Guarantee enforcement is a critical legal process in business transactions, particularly in construction, public procurement, and international trade. A guarantee (bank guarantee, suretyship) serves to secure the performance of an obligation. When the principal debtor fails to perform, the creditor demands payment from the guarantor. However, in practice, this process is often complicated: banks look for formal defects to refuse payment, sureties try to evade liability, or creditors make unfair calls on the guarantee. This service involves legal assistance in the process of enforcing a guarantee or defending against enforcement, which requires deep knowledge of both contract law and banking regulations.
What Does the Guarantee Enforcement Service Cover?
The service covers the full spectrum of disputes related to guarantees, from the perspective of the beneficiary (the party in whose favor the guarantee is issued), the guarantor, or the principal (whose obligation is secured):
- Encashment of Bank Guarantees: Legal assistance to the beneficiary to correctly formulate the demand and compel the bank to fulfill the guarantee obligation under conditional or unconditional guarantees.
- Enforcement of Suretyship: Representing the creditor in court against a joint or subsidiary surety to recover the debt.
- Stopping Guarantee Payment: Protecting the principal from "Unfair Calling" of the guarantee by seeking an injunction in court to prohibit payment.
- Recourse Claims: Protecting the interests of a guarantor or surety who has settled the obligation and now seeks reimbursement from the principal debtor.
- Invalidation of Guarantees: Disputes regarding the invalidation of a guarantee or suretyship agreement if it was entered into in violation of the law (e.g., without spousal consent, under duress).
Common Scenarios and Real Situations
Problems related to guarantee enforcement often arise in the following cases:
- Construction Halt: A construction company missed deadlines. The developer demands payment of the performance bank guarantee. The bank refuses, pointing to a technical defect in the demand letter.
- Tender Dispute: A company won a tender but refused to sign the contract. The procurer demands the bid bond amount, while the company challenges this on force majeure grounds.
- Corporate Suretyship: A company director provided a personal guarantee for the company's loan. The company went bankrupt, and the bank demands the sale of the director's personal assets.
- Expiration: The beneficiary demanded the guarantee amount on the last day of validity, but the bank received the demand after expiration and refuses to pay.
Georgian Legal Framework
The institutions of guarantee and suretyship are regulated by the Civil Code of Georgia. The Code clearly distinguishes between suretyship (an accessory obligation) and a bank guarantee (an independent obligation). For bank guarantees, international practice is also important, specifically the International Chamber of Commerce (ICC) "Uniform Rules for Demand Guarantees" (URDG 758), if the guarantee refers to them. In the case of suretyship, the law provides protection mechanisms for the surety, such as limitation periods and termination of the obligation if the creditor has worsened the surety's position. Enforcement procedures are conducted in accordance with the Law of Georgia on Enforcement Proceedings.
Service Process: What to Expect
The process begins with a detailed analysis of the guarantee text. The lawyer checks the type of guarantee (conditional or unconditional), validity period, and formal rules for payment demand. If the goal is enforcement, a legally sound Demand Letter is prepared. In case of resistance, the lawyer negotiates with the bank or surety. If no agreement is reached, a lawsuit is prepared. In case of defense, the lawyer looks for grounds to invalidate the guarantee or prove the demand is unjustified (e.g., fraud exception).
Why Choose Legal.ge?
Guarantee enforcement is a technically complex process where one wrong word in a demand can lead to the loss of millions of Lari. Legal.ge features lawyers with deep knowledge of banking and contract law. They understand how the banking system works from the inside and how to protect clients from unfair demands. Find your defender on Legal.ge and manage financial risks professionally.
Updated: ...