учебный год 2023 / de la Mata Munoz, Personal Security

204 Chapter 3: Other typical security rights

the level of protection provided. In the practice, interpretation of these letters has given origine to conflicts solved by a large case law in both countries59. The issuer is personally interested in the grant of credit60. The letter of comfort shares a common aim with the m.p.c. but there are important differences between both contracts.

The issuer of a letter of comfort promotes the grant of credit because he makes the creditor feel confident in relation to the recovery of the credit. However he does not order the grant of the credit. This contrasts with the function of the mandator of a m.p.c.. The decision to grant is exclusive to the creditor. It is also the case that it falls to the creditor and the beneficiary to establish the terms and conditions of the contract. Accordingly, the letter of comfort usually precedes the grant of credit while in a m.p.c. the guarantee is a consequence of the performance of the mandate.

The kind and level of security provided by a comfort letter depends on its wording which is usually subject to careful construction. In a m.p.c. the security constituted is always a typical contract of guarantee and the parties cannot agree otherwise. Once the mandatory has granted the credit on performance of the mandate, the mandator is answerable as guarantor. The strongest letters of comfort also provide a security very similar to the contract of guarantee but this is subject to the will of the issuer and the construction of the wording of each letter.

The content of the letter of comfort is in many cases not strictly defined. In some cases, it shall cover a sum of different debts or even the complete balance due. On the contrary, the object of the m.p.c. is strictly defined in the contract. The mandatory must grant the credit for the sum ordered and the mandator guarantees this object.

Therefore, although the final aim of both personal security rights is similar, their respective structure and effects differ. This allows drawing a distinction between them and using each of them in different situations within commercial activity.

2. The m.p.c. and the documentary credit

Documentary credits are payment and financing instruments for international transactions61 • The aim is to guarantee the payment of a trading price

59See for Italy, Aletti and for Spain Medina, Chapter I.5.

60These are usually parent companies which are contributing to the operation of a subsidiary company (Supreme Court decision STS 16 Dec. 1985 [RA 1985 no. 6442]. Recently there are also cases of comfort letters between private persons. An example of this is the situation of solvent parents of a poor tenant issuing a letter of comfort to the landlord in order to provide satisfactory security. The interest in these cases is usually personal.

61In practice they are governed by the ICC Uniform Rules on Documentary Credits.

between two different places. The bank (issuer bank), following the instruction of his client, shall perform a payment, as well as accept or sell a bill of exchange that the beneficiary may draw, or permit the payment, to acceptance or sale of such bills of exchange by another bank, upon the delivery of the documents if the agreed terms and conditions have also been performed.

Many similarities are to be found between the documentary credit and the m.p.c.. There is an instructing party, ordering the issuing bank to perform payment to a third party upon delivery of the agreed documents. There is a credit relationship between the issuing bank and the instructing party. Nevertheless, there are a number of differentiating elements. In first place, both contracts have a different content. The documentary credit is usually based on a commercial relationship, focused on the transaction of property while the m.p.c. is based on a future financial debt.

The interests of each of the parties involved in these contracts are also different. In a m.p.c. the mandator aims to enable the grant of credit to a third party and therefore guarantees the credit provided by the mandatory. In a documentary credit, the payment to the third is a consequence of a commercial transaction. The aim of the instructing party is to guarantee its commercial partner the performance of his commercial debt, previously existent as a consequence of their commercial relationship. But the person accepting the credit is the instructing party and not the third i.e. the mandator of a documentary credit is liable as a credit receiver (debtor), while the mandator of a the m.p.c. only guarantees and will therefore be liable in the exceptional case of non performance by the third party ("ope exceptionis").

The liability of the bank in a documentary credit regards the credit relationship while in a m.p.c. it is based on the acceptance of the mandate.

Moreover, in the situation of documentary credit, a second bank may enter the relationship, by adding its own guarantee to the beneficiary.

3. The m.p .c. and the letters ofpayment (Cartas orden de credito)

The so called "cartas 6rden de credito" are instruments of payment provided for in art. 567 f. Spanish Comm. C. They are issued by a trader to another trader or to accomplish a commercial operation. They must be issued in favour of a determined person and for a fixed and specific amount or within a maximum limit previously settled. The receiver of the letter pays the person in favour of which it has been issued and the issuer remains answerable for the amount agreed in the letter and has a right of repayment against the debtor. This can be utilised if the issuer is called on to perform. The structure and function of the letters of payment may appear to exist in parallel to the m.p.c. However, the letter of payment is not an

206 Chapter 3: Other typical security rights

order or mandate to the receiver to provide credit. The efficacy of this instrument depends on the will of both the beneficiary, who asks for the amount established in the letter and the receiver who must decide whether or not he wishes to pay. These factors are discretionary for both parties.

