Guarantee is one of the security measures stipulated in the obligations and contracts under the Civil Code. The creditor undertakes to fulfil an obligation on behalf of the party obligated under the agreement if the latter fails to fulfil or improperly fulfils that obligation. In this article, TNTP will present the essential information about the security measure enforcing obligations: the guarantee.
1. Concept of guarantee
Guarantee means an undertaking made by a third person (from now on referred to as the guarantor) to an obligee (from now on referred to as the creditor) to perform an obligation on behalf of an obligor (from now on referred to as the principal debtor) if the obligation falls due and the principal fails to perform or performs the obligation incorrectly.
The parties may agree that the guarantor shall only be obliged to perform the obligation if the principal debtor is incapable of performing it.
2. Guarantee agreement
• The guarantor may negotiate with the creditor on applying security measures using assets to ensure the fulfilment of their guarantee obligation.
• In cases where the guarantor commits to performing tasks on behalf of the guaranteed party, the guarantor must have the legal capacity for civil acts and possess the civil behavioural capacity appropriate to the guaranteed obligation.
• Guarantee agreements can be expressed through a separate guarantee contract, a letter of guarantee, or other forms of guarantee commitment.
3. Conditions for the effectiveness of a guarantee
Since a guaranteed contract is considered a civil transaction, for this contract to take effect, the parties must adhere to the provisions of Article 117 of the Civil Code regarding the conditions for the effectiveness of civil transactions. Participants in the contract must have legal capacity, civil behavioural capacity suitable for the established contract, and voluntary participation in the contract, and the contract’s purpose and content must not violate legal prohibitions or social morality. Guarantee contracts must comply with the regulations of the Civil Code and relevant laws.
4. Scope of guarantee
• A guarantor may guarantee an obligation in whole or in part on behalf of a principal debtor.
• A guaranteed obligation includes interest on the principal, penalties and compensation for any damage and interest on late payment unless otherwise agreed.
• The parties may agree on using security as property to secure the performance of a guaranteed obligation.
• If the obligation to guarantee is an obligation arising in the future, the scope of the guarantee is exclusive of any obligations arising after the guarantor being a natural person dies or the guarantor being a juridical person ceases to exist.
5. Termination of guarantee
A guarantee shall terminate in any of the following cases:
• The obligation secured by the guarantee terminates.
• The guarantee is cancelled or is substituted by another security.
• The guarantor has satisfied the guaranteed obligation.
• As agreed by the parties.
The above is the article “Guarantees – Basic content you need to know” that TNTP is sending to its readers. In case of any issues requiring discussion, please contact TNTP for timely assistance.
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