In commercial transactions, bills of exchange are considered important instruments that simplify payments and ensure the rights of participating parties. However, to enhance trust and minimize risks, bill of exchange guarantees have become important legal tools. The following article by NPLaw provides an overview of bill of exchange guarantees.
In commercial transactions, bills of exchange are considered important instruments that simplify payments and ensure the rights of participating parties. However, to enhance trust and minimize risks, bill of exchange guarantees have become important legal tools. The following article by NPLaw provides an overview of bill of exchange guarantees.
I. Understanding bill of exchange guarantees
1. What is a bill of exchange guarantee?
Article 24 of the Law on Negotiable Instruments 2005 provides: A bill of exchange guarantee is when a third party (hereinafter referred to as the guarantor) commits to the beneficiary that they shall pay all or part of the amount stated on the bill of exchange if the principal debtor fails to pay or fails to pay fully when the payment is due.
Thus, a bill of exchange guarantee is a form of financial commitment where the guarantor takes responsibility to pay on behalf of the principal debtor if they fail to fulfill the payment obligations under the bill of exchange when due.
II. Legal provisions on bill of exchange guarantees
1. Form of guarantees
Clause 1, Article 25 of the Law on Negotiable Instruments 2005 stipulates: The bill of exchange guarantee is executed by the guarantor writing the word 'guarantee', the guaranteed amount, the guarantor’s name, address, signature, and the name of the principal debtor on the bill of exchange or on an attached sheet.
Therefore, the guarantee is formalized by recording the guarantee, the guaranteed amount, the guarantor’s details, and the principal debtor’s name on the bill of exchange or on an attached sheet.
2. Rights and obligations of the guarantor
Article 26 of the Law on Negotiable Instruments 2005 provides rights and obligations of the guarantor, as follows:
- The guarantor must fully pay the guaranteed amount if the principal debtor fails to pay or pays incompletely when the bill of exchange is due.
- The guarantor may only cancel the guarantee if the bill of exchange does not contain all mandatory information prescribed in Article 16 of the Law.
- After fulfilling the guarantee, the guarantor is entitled to assume the rights of the principal debtor regarding relevant parties, handle the mortgaged assets of the principal debtor, and demand the principal debtor, drawer, or joint acceptor to repay the amount paid under the guarantee.
- Guarantees provided by credit institutions must comply with this Law and other relevant banking guarantee regulations.
III. Questions about bill of exchange guarantee
1. When does the guarantor’s obligation arise?
According to Clause 1, Article 26 of the Law on Negotiable Instruments 2005: The guarantor must pay the guaranteed amount if the principal debtor fails to pay or pays incompletely when the bill of exchange is due.
Thus, the guarantor’s obligation arises only if the principal debtor does not pay or pays partially when due.
2. Can the guarantor cancel the guarantee?
Clause 2, Article 26 of the Law on Negotiable Instruments 2005 provides: The guarantor may only cancel the guarantee if the bill of exchange lacks the mandatory contents prescribed in Article 16 of this Law. Hence, the guarantor may cancel the guarantee only if the bill is incomplete according to legal requirements.
3. Is the guarantor obligated to pay the exact guaranteed amount?
Clause 1, Article 26 confirms that the guarantor must fully pay the guaranteed amount if the principal debtor fails to pay or pays incompletely when due.
4. Does the guarantor assume the rights of the principal debtor after paying?
Clause 3, Article 26 provides: After fulfilling the guarantee, the guarantor assumes the rights of the principal debtor regarding relevant parties, handles the mortgaged assets of the principal debtor, and may demand the principal debtor, drawer, or joint acceptor to repay the amount paid under the guarantee.
Thus, the guarantor has the right to assume all rights of the principal debtor regarding relevant parties after fulfilling the guarantee.
IV. Legal advisory services on bill of exchange guarantee
The above article provides an overview of the bill of exchange guarantees. With an experienced team of lawyers and legal specialists, NPLaw offers reputable, professional legal services to ensure the best protection of clients’ legal rights. For legal support, you may contact NPLaw for consultation.
