vis the creditor. A surety bond presupposes a principal debt and shares its fate. In contrast, the guarantor of a guarantee promises a performance that is independent of the obligation of a third party. As the corresponding security agreements seldom contain a declaration regarding the relationship to the underlying transaction, some interpretation is usually required to determine how the security transaction should be qualified.

Legal practice has established various indications that either confirm an accessory (surety bond) or an independent (guarantee) obligation. If the security promise and the principal debtor’s performance obligation are identical, a surety bond is indicated, and if the secured amount is not the same as the amount owed by the principal debtor, a guarantee is likely. A detailed description of the performance in the security agreement points towards a guarantee, but if the secured underlying transaction must be reviewed in order to establish the security obligation, a surety bond is more likely. A promise to pay on first request and a waiver of defences are also indications of a guarantee, although the latter on its own is not sufficient to indicate a guarantee. If an analysis of a security agreement does not lead to a clear-cut decision, a surety bond should be assumed in the case of private individuals. Security declarations by banks and security transactions concerning foreign contracts presumably count as guarantees, as these refer to the business experience of the obligor.


In summary it should be said that a distinction must be made between surety bonds and guarantees, as this is important for the formulation of the relevant security agreements as well as for compliance with the formal requirements. Otherwise the parties run the risk that a court will have to decide on the qualification of a security transaction during expensive court proceedings and that the security transaction will be declared null and void due to non-compliance with formal requirements. A surety bond is dependent on the principal debt and means that the surety can plead all defences available to the principal debtor vis-à-vis the creditor. However, as recently decided by the Federal Tribunal, this does not apply if the surety was aware of the principal debtor’s waiver of its right of offset when he entered into the contract of suretyship.

Share post

most read


MLL Legal

MLL Legal is one of the leading law firms in Switzerland with offices in Zurich, Geneva, Zug, Lausanne, London and Madrid. We advise our clients in all areas of business law and stand out in particular for our first-class industry expertise in technical-innovative specialist areas, but also in regulated industries.

MLL Meyerlustenberger Lachenal Froriep


Much is still unclear in relation to liability questions around AI tools.

Read our latest post about “Liability during the Lifecycle of an AI Tool” and download our white paper.

Show article.

Our Story

MLL Legal is a leading Swiss law firm with a history that dates back to 1885. The firm has grown both organically and by means of strategic mergers, the latest of which took place on 1st July 2021 between Meyerlustenberger Lachenal and FRORIEP.

The merger establishes MLL Legal, a combined new entity as one of the largest commercial law firms in Switzerland with 150 lawyers in four offices in Switzerland and two offices abroad, in London and Madrid serving clients seeking Swiss law advice.

Our firm has a strong international profile and brings together recognised leadership and expertise in all areas of law affecting commerce today, with a focus on high-tech, innovative and regulated sectors. 

About us


Click here for our latest publications


Read all our legal updates on the impact of COVID-19 for businesses.

COVID-19 Information

Job openings

Looking for a new challenge?

Our talented and ambitious teams are motivated by a common vision to succeed. We value open and straightforward communication accross all levels of the organisation in a supportive working environment.

Job openings

Firm News

Click here for our latest firm news.

Our Team

The regulatory and technological landscape continually require businesses to adapt and evolve.
Our 150+ lawyers are continuously innovating and striving for improvement in everything they do. We embrace new ideas and technologies, combining our wealth of expertise with creative thinking and diligence. With our hands-on approach, we implement viable solutions for the most complex legal challenges.

Our Team.

LexCast – the podcast series by MLL NexGen

Smart legal education on the go. The LexCast hosted by MLL NexGen provides legal insights in a short format that allows listeners to educate themselves on and about legal issues wherever they are and whenever they find the time.

Listen to our podcast series – stay tuned.

MLL Legal on Social Media

Follow us on LinkedIn, Twitter und Instagram.