The beneficiary might not ask for the amount. His right to do so is limited by time to the term agreed in the letter or to the legal one established in art. 572 Spanish Comm. C (six months within Europe and twelve within the rest of the world). If he does not ask the receiver of the letter for payment within the time limit, the letter of payment is rendered void.

The receiver of the letter is not obliged to perform the payment. If he does perform, the issuer remains answerable for that payment. But it must be emphasised that the receiver has an unfettered discretion as to whether or not he will perform. This is the main difference with the contract of m.p.c.

The structure of both instruments is very similar. There are three parties, one grants credit to a third and the promoter of that credit remains liable for it. However, the letter of payment is not a mandate, since the receiver is never compelled to grant credit. Moreover, the letter of payment is exclusively applied within commercial transactions.

XII. Legal nature ofthe m.p.c.

A functional approach to the contract of m.p.c., shows a complex structure combining elements of two different typical contracts (mandate and guarantee). This surprising configuration gives origin to a considerable uncertainty on the nature of the m.p.c.. This remains as being the primary matter of controversy among scholars on this topic since Roman Times.

In view of the elements of the contract and their significance, the m.p.c. has been identified with the contract of guarantee and with the contract of mandate. It has also been treated as an atypical contract with a particular legal nature combining elements of both contracts.

1. The m.p.c. as a contract ofguarantee

The m .p.c. has been identified with the contract of guarantee62 on the basis of the guarantee for future debts. A certain identification of both contracts is generally accepted63 , as the second phase of the m.p.c. is actually the constitution of a guarantee. Furthermore, the possibility of constituting guarantees for future debts seems to facilitate the identification of both contracts.

62Campogrande, 132 ff.. See also long references in Graziani, 322; Giusti, 301 and

Leon, 1086.

63Leon, 1086.

However, certain features of the m.p.c. serve to distinguish it from the classic contract of guarantee. In the m.p.c. the guarantee obligation is the source and the consequence of the mandator obligation (connessione causale64/interconexi6n causal65). In a typical credit relationship it would be unusual for the constitution of the mandator obligation to be so directly connected with the constitution of the guarantee66.

In the m.p.c. the credit is granted because it is already guaranteed. Simultaneously, the guarantee obligation is automatically created when the credit is granted. Accordingly, while the archetypal guarantee can be constituted before or after the establishment of the mandatory's obligation, in the m.p.c. the guarantee has to be constituted before.

Moreover, by contrast to the guarantee, the mandatory of a m.p.c. has the obligation to grant the credit. This allows the revocation of the mandate as long as the mandatory has not yet granted the credit. This is not possible in the case of a classic guarantee, even if the guarantee has been given for a future debt.

2. The m.p.c. as a contract ofmandate

It has also been contended that the m.p.c. is a special form of mandate67• In countries such as Italy which have enacted a specific legal regulation covering the m.p.c. formal reasons are cited in support of this theory.

In the first place, the nomen iuris of this contract contains the term mandate (,,mandato di credito"/,,Kreditauftrag"). This can thus be related to the classic contract of mandate which is regulated within the civil codes. Moreover, the regulation of the m.p.c contains other terms which are typical of the contract of mandate ("incarico"/"beauftragt"). Terminology of this nature is also present within the regulation of certain special kinds of mandate (like in art. 1756 or art. 1742 Italian CC).

If this argument is followed then the liability of the mandator can be seen to be derived from the contract of mandate. The content of art. 1958 Italian CC would be taken as a particular application of art. 1720 par. 2 Italian CC. Therefore, the mandator would remain liable for damage suffered by the mandatory by reason of the mandate. In the particular instance of the m.p.c. this liability is only pre-established on the basis of the guar-

64Graziani, 315 ff.

65Leon, 1086.

66"La teoria della fideisussione incontra un ostacolo insormontabile nell'essistenza

della obligazione del c.d. mandatario a concedere il mutuo, obbligazione che assolutamente eassente nella fideiussione dove a carico del creditore non sorge nessuna obbligazione'', Graziani, 322.

67"Sottospecie di mandato", Ravazzoni, Le garanzie, 165. See Fragali/Scialoja/

Branca, 532; Simonetta, 154 ff. See also long references in Leon, 1089.

However, these theoretical barriers could be overcome if the m.p.c. were to be regulated in Spain. Important legal authors70 have considered possible the existence of a non-representative mandate (mandato no representativo) under Spanish Law as the wording of art. 1709 and art. 1717 Spanish CC is suggestive of a broader conception of the mandate. This would make it possible to regulate the m.p.c. in Spanish CC, but the practical experience of the neighbouring countries makes it doubtful as to whether there is any real need for it.

