Insurance instruments for claims collection

Bank guarantee
- created as a mean of ensuring the fulfillment of contractual obligations of parties
- as known as the protection from risks of irregular executions of this obligations
- the user will get the compensation for the damage if violation of obligation occurs
- the compensation givers are either the business partner or the bank that issued guarantee

BANKS DO NOT ensure obligation of fulfillment of the main debtor

- BUT they are just compensating the user of banking guarantee in the limits of the amount
specified on it

Issuing guarantee by legal forms :

a) accessory guarantee
b) guarantee on first call
c) bill of exchange acceptance, Aval or endorsement (guarantor has a right on same objections
as main debtor)
d) standby letter of credit

a) Accessory guarantee
- co-debtor has to pay the debt if the main debtor fails to do so

 accessoriness – shares the fate of main debtor

- if claim for main business invalid = bank obligation invalid
 subsidiary – the creditor is trying to collect the debt from the main debtor then if no success
then co-debtor is paying the debt
 co-debtor has right on all complaints from main business towards the creditor

b) Guarantee on first call

 independence
– abstract obligation of the issuer to the user, who is independent from contractual relations
between : order-giver of guarantee and user AND order-giver and guarantor
 non accessoriness
– guarantor conform to the user solider with order-giver
- user is not obliged to seek compensation from the order-giver
 documentary obligation of issuer
- guarantor is obliged to pay guaranteed amount (within the guarantee validity) :
---- if the user presents to guarantor demand for payment
---- if the documents are identical to ones stated in guarantee by outward appearance
2 forms of guarantees :
- Simple demand - Payable upon presentation of user’s request for payment
- Documentary - Payable with presentation of user’s request for payment + written
statement that other party didn’t fulfill its obligations + the explanation what was not
fulfilled
- bank has no obligation to examine If the statements are authentic
- if the conditions are satisfied it is accepted
- if valid documents bank has to pay no matter what the court says
- user can demand the bank to pay anytime within the guarantee validity

Guarantee becomes valid :

- with the day of issuance
- later day if it is determined by the text of guarantee

If no date -> 5 years validity

Validity period of guarantee :

- calendar date
- certain event (documents presentation day or advance payment)

Bank obligation by issued guarantee ends :

- with payment of total guarantee amount
- expiration of validity deadline
- returning the guarantee before validity deadline
- receiving the user’s written statement that he will NOT claim payments by guarantee
- total reduction of guaranteed amount
- incomplete presentation of documents required in guarantee

OBLIGATION FOR COVERAGE GUARANTEE :

- covered – order-giver deposits money coverage to the bank
- uncovered – bank makes payment from own funds

NUMBER OF BANKS THAT TAKE GUARANTEE OBLIGATIONS :

- direct – one bank guarantor and one user
- indirect – between order-giver and bank is inserted one or more banks that confirms or notifies
guarantee
REGARDING THE CONTENT :
 performance banking guarantees
– bank guarantees to the user of the guarantee that the main debtor will do certain activity
- bank not obliged only to pay amount contracted in guarantee to the user
- guarantee for timely performed activity, for participating in auction, for returning of packaging
 credit or payment bank guarantees
- guarantee to the user that the bank guarantor will pay main debt if major debtor fails to do so
- credit return is guaranteed as well as payment of delivered goods
Counter-guarantee
- issued in banks guarantor favor
- it is guaranteed that the bank guarantor will be compensated for what it pays under the
guarantee that is issued

Super-guarantee
- other B/G that the bank who issued banking guarantee will fulfill its obligations from that
guarantee
Conditional
- condition that should be fulfilled in text of guarantee
Unconditional
- user of guarantee only need to submit the request for payment from the guarantee to the bank

Banking guarantee in form of L/C

- bank obliged from order-giver too pay money amount
- happens under the condition that user in certain time submits written statement to the bank
that the debtor did not perform its obligation on maturity date

Parties in banking guarantees

 order giver of guarantee – debtor
 bank – guarantor – issues guarantee
 user of guarantee – creditor who gets the right for claims

Separate legal relationships :

 order-giver vs. user
- determined which party takes the obligation to obtain banking guarantee
- when and how will the order giver make contract with a bank
- the content of banking guarantee
- validity deadline
- conditions under which bank will fulfill its guaranteed obligations
- documents that the user must present
 order-giver vs. bank
- situation when bank accepts the order that satisfy conditions of basic contract and it issues
guarantee
- bank collects compensation from issuing
 bank vs. user
- delivering guarantee to the user and his acceptance
- user has no obligations only the rights
WARRANTY

 contract on warranty – the guarantor/warrantor is obligated to creditor that he will fulfill

legitimate and matured obligation of debtor if he doesn’t do it himself
- issuing is bilateral legal business
- arises from willingness of both parties (guarantor and person in whose favor is issued)
- simple contract : rights only the user, obligation only the guarantor
- guarantors obligation depends on fulfillment of obligation of the main debtor

