Brazilian Law provides for wide array of
guarantees and securities. Herein below, you will find a brief explanation of
the main varieties.
1.
Endorsement (aval)
The endorsement is a personal guarantee of the
payment of an instrument of credit. Under the endorsement, the guarantor
promises to pay the debt in the event the borrower fails to do so. The creditor
becomes invested in the power of collecting the debt from the guarantor or the
borrower as soon as the instrument of credit becomes due.
The endorsement is a type of guarantee mainly
used in instruments of credit (on the back of note, for example; or a personal endorsement made by the director of a firm).
It is a very commong guarantee.
2. Surety (fiança)
It is a written obligation. It is a contract
whereby the surety guarantees the fulfillment of the obligation of the debtor in
the event the latter fails to do so. It also guarantees the payment of
compensation or penalty for non-fulfillment of an obligation undertaken by the
debtor.
The surety may be granted by individuals or legal
entities, including banks, whereby the debtor hires a financial institution to act
as guarantor of an obligation.
It is very common in rental agreements and in some kinds of loans.
3. Bill of Exchange (letra de câmbio)
It is a Marketable title. It consists of a payment order by
means of which an individual demands that another individual pays a certain
amount to a third party. It comprises details such as payment, date and place
to perform it.
This is the same Bill of Exchange used in the US and in Europe. However, in Brazil its use is very limited. Only markets where the players are used to it actually use it. Most people will prefer a Promissory Note (see below).
4. Promissory Note (nota promissória)
An instrument of credit represented by an
unconditional promise in writing between two parties, signed by one who agrees
to pay on a certain date a certain sum of money to the other or the bearer of
the promissory note.
The
promissory note is more widely used in Brazil, in comparison with the Bill of
Exchange.
5. Commercial Pledge (penhor mercantil)
Commercial pledge is to have a commercial good
ensuring the fulfillment of an obligation. It becomes valid with the transference of possession of the property of the good by the debtor to the
creditor.
The pledge shall be in written form and is
usually registered before the Registry of Deeds and Documents.
This is not too common.
6. Security deposit of instruments of
credit (caução de títulos de crédito)
Derived from the commercial pledge, the security
deposit of instruments of credit is a guarantee established over credits held
by the guarantor.
In the security deposit, the object of the
guarantee is the right of the guarantor represented by a negotiable instrument.
Therefore, the need to guarantee demands the delivery of the instrument to the
creditor, by means of an agreement executed between the parties.
Through the security deposit agreement, the
creditor becomes able to exercise all the rights to the instrument of credit,
but always on behalf of the debtor, ie, there is no transfer of the property of
the instrument of credit.
This is a common kind of guarantee, since it is easy to manage.
7. Trust receipt (alienação fiduciária)
The trust receipt operates by means of the
transfer of ownership of a certain good to the creditor in order to secure the
fulfillment of an obligation of the debtor, who maintains the direct ownership
of the good, as depositary.
In this type of guarantee, if the debtor fails to
settle the obligation at the due date, then the creditor may require action of
search and seizure of the sold good, and after taking possession of such good,
it may sell it to a third party and settle the outstanding debt.
This is more commonly used by banks, in lease and
financing agreements.
8. Antichresis (anticrese)
The antichresis grants the creditor the right of
receiving the real property from the debtor and also the right to earn profits from
such real property for the term the contract is in force.
This is rarely used.
9. Mortgage (hipoteca)
A debt instrument, secured by the collateral of
specified real estate property, that the borrower is obliged to pay back with a
predetermined set of payments. Under Brazilian Law, mortgages must be
registered before the Real State Registry. In the event the debtor fails to
provide payment in the due date, the rights of ownership and possession over
the real property are transferred to the creditor.
This is fairly used, especially in the financing
of real estate.