B.Guarantee for a bill of exchange (l'avallo/el aval cambiario)

I.The basic concept ofguarantee for a bill ofexchange

The guarantee given for a bill of exchange (avallo/aval71) is a personal security right specifically aimed at securing the payment of a bill of exchange (or a cheque or promissory note). It is a declaration, by means of which the surety undertakes to be answerable for the total or partial payment of the exchange obligation.

The function of the guarantee for a bill of exchange is identical to that of the contract of guarantee, namely to secure the creditor and thereby fa- cilitate the grant of credit72• The guarantee obligation undertaken by the surety is a separate obligation, and the surety assumes a joint and several liability regarding the primary obligation. The declaration is made on the bill itself and must specify the limits of the liability assumed by the surety. Unless otherwise specified, the surety's liability will be considered granted for the totality of the mandatory's obligation.

II. Terminological uncertainty in Spain

The term aval is not only used to describe the abovementioned guarantee for a bill of exchange but is also rather confusingly used as a synonym for guarantee (fianza). Originally it referred specifically to contracts of guarantee granted by qualified guarantors, like banks or public institutions, but its meaning was later extended to include every kind of guarantee and be-

70Diez Picazo, La representaci6n en el Derecho Privado, Madrid, 1979. See long references in Arcos, 83-161.

71See Vicent/Nieto/Bonet, 383; Anoveros, 1992; Blanco, Aval, 677 f.; Sanchez-Calero Guilarte, El aval, 331 ff; Sanchez Calero, Instituciones, 80 f.

72Bozzi/Rescigno, 288; Thietz-Bartram, 36; Vicent/Nieto/Bonet, 383; Roj o/Menendez,

549; Sanchez Calero Guilarte, El aval, 331 ff.; Guilarte, 48. See supra Chapter 1, C. The practical functions of security rights: Law, economics and social implications, 14.

came so an alternative to the word fianza73. The term is regularly used in this latter sense in daily practice, case law74, legal studies75 and even legislation76. It is hence the task of the courts to determine in each case which kind of contract is contained in a document before the forum. The lack of precision in the use of this legal term should be avoided, particularly within legislation.

Ill. Legal nature and regulation

The guarantee for a bill of exchange is conceived of as an independent obligation which remains valid even if the primary obligation becomes invalid77. This independent nature was always clear under Italian law78 but not in Spain, where an intensive doctrinal debate took place until the enactment of the Ley Cambiaria y del Cheque (LCC) in 1985. The wording of art. 475 to art. 478 Spanish Comm. C. were ambiguous79. Some writers, following the Italian construction, considered the guarantee for a bill of exchange to be an autonomous security right80, while authors who supported the French theories considered it a kind of contract of guarantee; accessory81 . After years of debate and uncertainty82, the matter was clari-

73Blanco refers to a semantic study of the term aval; Blanco/Sanchez-Calero and Sanchez-Calero Guilarte, 171; Infante, Un equivoco del TS, IV.

74As a way of example see: STS 15 June 2008 [RA 2008 no. 4377] and STS 7 Jan. 1981, BMIJ no. 1240, 37.

75Suso, 519 f.

76Art. 284 Ley de Sociedades An6nimas (LSA); regarding Mutual guarantee societies: art. 1 RD of 26 of July 1978. For long references see: Blanco/Sanchez-Calero and

Sanchez-Calero Guilarte, 172.

77Art. 37 Legge Cambiaria (LC) and art. 37 par. 1 Ley 19/1985, cambiaria y del cheque (LCC). Garcia Cortes/Nieto/Bonet, 508; Sanchez Calero , Instituciones de derecho mercantil, 88.

78Bozzi/Rescigno, 288; Trabucchi, 624 and 724; De Marco/Sparano, 185.

79For long historical references: Garcia Cortes/Nieto/Bonet, 509. Guilarte, 48.

80They based their opinion on the term "independently" in art. 486 Comm. C.: "The

payment of a bill of exchange, can be guaranteed with an obligation written independently of the one assumed by the acceptor and the endorser, known as guarantee for a bill of exchange." ("El pago de una letra de cambio podra afianzarse con una obligaci6n escrita independientemente de la que contraen el aceptante y el endosante, conocida con el nombre de aval").

81They base their opinion on the guarantee function of the guarantee for a bill of exchange. The term "independently" in art. 486 LCC regards the parties and not the obligations. Moreover the extent of the guarantee for a bill of exchange is flexible according to art. 487 Spanish Comm. C., but is always restricted to the limits of the underlying obligation.