subsidiary warranty
- legal institute by which the guarantor is committed to the creditor that he will fulfill debtor
obligation if he doesn’t do it himself
- guarantor obligation : accessory and dependent
- arises/exists/ends with arrival/existence/ending od legally claimed debtor obligation from basic
contract
- it ensures the creditor from risk of debtors insolvency BUT not from risk existence of such
obligation of that debtor
- guarantor obligation = subsidiary = 1. Creditor requires the performance of obligation from its
debtor, IF debtor fails, guarantor must pay for that matured obligation

joint and several warranty

- based on the contract by which guarantor agrees to pay
- he is responsible for fulfilment of obligation as he is the main debtor
- SO creditor CAN claim the payment of obligation at the same time from debtor/guarantor
- creditor is ensured from difficulties in payment of claims
- speed and possibility of choices from whom he will charge matured obligation
- if debtor not pay obligation on time = creditor informs the guarantor
- all guarantors jointly responsible
- used in approving credits to the population
- number of guarantors = height of approved amount, type of credit

STANDBY LETTER OF CREDIT

- replacement for European guarantees on first call
- when an abnormal situation happens = one party doesn’t fulfill the agreement

payable with presentation of 2 documents :

 demand for payment
 statement of default – other party didn’t fulfil agreed terms

TYPES
 bid bond – phase of submitting the tender and its replacement done by bid bond standby
 performance standby – if obligation not fulfilled, ensures return of the damage amount
- it replaces performance guarantee
 advance payment stby. – insurance instrument for returning the advances
- replaces advance payment guarantee
 financial syby.- ins. Intrsument for returning the credit
 warranty money stby. – replaces guarantee for repairing errors or returning retained amount
commercial stby. – simplifies business
- replacement for commercial L/C = its stricter form

BILL OF EXCHANGE
- security with prescribed form
- contains obligation for payment of certain amount of money

TRIPLE ROLE :
- credit instrument
– allows bridging period of the current insolvency
- if maturity is specified it ensures normal operation with delaying of obligation payment
- credit character = application of discounting
- used in case of credit approvals based on B/E that ca be discount, aval, acceptance,
reimbursement
- insurance payment instrument
- for insurance of payment of claims from sales of G&S
- buyer issues to the seller the B/E that the seller will give on payment if the buyer doesn’t pay
its claim under the agreed deadline
- payment instrument
- used at the expression at the time of taking payment when matured

FEATURES =
- written document
- strictly formal paper = details specified in Bill of Exchnage Act
- security presentation – after its presentation debtor has to fulfill its obligation
- its content is money claim
- it is security by order

TYPES
 traced – always an unconditional order od drawer instructed to the drawee for payment of
certain money amount to the user of B/E
- drawee = general drawer debtor/creditor = becomes MAIN debtor creditor = becomes main
B/E debtor/ acceptor when he accepts it
 traced by own order – drawer payee the same person, drawer=creditor that in own favor
issues B/E and submits it to the drawee on acceptance
 own traced – issued by debtor for payee (creditor)

bianco bill of exchange

- future B/E that can become it with later fulfillment
- issued in the way that the important elements are written subsequently (later) = not
characterized as the bill of exchange
- has t0 have either : signature of drawer or the drawee or the drawer&acceptor
- if creditor didn’t pay, debtor can fill it and settle himself that way
ISSUING B/E
- issuer takes the obligation to pay fixed B/E amount to payee and all other holders of it
- drawer issues it and signs = becomes first debtor – responsible that B/E will be accepted an
paid
- issued on the bill of exchange blanket (blank, check, blank form)
- can be issued by every person with adequate coverage
- no restrictions of the amount use
- issued for all types of payment
- issuance place important because of law
- a vista payable if no maturity = but submitted until 1 year of issuance

ENDORSMENT OF B/E
- written statement of the holder of B/E that the amount stated in it should be payed to new
creditor while it is signed by endorser
- endorser is the debtor and not the B/E creditor
- usually done on the back
- if no space, special list tied along
ACCEPTANCE OF B/E
- the drawee statement by his signature on it that he accepts the drawer call to pay the bill of
exch.
- acceptance must be unconditional
- given on whole amount or on part of it
AVAL OF THE B/E
- B/E warranty with which the payment of total/partial amount of B/E is ensured
- validity = evident with the signature on front
- guarantor has to declare for whom he guarantees for
- he is responsible for the person he guarantees for even if the obligation is invalid
CHARGING THE B/E
- if payment done by main debtor, no more obligations of others
- PAYMENT can be voluntary or involuntary (forced)
- responsible for payment is main debtor then all others signatories
- creditor can require compensation from them if the B/E is not payed on maturity by main
debtor
- B/E has to be presented on the payment date or 2 DAYS AFTER
- A VISTA B/E payable in the moment of submitting payment and can be submitted on payment
WITHIN A YEAR FROM THE ISSUING DATE

