The 2015 Civil Code stipulates fidelity guarantees as a measure to ensure the performance of obligations. The direct purpose of fidelity guarantees is to help individuals and poor households gain access to credit sources for production, business, and consumption without the need for collateral, preventing these entities from borrowing at very high interest rates when they need capital. In this article, TNTP will present the basic content you need to know about the measure of securing the performance of obligations: Fidelity guarantees.
1. Concept of fidelity guarantees
Fidelity guarantees involve a socio-political organization at the grassroots level that may provide a fidelity guarantee so that poor individuals and households can borrow sums from banks or other credit institutions for purposes of production, business or provision of services by the regulations of law.
2. Forms, contents, and conditions for the effectiveness of fidelity guarantees
• In terms of form, the fidelity guarantee agreement must be in writing with certification of a socio-political organization in terms of the conditions and circumstances of the borrower (Article 345 of the 2015 Civil Code).
In case of security for obligation fulfilment in the form of fidelity guarantee, organizations in communes or wards of Vietnam Farmers’ Union, Ho Chi Minh Communist Youth Union, Vietnam Women’s Union, Vietnam Veterans Association, Vietnam Fatherland Front or local Trade Unions shall act as securing parties utilizing fidelity guarantee, unless otherwise prescribed by Regulations of these bodies.
• Concerning content, the agreement on fidelity guarantee must specify the loan amount, the purpose of the loan, the term of the loan, the interest rate, and the rights, obligations and responsibilities of the borrower, the lending bank or credit institution and the guarantor organization.
• The fidelity guarantee agreement is considered a civil transaction, so for this agreement to become effective, the parties must comply with the provisions of Article 117 of the Civil Code regarding the conditions for the effectiveness of civil transactions. Participants in the agreement must have legal capacity, civil conduct capacity compatible with the established agreement, voluntary participation, and a purpose and content of the agreement that does not violate legal prohibitions and is not contrary to social ethics. At the same time, the parties must comply with the provisions regarding the form of the agreement (as mentioned above).
3. Rights and obligations of Securing parties utilizing fidelity guarantee
Securing parties utilizing fidelity guarantee have rights and obligations to:
• Take charge or cooperate with lending credit institutions in assisting, guiding, and enabling debtors; supervise purposeful and effective use of loans; expedite adequate and timely debt repayment;
• Verify at the request of lending credit institutions regarding conditions of debtors;
• Other rights and obligations agreed upon or prescribed by the Civil Code or the relevant law provisions.
4. Rights and obligations of Lending credit institutions
Lending credit institutions have the rights and obligations to:
• Request securing parties that utilize fidelity guarantee to cooperate in examining the use of debt and expedite debt repayment;
• Cooperate with securing parties that utilize fidelity guarantee in granting loans and recovering debt;
• Other rights and obligations agreed upon or prescribed by the Civil Code or the relevant law provisions.
5. Rights and obligations of Debtors
Debtors have the following rights and obligations:
• Use the loan for business operations, daily necessities or consumption suitable for loan purposes;
• Enable lending credit institutions and securing parties that utilize fidelity guarantee to inspect the use of loans;
• Fully repay principal and interest (if any) promptly to lending credit institutions;
• Other rights and obligations agreed upon or prescribed by the Civil Code or the relevant law provisions.
This article, “Fidelity guarantees – Basic content you need to know” is presented by TNTP. In case of any issues requiring discussion, please contact TNTP for timely assistance.
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