Under Spanish law, all assets of a debtor are subject to the due fulfilment of the debtor’s obligations (principle of universal patrimonial liability ex Article 1.911 of the Civil Code). Contract guarantees in Spain, though, operate as measures that aim to preserve the assets of the debtor.
Additionally, contract guarantees aim to remedy an insufficiency of assets held by the debtor. Thus, contract guarantees provide a higher level of security upon the collection of the creditor’s claim. According to Spanish Law, there are two main categories of contract guarantees: personal guarantees and security rights.
Contract guaranties in Spain: Personal guarantees
Personal guarantees mean that debtors as well as third parties are responsible for the obligation towards the creditor to ensure the fulfilment of the claim.
In practice, personal guarantees are financial guarantees and bank guarantees upon first request (as special sub-type of the financial guarantees).
Contract guaranties in Spain: Security rights
In this case, security rights aim to guarantee outstanding obligations by linking its fulfilment to a specific asset of the debtor or an asset of a third party (e.g. a real estate property or a vehicle). Security rights aim to strengthen the position of the creditor by establishing qualified access (upon collection) to the determined assets of the debtor. Moreover, primary position is provided to the secured creditor in a manner that the creditor can satisfy its claim by the amount obtained before the debtor’s other creditors.
In the case of multiple claims (without competition) or competitive claims between creditors, the secured creditor has the right to obtain the determined asset directly upon collection, before other creditors. For a higher level of security for creditors, security rights must be registered in a qualifying system. This system provides evidence of existence and content of the security right in question, which serves as protection against potential concerns of third parties. The main types of security rights are mortgages and pledges.
Ultimately, to guarantee the fulfilment of obligations by a third party, it is fundamental to agree on security guarantee terms that are best in line with the nature of the obligation. In that way, the security guarantee enables the creditor to reduce or even mitigate the risk of non-payment of the debt or the breach of the obligation.
Should you need more information regarding contract guarantees in Spain or advice on how to set them up, do not hesitate to contact Mariscal & Abogados, your trusted legal advisors in Spain.
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