PROTEST OF B/E – under the deadline, must be activated within a year of day of issuing
- activated in case of not possibility of charging the B/E neither from the debtor nor aval person
(guarantor)
- public document by which competent authority confirms that the actions for payment of B/E are
undertaken and it states the results
- holder of B/E has the written/oral request at public notary where he has to submit protest
statement and B/E copy
DEBNETURE
- seizure of the account by debtors approval
- voluntary out-of-court insurance and claim payment
- a document in which the debtors signature is publicly notarized
- debtor agrees that all his accounts he has at legal entities from which the payments can be
performed can be seizure an the money from the accounts can be payed directly to creditor in
accordance to this statement
- has an effect of legal decision about the seizure
- debtor has no regular legal remedy or something by which he can stop/delay the seizure over
money funds
- exclusive money claim

creditors better position :

- with single document, all debtors accounts can be seized
- obligation of the debtor towards creditor can be taken by a third person as paying guarantor
- document transfer to third parties
- seizure can be made on other debtor’s assets

TYPES
- Bianco/blanc debenture – limited on insurance up to 5000, 10000, 50000,100000,500000 max
up to 1000000
- regular/ordinary debenture – no max. limited amount

ELEMENTS
- mark that is debenture
- claim that is seized
- debtor’s approval his account can be seized
- mark of the seized account
- debtor’s statement about direct payment to the creditor
- mark of the creditor
- debtor mark and his signature
- authorization of the debtor’s signature
- place and date of issuing the debenture

MATURITY
- depends on the agreement of parties from legal work
- can be indicated exact dates of submission
- sometimes not possible to determine in advance

DEBNETURE WARRANTY
- claim can be additionally ensured
- 3rd person appears in debenture as guarantor – payer
- guarantor-payer is responsible to creditor the same as main debtor is
- creditor has to inform the guarantor that the main debtor didn’t fulfill his obligations otherwise
he will be the one responsible

CHARGING PROCEDURE
- seizure can be required through court against debtor/guarantor on other objects of the seizure
- if no funds on the seizure account of the debtor, creditor can activate judicial seizure based on
seizure documents for collecting his claim
- seizure items : assets (movables, real estates), claims

MORTGAGE
- a written warranty for credit in real estates, ships, planes by which give credit is ensured
- it allows creditor to : charge claims using forced sale AND transfer mortgage to third person
who gets the addressed rights
- a warranty for money claim
- real estate  real value of money = value of property
- maturity 5-40y
- gain by registering in land register with which the pledged real estate is still in debtors postion
- represents a burden on R/E based on which one real estate is used for settlement of some
claim in benefit of the creditor

Ends when mortgage debtor pays the claim ensured by mortgage

- if debtor didn’t settle his debt in maturity deadline the real estate which is subject of the
mortgage is forcibly sold on court in order to settle the debt
- from selling price FIRST the MORTGAGE CREDITOR is settled
- THEN the rest belongs to the debtor as he is owner of it

Several advantages of mortgage credit :

- mortgage goods remains available to the debtor
- mortgage goods are not excluded from the market = lien can be sold = obligation transferred to
the new owner
- mortg. Good can be pledged several times

Supra-mortgage
- owner’s claim is ensured in a way that the mortgage debtor doesn’t settle the amount directly
to the creditor but is deposited in a court

over-mortgage
PLEDGE
- right of a pledge = lien; is defined by the law
- it is a limited right on certain things
- it authorizes its holder (lien creditor) to settle certain claim from the value of this things
- if his claim was not settled by maturity
- change of the subjects doesn’t affect the right existence
- subject of the lien : movable, securities, real estate
If the claim gives interest, CREDITOR is obliged to charge them with the fact that their value is
offset/cleared
- if debtor didn’t fulfill claim on maturity = creditor is authorized to get his right on settlement
from the pledge value through court

LOMBARD CREDITS – bank credits which approval is based on the pledged real movables
(gold), securities, commodities

FIDUCIARY OWNERSHIP TRANSFER

- When the problem of uncertainty for realization of the charging claim results happens
- Temporary transfer of ownership
- Other rights and time of transfer determined by debtor’s obligation maturity
- It has to be stated which thing/right is gonna be transferred in order to be ensured
- If the the insurance isn’t settled from the debtor after the maturity of the claim AND after
the transferred rights/items are sold
- THEN he is authorized to seek enforcement (execution) over the debtor to settle remain
claim
- After transfer the debtor has authority to use the item
- When the claim matures the ownership over the right/item is returned to the debtor who
settles the claim
- If not settled on maturity = creditor exposes item on sale to settle the claim or keeps the
ownership of it for himself and becomes the full owner of it
Avoids time consuming and complex legal process in connection with getting the rights from the
subject that is burdened/obliged with a lien
- no tax on sale of real estate on transfer of ownership
- only when creditor sells the item or keeps it for himself