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GARANTEES AND SEGURITIES IN PORTUGAL

In an open economy model, it is more important than ever to know what the legal risks are and how to minimise and overcome them. The better you know, the better you perform. In this article, we will summarise a clear and updated understanding of law and practice regarding guarantees.

Guarantees and securities
As a general rule, the debtor is liable in respect of his obligations. This rule affects all the debtor's assets, including future ones. The breach of an obligation, such as a payment, means that the debtor is liable to pay compensation.

Personal guarantees
By the contract, the parties may request additional guarantees besides existing assets to ensure the fulfilment of the obligation. One of these guarantees is "fiança." By entering into this kind of guarantee, a guarantor undertakes to pay on behalf of a third party in the event of this party not complying with the obligation of paying. The obligation depends on a principal debt and cannot exist without a valid principal obligation.

Mortgage
Like the other guarantees, the mortgage is designed to protect a creditor in the event of debtor's default. In this case, the creditor can recover payment from the judicial sale of the property. A mortgage aims to secure a defined sum of money that has to be clearly stated in the deed or contract. A mortgage is created by means of a deed made by a notary or contract before the land registry is duly registered.

Pledge
The granting of certain securities will ensure that payment of a debt will be made by selling some specific assets of the debtor. Under Portuguese law, a pledge (penhor) may be created over cash or fungible securities. There are two types of pledge, civil and commercial. A commercial pledge is a pledge between entities or individuals subject to the regulations of the Commercial Code. These will be individuals with the capacity to carry out commercial acts and other entities that engage in commercial activities. In general, the requirements for a civil pledge are somewhat stricter than those for a commercial pledge. A civil or commercial pledge may be used depending on the status of the parties. In practice, a civil pledge is more likely to be used.

Bank guarantee
A bank guarantee is a guarantee from a lending institution ensuring that the liabilities of a debtor will be met. A first demand bank guarantee: is issued by a guarantor (a bank) on behalf of the applicant, assuming his responsibility to pay to the beneficiary under a complying demand; represents an independent and irrevocable payment undertaking; and is separate from the underlying contract obligations and thus opposed to the concept of a contract guarantee mentioned above. As there is no direct regulation in Portuguese law regarding bank guaranties, the "law" is what parties have agreed on. Accordingly, it is always advised to pay special attention to the agreement submitted by banks to the parties.

Other securities 
Generally, it is possible to secure an obligation, e.g. an obligation of payment, by cash deposits, securities, precious stones or metals, pledge, mortgage, or bank guarantee. This security works well, especially with cash deposits. However, it is difficult to obtain from a debtor. For amounts over €5,000, a bank guaranty is more commonly used than a "caução."

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