A type of surety known as a directly enforceable guarantee holds the guarantor responsible for the debtor’s performance of an obligation. In many countries, this type of surety is often used as security for an indebted party or as part of a larger credit transaction.
In a directly enforceable guarantee, the guarantor is the only debtor responsible for the performance of the agreement. Therefore, if the debtor breaches the terms of the agreement, only the guarantor is liable for the payments.
Since the guarantor is liable for the debtor’s obligations, a directly enforceable guarantee is sometimes also called a “joint and several guarantee”.
In situations where the debtor is unable to pay his debts or is not trustworthy for other reasons, a directly enforceable guarantee is a very efficient means of granting credit.
However, the guarantor must have enough money to meet the debtor’s obligations, otherwise they will fall back on him. To ensure that the guarantor can fulfil the debtor’s obligations, he must be thoroughly checked before signing the contract.
Remember that this form of guarantee is only valid if it is clearly formulated in the contract. It is therefore crucial to carefully check any agreement containing such a promise before signing it.
- What is a directly enforceable guarantee and how does it work?
- What does the Civil Code say about the directly enforceable guarantee?
- An example of a directly enforceable guarantee – what do you have to bear in mind?
- Can a directly enforceable guarantee be terminated or cancelled?
- When does an unlimited directly enforceable guarantee make sense?
- What is the significance of the directly enforceable guarantee for the tenant?
- How can a tenancy agreement be secured with an absolute guarantee?
- How can a bank help to set up an absolute guarantee?
- What is a deficiency guarantee and how does it differ from an absolute guarantee?
- How can a lawyer help in setting up an absolute guarantee?
- Summary of the topic
- Directly enforceable guarantee – legal advice
What is an absolute surety and how does it work?
A promise made by one person or company to another person or company is called an absolute surety. Loan agreements, leases and sales contracts are just a few examples of contracts where this type of guarantee can be used.
With a directly enforceable guarantee, the guarantor assumes that he or she can assume the debtor’s entire liabilities in the event of the debtor’s insolvency. Therefore, the directly enforceable guarantor is liable for the debtor’s obligations and is obliged to pay the full amount if the debtor defaults.
Before satisfying the debtor’s creditors, the guarantor is usually obliged to inform the debtor’s contracting party of possible delays or non-performance of the agreement.
The guarantor must obtain and verify all relevant information about the debtor to protect against unforeseen financial losses. The guarantor must ensure that the debtor has sufficient funds to meet its obligations.
If the debtor does not meet his obligations, the guarantor may suffer a financial loss.
A directly enforceable guarantee can be a useful instrument that provides financial protection for both parties to the contract. However, it is important that both parties are aware of the dangers of such a contract and what happens if the debtor does not keep his part of the bargain.
What does the Civil Code say about the directly enforceable guarantee?
The directly enforceable guarantee is regulated in §§ 765 ff. of the German Civil Code (BGB). According to this, the guarantor (Bürge) is liable for the debtor fulfilling a certain obligation (Bürgschaft).
The guarantor is liable not only for the actions of the debtor but also for his own, i.e. if the debtor does not fulfil his obligations, the guarantor is also liable. The creditor (guarantor) can claim against the guarantor immediately on the basis of this liability without first asserting a claim against the debtor.
Furthermore, it is not necessary to sue the debtor. However, if the debtor has paid in reliance on the immediately enforceable promise, the guarantor can demand reimbursement of these payments from him.
An example of a directly enforceable guarantee – what do you need to consider?
An agreement that obliges the guarantor to pay for the debt of the debtor if the debtor is no longer able to make the payment is called a directly enforceable guarantee.
This means that the guarantor assumes the entire financial risk associated with the guarantee and is responsible for ensuring that the debtor’s obligations are met. The directly enforceable guarantee is a substantial and legally binding obligation, it is important to emphasise this.
It is therefore crucial that all parties have fully read and understood the contract before signing. The guarantor should make sure that he is fully aware of his financial and legal obligations and that he is fully responsible for the debtor meeting his payment obligations.
Furthermore, the guarantor must ensure that he has the necessary means to step in if the debtor is unable to meet his obligations.
Can such a guarantee be terminated or cancelled?
An immediately enforceable guarantee can be cancelled or terminated, yes. However, the termination or cancellation must be in writing and signed by both parties.
When is an unlimited directly enforceable guarantee useful?
When the risk to the guarantor cannot be controlled or when the guarantor wants to ensure that the borrower provides financial security for a certain period of time, an unlimited directly enforceable guarantee is a viable choice.
Cases where a borrower needs continuous financial support over a long period of time, such as a loan to finance the purchase of a house or a car, are common candidates for open-ended guarantees.
What is the significance of such a guarantee for the tenant?
A legally binding agreement between tenant and landlord to guarantee the payment of rent is called an absolute surety. A legally binding agreement called an absolute surety provides immediate security to the landlord in case a tenant does not pay his rent on time.
The tenant’s rent payment must be guaranteed to a guarantor person. This person is chosen by the landlord and is usually a bank or other lender.
