The joint liability in loan agreements can be immoral under certain conditions, so that the co-liable loan borrower does not have to pay the debts.
Banking law has set strict limits for banks in securing loans. Thus, the guarantee or joint liability for a loan can be immoral and therefore ineffective, according to the business law firm MTR Legal Rechtsanwälte, which specializes in banking law.
According to a ruling by the Higher Regional Court of Oldenburg on June 29, 2023, the joint liability for a loan can be immoral if the bank should have recognized that the co-liable borrower is thereby financially overstrained (Ref.: 8 U 172/22).
Specifically, a young woman co-signed her partner’s loan contract of 90,000 euros. The monthly repayment rate was 1,000 euros, and the woman earned just around 1,300 euros net. The woman originally assumed that it was only a loan of 7,500 euros for the purchase of a new car. In fact, her partner needed a significantly higher loan to restructure existing loan contracts.
About two years later, the woman, who had meanwhile separated from her boyfriend, faced an unpleasant surprise. Her ex-partner could no longer handle the loan installments, so the bank turned to the woman and demanded that she repay the remaining loan debt – around 50,000 euros. The woman could not afford this. However, the Regional Court of Osnabrück ruled that she must pay.
The Higher Regional Court of Oldenburg overturned the ruling on appeal and decided that the woman does not have to pay the loan debts. She was not a genuine borrower but had taken on joint liability only for the sake of her then-partner. The bank should have recognized at the time of contract conclusion that the joint liability would financially overstrain the woman. The joint liability is immoral and thus void, decided the Higher Regional Court of Oldenburg. The woman thus does not have to make any further payments.
MTR Legal Rechtsanwälte advises on guarantees, joint liability, and other relevant issues of banking law.
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