82For long references see Guilarte, 49.

212 Chapter 3: Other typical security rights

fied by the LCC83 . The imprecise wording of the Spanish Comm.C. (art. 486 ff.) is clarified in art. 37 par. 1 LCC84, where the autonomous character of the guarantee for a bill of exchange is expressed in the same words as in Italian art. 37 L.C.

Italy ratified the Geneva Uniform Law on Bills of Exchange and Promissory Notes of 1930 and adopted the text as national law85 in the LC. Spain never ratified the Geneva Conventions but adopted the text of the Uniform Law86 in the LCC87 . The guarantee for the bill of exchange is governed by art. 35 to art. 37 of both statutes. Furthermore, in both countries the law on guarantees has been declared to be subsidiarily applicable to the bill guarantee by analogy88. Due to the different nature of a guarantee and a guarantee for a bill of exchange89, they may both be simultaneously granted by the same surety90.

It is interesting to note that Spain has not signed the UNCITRAL Convention on International Bills of Exchange and International Promissory Notes, which was adopted the 9th of December, 1988. The Convention was an attempt to reconcile the approaches of different legislative systems in this regard91 • However, this Convention has not yet entered into force and will probably never do so.

83The explaining motives of the law expressely refer to the autonomous nature in the motive Ill: "[ ... ] the need to clarify this matter, opting for its definition as autonomous obligation... ".

84Extremely surprising is the Supreme Court decision of 28 March 2003 (STS 28 March 2003 [RA 2003 no. 3039] werer it is clearly estated that the gurantee for a bill of exchange is an ancillary contract, which extinguishes upon the extinction of the secured debt. This decisions referes to a large case law, all previous to 1985, year in which the LCC clarified the matter ex lege. This case law must be strongly critized and not taken

into account with regard to the configuration of the guarantee for a bill of exchange. 85 Jahn , Wechselrecht, 1.

86 Jahn, Bills of Exchange, 6.

87 See Explanation Motive III of the Spanish LCC.

88 Cass. 11 November 1953 no. 3026; Cass. 8 June 1976 no. 2090; Cass. 11 September 1997, no. 8990; Cass. 7 May 1998 no. 4618, cited by Petti, 267. For a deep study:

Bozzi/Rescigno, 288 f. ; Rojo/Menendez , 500 f. 89 Guilarte, 48.

9°Cass. 8 August 1967, no. 2114, GI, 1968, I, 1, 314; Cass. 25 July 1978, no. 3710, BBTC, 1979, II, 141.

91 Garcia Cortes/Nieto/Bonet, 510.

C.The contract of guarantee insurance

I.The basic concept ofguarantee insurance

The guarantee insurance is now a very common way of providing security92 through an insurance contract taken out by a debtor in favour of his creditor. It covers the creditor for any loss or damage which he may suffer in the event of the debtor failing to perform his legal or contractual obligations.

In Italy and Spain these contracts are not strictly regulated and a great deal is left to be agreed by the parties. As the parties involved are usually companies and professionals, there is normally no need for the application of special consumer protection rules93 • Flexibility and adaptability to their needs is generally sought out by the parties and so there are a number of different kinds of insurance policies which fulfil this function in practice.

II. Relations between the parties to the contract

The guarantee insurance creates a three party relationship between the insurer, the party taking out the insurance (the debtor) and the beneficiary of the contract (the creditor).

1. Relationship between the debtor and the creditor

The debtor and the creditor enjoy a contractual relationship, which gives rise to an obligation to perform, or not to perform or to pay. In order to guarantee the fulfilment of such obligation, the creditor (beneficiary) requires a guarantee of performance (cauzione/cauci6n). This relationship is the underlying obligation, which is basis for the insurance contract.

The guarantee insurance is most commonly used in the export trade as well as in connection with contracts agreed with the State, for which guarantees are required by law.

2. Relationship between the debtor and the insurer

The insurance policy is agreed between the debtor and the insurer, either by mandate of law or by agreement between the parties. In terms of such policy, the insurance company is obliged to pay a sum of money to the creditor upon the happening of the stipulated contingency, i.e. the failure of the debtor to perform its obligation/s to the creditor. If the insurer is

92Baldini (http://www. Tidona.com/versionestampa/stampa_aprile01_2.htm). See STS 26 January 1995 [RA 1995 no.172], STS 19 May 1990 [RA 1990 no. 3741].

93If, however, a consumer enters a guarantee insurance, the general rules on consumer protection will be applied thereto.