Aval, or suretyship, is a special security instrument of bill-of-exchange law: by his signature a third person assumes the obligation that the bill will be paid, and the holder's confidence is thereby distributed over an additionally guaranteed person. An aval is often used where the creditworthiness of the issuer or of an indorser does not appear sufficiently reliable and the holder demands an additional guarantee. Aval is a formal institution — its correctness depends on details, and this is precisely why both the giving and the taking of an aval should be the subject of legal verification.
Within this service we help you with the correct formalization of an aval, the verification of its content and the assessment of the consequences it entails for the guarantor and the guaranteed person. Below we explain the basic rules that the law devotes to suretyship.
The Essence and Purpose of Aval
The payment of a bill — whether of the whole amount or of a part of it — may be guaranteed by way of suretyship. This is an important detail: an aval is possible both for the full amount of the bill and for a part of it, and the extent of the guarantor's obligation is determined by the agreement by which the aval is given. The suretyship is incurred by a third person — that is, a person who does not himself stand under the principal payment obligation of the bill but, by his own signature, joins the relationship arising from the bill.
The essence of an aval is precisely that the holder of the bill acquires one further liable person: the guarantor and the person for whom the aval is given answer together for the obligation arising from the bill. An aval therefore increases the reliability of the bill and often becomes the decisive condition of a transaction where the row of persons liable on the bill is not sufficiently trustworthy.
Formalization of Aval
An aval is formalized on the bill or on an allonge. It is expressed by the words „given as aval“ — or, in the Georgian practice of the law, by the entry „გაცემულია თავდებობა“ — or by another analogous entry, together with the signature of the guarantor. This requirement of form is decisive: a signature left without an entry counts as an aval only where it falls under the case directly provided for by the law.
The law also regulates the place of the signature: a signature made on the front of the bill, other than that of the drawee or of the issuer of the bill, is deemed to be an aval. In other words, an unknown person's signature placed on the face of the bill will be assessed precisely as an aval, since it can count neither as the drawee's acceptance nor as the issuer's signature. For this reason, every person should carefully consider the consequence before signing the face of a bill.
When an aval is given, it is necessary to indicate the person for whom the aval is given. The absence of such an indication implies that the aval is given for the issuer of the bill. This rule is of practical importance: if the guarantor does not indicate the guaranteed person, the aval is deemed by force of law to be given precisely for the issuer, and this may not even correspond to the guarantor's intention.
The Guarantor's Liability
The guarantor and the person for whom the aval is given are liable jointly and severally. Joint and several liability means that the holder of the bill may demand payment of the whole or a part of the amount both from the guaranteed person and from the guarantor — including from the one who turns out to be more reliable. This is what makes an aval strong for the holder: it is not merely an additional hope but a full-fledged liability imposed by the bill itself.
The rule on the independence of the aval is particularly important: the guarantor's obligations remain in force even where they appear void for any reason, apart from a defect of form. In other words, if the guaranteed person's obligation is invalid for some reason, the guarantor still answers — except where the formalization of the aval itself is defective. This determines the practical value of an aval: it retains its force even when the principal obligation becomes disputed.
After Payment: The Guarantor's Recourse
After paying the bill, the guarantor acquires the right of recourse against the persons for whom he was guarantor, and against the other persons liable to him on the bill. In practical terms this means that giving an aval is not for the guarantor merely the assumption of a risk: after paying the bill he himself takes the holder's place and may claim the amount paid from the persons who were liable before him. For this reason, before giving an aval it is necessary to assess the creditworthiness of the guaranteed person and of the other persons liable on the bill.
How We Help
Our service covers every stage connected with an aval:
- drafting the text of the aval entry on the bill or on an allonge;
- verifying the correctness of the indication — for whom the aval is given and what the consequence of omitting the indication will be;
- determining the extent of the guarantee — for the whole amount or for a part;
- assessing the consequences of joint and several liability and of recourse, from the position of both the guarantor and the holder;
- enforcing the recourse after the guarantor has paid.
An aval looks simple, but a single omitted indication or a signature placed in the wrong position changes its content entirely. If you intend to give an aval or have received a bill secured by one, contact us — we will examine the document and clarify exactly what rights and obligations arise for you.