Disputes related to the guarantee agreement and the choice of dispute resolution method

A guarantee is an important security measure in civil and commercial transactions. However, when the guaranteed party fails to fulfill its commitments, disputes often arise regarding the validity of the agreement, the scope and liability of the guarantor. Identifying the nature of the guarantee relationship and selecting an appropriate dispute resolution method are crucial to protecting the legitimate interests of the parties. TNTP will clarify the legal provisions on guarantee agreements, common types of disputes and dispute resolution methods for the parties’ consideration below.

1.What is a Guarantee Agreement?

A guarantee is a commonly used security meassure to ensure the performance of obligations. Accordingly, the entitled party agrees that a third party may perform the obligation on behalf of the obligor if the obligor fails to perform the obligation.

Under the Civil Code 2015, a guarantee is an undertaking by the guarantor to a party with the rights to perform an obligation on behalf of an obligor if the obligation falls due and the principal fails to perform the obligation.

Guarantee agreement means an agreement between the guarantor and the obligor that the guarantor will perform obligations on behalf of the obligor when the deadline expires when the obligor fails to perform its obligations. In case the guarantor fails to properly perform the guarantee obligation, the obligor may request the guarantor to pay the value of the breach obligation and compensate for damage (if any).

Regarding the form of the guarantee agreement, the Civil Code 2015 does not prescribe any specific form. Accordingly, the parties may establish a guarantee agreement in writing, orally, or through specific conduct, unless otherwise provided by law.

The guarantor may guarantee part or all of the obligations. If the parties do not agree otherwise and the law does not provide differently, the scope of security is determined as the full guarantee, including the obligation to pay interest, penalties and compensation for damages.

2.Disputes arising from guarantee agreements and dispute resolution methods

Disputes arising from guarantee agreements can be understood as conflicts and disagreements between parties to the guarantee relationship. Common types of disputes include:

• Legal validity of the guarantee agreement: The parties may dispute whether the guarantee agreement is valid or invalid, often focusing on issues such as the form of the agreement, voluntariness of the parties, or object of the agreement,…
• Performance under the guarantee agreement: These disputes arise when a party fails to perform their obligations, thereby affecting the legitimate rights and interests of the other party. Common examples include disputes regarding the scope of the guarantee or contractual obligations,…
• Parties authorized to establish and perform the guarantee agreement: Disputes occur when there is a lack of clarity on the authority to sign the contract, especially when the person establishing the contract is the representative (revolving representative’s authority, the scope of representation…).

When resolving disputes, the parties can choose dispute resolution methods including negotiation, mediation, arbitration and court. When choosing a dispute resolution method, the parties can consider the following factors:

• Nature and complexity of the dispute: If the dispute is simple, the parties are still in good faith, negotiation or mediation may be the right choice.
• Existence of the Arbitration Agreement: This factor is decisive in determining the jurisdiction to settle under the Law on Commercial Arbitration. If there is no arbitration agreement, the dispute will fall under the jurisdiction of the Court under the Civil Procedure Code.
• Requirements for time, cost and confidentiality: Arbitration and mediation are generally more flexible and confidential, while resolving disputes in Court ensures openness and enforcement power.
• Enforceability of dispute settlement decisions: A dispute resolution method is only effective when the resulting decision or agreement can be enforced in practice, ensuring the legitimate rights and interests of the parties. In this case, the parties can choose to resolve the dispute at Arbitration, Court or settle the dispute by mediation.

Above is the article “Disputes related to the guarantee agreement and the choice of dispute resolution method” that TNTP sends to readers. We hope this article will be useful to readers interested in this topic.