The guarantor is obliged to pay the landlord’s rent if the tenant does not pay the rent on time. In case of non-payment, the guarantor can put an additional burden on the tenant’s debt.
Therefore, it is the tenant’s responsibility to defend the guarantor against any claims. To avoid having his or her guarantee called into question, it is imperative that the tenant meets his or her obligations to pay the rent on time.
Before agreeing to a directly enforceable guarantee, it is essential that the tenant familiarises himself with all the conditions.
How can a tenancy agreement be secured with a directly enforceable guarantee?
An immediately enforceable surety bond can be used to secure a lease. Such a guarantee is a legal agreement between the tenant and the guarantor, who is another party.
In the event that the tenant is unable to fulfil his obligations under the lease, the guarantor agrees to pay the rent and other liabilities of the tenant. The guarantor is fully liable for the tenant’s liabilities with his assets.
Both the tenant and the guarantor must be of age and legally competent to provide an immediately enforceable guarantee. In order to reduce the landlord’s risk, the guarantor should additionally prove adequate creditworthiness.
How can a bank help in setting up a directly enforceable guarantee?
By giving thorough advice to the guarantor, a bank can help to set up a directly enforceable guarantee. The bank will first assess the risks and possible consequences of such a guarantee. Then, the measures necessary for the creation of the guarantee will be explained to the guarantor.
This includes, among other things, drawing up a legal agreement setting out the details of the guarantee. In addition, the bank is prepared to answer all legal questions in connection with the guarantee.
The bank can also assist the guarantor in fulfilling his obligations and safeguarding his rights.
What is a deficiency guarantee and how does it differ from a directly enforceable guarantee?
A deficiency guarantee is a type of insurance where a guarantor agrees to pay for another person’s debts if he or she is unable to do so himself or herself.
Unlike a directly enforceable guarantee, a guarantor not only assumes responsibility for the debtor’s obligation, but also has the power to demand payment from the debtor. This means that the surety must first be paid before the debtor can be contacted.
In contrast to a directly enforceable guarantee, the debtor can pay the guarantor directly if he is unable to pay the debt himself. However, with a directly enforceable guarantee, the guarantor does not have the right to receive payment directly from the debtor, but merely assumes the debtor’s obligation.
How can a lawyer help in setting up a directly enforceable guarantee?
A lawyer can assist the process by ensuring that all relevant processes are completed correctly, which will help to create an immediately enforceable surety.
He or she can also help to ensure that all data and documents required for the execution of the guarantee are accessible. In order for the guarantor to make an informed decision, lawyers can help them to learn about their rights and obligations.
To provide the guarantor with the best possible protection, a lawyer can also advise him or her of the possible consequences of a guarantee.
Summary of the topic
What is a directly enforceable guarantee? A guarantee in favour of another person or a company is called a directly enforceable guarantee. If the debtor is unable to repay the loan on his own, the guarantor undertakes to do so.
Under what circumstances can a directly enforceable guarantee be called upon? Such a guarantee can be used in a variety of cases. It is often used in credit transactions, e.g. when a borrower requires a lender to guarantee the lender’s obligations so that the lender can be sure that its money will be repaid.
Who can sign a directly enforceable guarantee? Any natural or legal person who is financially able to pay the debtor’s debts can provide such a guarantee.
What is the difference between a directly enforceable guarantee and another type of guarantee that is also directly enforceable? The difference between an absolute surety and a directly enforceable surety is that in an absolute surety the guarantor is liable exclusively for the debtor’s debts, whereas in an absolute surety the guarantor is liable for both the debtor’s debts and his own debts.
What happens if the guarantor does not fulfil his obligations? The guarantor is liable for the debtor’s debts if the debtor does not fulfil his obligations. This can lead to the guarantor getting into financial difficulties and perhaps even going bankrupt.
What kind of legal agreement is required to agree a directly enforceable guarantee? In order to agree on this form of guarantee, the debtor and the guarantor must sign a contract of surety that sets out all the specific terms of the guarantee.
What are the fees for a directly enforceable guarantee? The fees for an absolute guarantee depend on the size of the guarantee and the creditworthiness of the guarantor. However, there are often additional costs associated with signing a surety agreement.
What happens if the debtor cannot repay his debt? If the debtor is unable to make his payments, the guarantor must pay the debt from his own funds.
What happens after the debtor’s debts are paid? The guarantor is no longer liable for the debtor’s debts once they have been settled. In this case, the guarantor can claim compensation for the costs he has incurred in settling the debtor’s debts.
Directly enforceable guarantee – Legal advice
An effective method of protecting a borrower from repayment of a loan is an immediately enforceable surety bond. It is a very adaptable type of guarantee that allows the borrower to secure the lender in case of default.
It is crucial that the guarantor has enough money to meet the borrower’s obligations, as there is no guarantee of performance. In addition, the borrower must comply with the terms of the loan and make all required payments on time.
The immediately enforceable guarantee can help a borrower meet his or her payment obligations if these conditions are met.
Take immediate action and secure an absolute surety bond to protect you from potential financial risks. Contact us here today to find out more.