Vietnam: 09 things to know about guarantee in civil

Vietnam: 09 things to know about guarantee in civil (Internet image)

1. What is guarantee?

Pursuant to Article 335 of the Civil Code 2015, the guarantee is as follows:

- Guarantee means an undertaking made by a third person (hereinafter referred to as the guarantor) to an obligee (hereinafter referred to as the creditor) to perform an obligation on behalf of an obligor (hereinafter referred to as the principal debtor) if the obligation falls due and the principal fails to perform or performs incorrectly the obligation.

- The parties may agree that the guarantor shall only be obliged to perform the obligation if the principal debtor is incapable of performing it.

2. Scope of guarantees in Vietnam

In Article 336 of the Civil Code 2015, the scope of guarantee is as follows:

- A guarantor may guarantee an obligation in whole or in part on behalf of a principal debtor.

- A guaranteed obligation includes interest on the principal, penalties and compensation for any damage and interest on late payment, unless otherwise agreed.

- The parties may agree on using security as property to secure the performance of guaranteed obligation.

- If the obligation to guarantee is an obligation arising in the future, the scope of guarantee is exclusive of any obligations arising after the guarantor being natural person dies or the guarantor being juridical person ceases to exist.

3. Regulations on remuneration

Pursuant to Article 337 of the Civil Code 2015, the guarantee remuneration in civil is as follows:

The guarantor shall be entitled to receive remuneration if so agreed by the guarantor with the principal debtor.

4. Regulations on joint guarantors

Article 338 of the Civil Code 2015 stipulates joint guarantors as follows:

When more than one person guarantee an obligation, those persons must perform jointly the guarantee, except where it is agreed or provided by law that the guarantee comprises separate portions. The obligee may require any of the joint guarantors to perform the obligation in its entirety.

Where one of the joint guarantors has performed the entire obligation on behalf of the principal debtor, the guarantor may require the other guarantors to perform their respective portions of the obligation with respect to that guarantor.

5. Relationship between guarantors and creditors in Vietnam

In Article 339 of the Civil Code 2015, the relationship between guarantors and creditors is as follows:

- If the principal fails to perform or performs incorrectly the obligation, the creditor is entitled to request the guarantor to fulfill the guaranteed obligation , unless contracting parties has agreed that the guarantor only be required to perform the obligation on behalf of the principal debtor in case of the failure to perform obligation by the principal debtor.

- A creditor may not require a guarantor to perform an obligation on behalf of the principal debtor until the obligation falls due.

- Where a guarantor is able to offset an obligation with a principal debtor, a guarantor does not have to perform the guaranteed obligation.

6. Rights to require of guarantors in Vietnam

Pursuant to Article 340 of the Civil Code 2015, the rights to require of guarantors is as follows:

Each guarantor may require the principal debtor to indemnify the guarantor to the extent of the guarantee, unless otherwise agreed.

7. Regulations on the discharge from guaranteed obligations in Vietnam

Article 341 of the Civil Code 2015 stipulates the discharge from guaranteed obligations as follows:

- Where the guarantor must perform the guaranteed obligation but the creditor discharges the guarantor from an obligation, the principal debtor is discharged from performance of the obligation with respect to the creditor, except where it is agreed or provided by law.

- Where one person from amongst the joint guarantors is discharged from the performance of its portion of the guaranteed obligation, the other joint guarantors must, nevertheless, perform their portion of the guaranteed obligation.

- Where one person from amongst the joint creditors discharge the guarantor from the performance of its portion of the guaranteed obligation, the guarantor must, nevertheless, perform their portion of the guaranteed obligation with respect to remaining joint creditors.

8. Civil liability of guarantor in Vietnam

Article 342 of the Civil Code 2015 stipulates the civil liability of guarantor as follows:

- If the principal debtor fails to perform or perform incorrectly the obligation, the guarantor is obligated to perform such obligation.

- If the guarantor performs incorrectly the guaranteed obligation, the creditor is entitled to request the guarantor to pay the value of the breached obligation and compensate for any damage.

9. Case of termination of guarantees in Vietnam

According to Article 343 of the Civil Code 2015, a guarantee shall terminate in any of the following cases:

- The obligation secured by the guarantee terminates;

- The guarantee is cancelled or is substituted by another security;

- The guarantor has satisfied the guaranteed obligation;

- As agreed by the parties.

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