CG Slides Mid

Overview of Contracts of Guarantee

Definition of Guarantee Contracts

  • Guarantee: Secondary agreement where the guarantor is liable for the debt of the principal debtor. Must be in writing (ODL).

    • In-Kind Guarantee: Real estate or commercial mortgage; can involve companies or individuals.

    • Personal Guarantee: Involves a surety or guarantor who may also be a company or individual.

  • Islamic Law Perspective: An individual’s actions create obligations to perform or compensate; this obligation is termed as a guarantee.

Types of Guarantees

General Guarantee

  • In absence of limited liability contracts, all assets of the debtor are security for debt repayment.

  • Common in company contracts; debts are payable from company assets unless it’s an unlimited liability company where both personal and company assets are liable.

  • Bankruptcy: If a company goes bankrupt, all assets will be subject to bankruptcy procedures for creditor repayment.

Private Guarantee (Specific)

  • Specifies the type of guarantee (e.g., real estate, personal guarantee).

  • Suretyship: Contract where one (surety) agrees to be responsible for the liability of another (debtor).

Examples of Guarantees

  • Public Entities: E.g., Saudi Housing Subsidy Regulation requires beneficiaries to provide guarantees for financial obligations.

  • Private Entities: Lender requiring borrowers to offer property as mortgage; failure to pay leads to property repossession.

Basics of Contractual Relationships and Adjudication

When to Use Mortgage

  • Adjudication: Formal court judgment related to mortgage or security contracts.

  • Mortgage/Pledge: Right in property as security for loan; borrower (mortgagor) provides it, lender (mortgagee) funds it.

  • Creates a creditor-debtor relationship for claiming debts or repossession of property.

Civil or Commercial Lawsuit Dynamics

  • Creditor is the claimant, debtor is the defendant; legal obligations must be met through performance or compensation.

  • Courts can compensate creditors monetarily or through in-kind payments for contract breaches.

Mortgage in Islamic Law

Significance and Legality

  • Permissible as per Quran; emphasizes the need for documenting debts, with mortgage serving as a security if debts are on travel.

  • Oral mortgages accepted, but legal registration is necessary in Saudi Arabia.

Regulatory Framework

  • Registered Real Estate Mortgage Law regulates relationships between lenders (mortgagees) and borrowers (mortgagors).

  • The Law of Commercial Pledge covers tangible/intangible assets as collateral (2018 with 2020 amendments).

Elements of Possessory Mortgage

Formation of Contract

  • Concluded through mutual agreement on the mortgage contract.

  • Mortgagor: Obligated to uphold the mortgage; cannot cancel it.

  • Mortgagee: Can cancel the mortgage contract.

Requirements and Conditions

  • Secured debt must be specified, and the pledge must be valid.

  • The whole pledged property secures the entire debt unless stated otherwise.

  • It is permissible to secure future or conditional debts.

Effects of Possessory Mortgage

Debtor Effects

  • Rights of the Pledgee: Cannot use pledged property without consent; responsible for safekeeping until enforcement or expiry.

  • Any loss or damage is the possessor's responsibility unless negligence is proven.

Creditor Effects

  • Pledgee may enforce payment or take possession of pledged property; has rights to track it.

  • Enforcement procedures must follow legal guidelines.

Preferred Creditors

  • Certain creditors have prioritization in collecting debts, including judicial expenses and mortgagee rights.

This summary encapsulates the essential elements and details surrounding contracts of guarantee and mortgages in both civil law and Islamic law contexts. It outlines definitions, types of guarantees, legal frameworks, and the implications for both debtors and creditors, providing a comprehensive overview for study purposes.