Types of bank guarantees
Guarantees in Spain can be classified by their duration, the beneficiary’s claims against the guarantor and the underlying obligation being guaranteed.
Based on the duration of the guarantee
- For a fixed period, which must be stated in the guarantee itself.
- For an open-ended period. In general, the guarantee will expire when the guaranteed obligation does. In such cases, the bank will require the original document in order to terminate the guarantee.
The duration of specific-term guarantees may be set as follows:
- Guarantee period: if the guaranteed obligations arise while the guarantee is in force, their performance may be demanded even after the end of the duration of the guarantee, provided the demand is made within the permitted time limit for demanding performance of personal obligations.
- Expiry period: when the specified term expires, the guarantee is automatically extinguished.
Based on the guarantee beneficiary’s claims against the guarantor or surety:
- Ordinary guarantee: the beneficiary must first claim repayment from the guaranteed party (obligor or principal). If the obligor does not comply with the obligation, the beneficiary may claim against the guarantor.
- Joint and several guarantee: the beneficiary may claim repayment from either the obligor or the guarantor or surety. This is the type of guarantee banks usually ask for.
- Surety bond: the surety (guarantor) cannot require the beneficiary to first claim repayment from the obligor. Moreover, the onus will be on the surety to prove that the obligor has already met his/her obligations to avoid having to meet them.
Based on the type of underlying obligation:
- Technical: the guarantor is liable for the obligor’s compliance with certain obligations over and above the repayment of an amount of money to the beneficiary. This type of guarantee, known as a performance bond, is commonly used in contracts for works or between a supplier and a government body.
- Economic: both the guarantor and the obligor are required to pay a sum of money to the beneficiary at a certain point in time. These can be subdivided into:
- Economic/financial: the guarantee covers the repayment of a sum of money previously granted as a loan by the beneficiary of the guarantee.
- Economic/commercial: the guarantee covers payments made by the obligor as a result of commercial transactions. These are commonly used in import-export operations, often involving letters of credit, or in residential leases, where the landlord might ask for a guarantee from the tenant.