Legal Guarantees of Obligation and Debt Compliance

Guarantees of Obligation

Guarantees of obligation are established mechanisms for the creditor through which they secure or ensure compliance with a specific action.

Personal Guarantees

These consist of conduct committed by the debtor or a third party to ensure and strengthen compliance with the provision that the debtor has undertaken to perform.

Penal Clause or Provision

This is a new behavior that the debtor is obligated to perform if they do not meet the agreed performance, as governed by Article 1152 of the Civil Code and following sections. For example, delivering a specific item on a certain date, and if late, paying a specific amount of money per day or week.

It constitutes a new obligation which serves as an ancillary obligation.

Bonds and the Role of the Guarantor

A bond is conduct committed by a third party in the event of a breach of obligation. The commitment is an agreement between the debtor and the third party, by which the third person is obliged to pay if the debtor does not; thus, it serves as a guarantee for the creditor. This third person is known as the guarantor.

The third party holds a subsidiary liability, meaning the debt is only satisfied by them if the debtor fails to pay. This is governed by Section 1822 et seq. of the Civil Code.

There is also the bond of solidarity: in this case, there is no guarantor subsidiarity, and therefore, the guarantor serves at the same level as the debtor. If the guarantor pays the agreement, they then have the option to claim the payment from the debtor for which they became responsible.

Security Interests and Real Guarantees

This involves the acceptance or destination of movable or immovable property in the event of a breach of obligation. In case of default attributable to the debtor, the creditor may sell the property and use the sale proceeds to cover the amount of the debt.

Pledges on Movable Property

The debtor surrenders a pledge (prenda) to the creditor to ensure compliance with the obligation. If the requirement is met, the pledge is returned; otherwise, the property is sold. If the amount is sufficient to cover the debt, it is extinguished; otherwise, it subsists for the remaining lower amount.

Mortgages on Immovable Property

In this case, the debtor retains the property in their possession (it is not delivered to the creditor). If the debtor complies with the obligation, the mortgage is extinguished; otherwise, the creditor can promote the sale of the property via public auction, regardless of who possesses it (if the debtor conveys the property, they also convey the mortgage).