Guarantor and guarantor

By means of a promissory note a person unconditionally undertakes to pay to another person a specified sum of money, at a specified place, on a specified date, plus interest or otherwise.

A promissory note must meet the requirements set forth in the General Law of Credit Instruments and Operations, these requirements are: the mention of being a promissory note, the unconditional promise to pay a determined sum of money, the name of the person to whom the payment is to be made, the time and place of payment, the date and place where the document is subscribed, and the signature of the subscriber or of the person who signs at his request or on his behalf.

The promissory note is a credit instrument containing an unconditional promise to pay a specific sum of money made by a person called the subscriber to another person called the beneficiary or holder.

The mention that the document is a promissory note is one of the formal, indispensable and existential requirements of the promissory note, since without this element it would be difficult to distinguish it from other documents or negotiable instruments and to determine the legal effects of the document.

What is a guarantor

A guarantor is a guarantee of payment. Guarantors are usually required by banks when granting a loan or credit. The guarantor is the person who takes charge of the debt in case the borrower (person to whom the loan is granted) is unable to make the payment.

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The figure of the guarantor that appears with much assiduity in financial terms, is a term that is very linked with the contracts of loans and mortgages, and even in some cases it is also linked with the contracts of rent of real estate. You may find yourself in one of these cases, so we recommend that you continue reading this article.

As you can see, this is a broader definition of the universe of collateral. Putting it in other words, we can say that the guarantor is a type of personal guarantee. In this sense, a third party undertakes to assume the debt owed by another person to a specific lender. In the event that the debtor does not meet its financial obligation to the lender, the guarantor will be responsible for the non-payment.

Bank guarantee

Guarantees on loans are usually joint and several, which means that the guarantor assumes the same obligations as the holder of the loan in the event of default. In fact, being joint and several in a guarantee means that we cannot require the bank to claim the debt holder before claiming from us.

In case of non-payment of the holder of the loan, if the guarantor cannot pay either, he/she will also be included in the list of defaulters (RAI, ASNEF), and if the non-payment is prolonged over time, the guarantor may be seized.

The guarantor can be a partial guarantor; that is to say, the bank can accept to guarantee, for example, what exceeds 80% of the appraised value. Let’s take an example: my brother buys a 100,000 € apartment and he is granted a mortgage of the same amount in exchange for a partial guarantee from me. In this case, this guarantee is for €20,000 (i.e. 20% of the €100,000); as soon as the holder of the loan owes less than 80%, the guarantor will disappear.

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Obligations of the guarantor

A bank guarantee is a guarantee operation whereby the guarantor (bank) undertakes to respond for the fulfillment of an obligation of the guaranteed party (usually a client) before a third party (beneficiary), in the event that the guaranteed party fails to do so. Guaranteed obligations often consist of the payment of a certain amount of money, although guarantees may be issued to secure other obligations (successful completion of a project, supply of a material, participation in tenders and bids).

For the bank, a guarantee implies a risk, like a loan. The difference with the latter is that the guarantee does not imply an immediate disbursement of money by the bank in favor of the beneficiary of the guarantee, but it may do so in the future, if the beneficiary executes it, i.e., demands performance. At that moment the bank, which has complied with the beneficiary of the guarantee, will require the client to reimburse the said amount.

Therefore, the bank in these operations undertakes to fulfill, if the client (guaranteed) does not do so, the obligation it has contracted with the beneficiary. The payment of the obligation guaranteed may or may not be of a financial nature.