Joint liability in loan contracts can be immoral under certain conditions, so that the co-liable borrower does not have to bear the debts.
Banking law has set strict limits for banks in securing loans. Thus, the guarantee or even the joint liability for a loan can be immoral and therefore invalid, according to the commercial law firm MTR Legal Rechtsanwälte, which focuses part of its advisory services on banking law.
According to a ruling by the OLG Oldenburg on June 29, 2023, joint liability for a loan can be immoral if the bank should have recognized that the co-liable borrower is financially overburdened (Case No.: 8 U 172/22).
Specifically, a young woman co-signed her partner’s loan contract for 90,000 euros. The monthly repayment rate was 1,000 euros, while the woman earned just around 1,300 euros net. The woman originally assumed that it was only about 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 credit agreements.
About two years later, the unpleasant surprise occurred for the woman, who had meanwhile separated from her boyfriend. Her ex-partner could no longer service the loan installments, and the bank approached the woman, demanding the repayment of the outstanding loan debt – around 50,000 euros. The woman could not afford this. However, the Osnabrück District Court decided that she had to pay.
The OLG Oldenburg overturned the verdict in the appeal process and decided that the woman does not have to bear the loan debts. She was not a real borrower but took on joint liability for the sake of her then-partner. The bank should have recognized at the time of the contract that the joint liability financially overburdened the woman. The joint liability is immoral and therefore void, ruled the OLG 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..
