June 10 2005
In December 2004 an amendment to the Civil Code, effective as of April 1 2005 (Law 147/2004), altered the system of revolving guarantees. A revolving guarantee (ne-hosho) can be described as a guarantee of unspecified obligations arising under an ongoing transaction or transactions between a creditor and a primary debtor. Revolving guarantees are often classified as either limited revolving guarantees or unlimited revolving guarantees. A limited revolving guarantee (gentei ne-hosho) is described as a revolving guarantee which specifies either the maximum limit of the guarantee or the term of the guarantee, or both. An unlimited revolving guarantee (houkatsu ne-hosho) does not give such specifications.(1) Therefore, the guarantor can often incur liabilities well in excess of what was originally expected. Before the amendment, no specific provision on any type of revolving guarantee existed. However, in practice, unlimited revolving guarantees which neither specified a maximum limit to the guarantee nor set out a specific term of the guarantee were often provided. The amended code now specifically refers to revolving guarantee agreements in relation to loans. In particular, it precludes individuals from making unlimited revolving guarantees in relation to loan obligations. This was introduced in order to protect individual guarantors from the dangers associated with providing such guarantees.(2)
Any guarantee agreement - whether concerning revolving guarantees or guarantees of specified claims - is invalid unless concluded in writing.(3)
A revolving guarantee agreement is defined as a 'revolving guarantee agreement in relation to loans' (kashikin-to ne-hosho keiyaku) where it fulfils the following conditions:(4)
Such revolving guarantee agreements are treated as follows:
(1) For further information on revolving guarantees prior to this amendment please see Kinyu Jitsumu Daijiten, published by Kinyu Zaisei Jijo Kenkyukai (2005), and Ginko Madoguchi no Homu Taisaku 2800-ko, Part II, published by Kinyu Zaisei Jijo Kenkyukai (1998).
(2) For further information on the latest amendment please see Kinyu Homu Jijo No 1735 "New Guarantee System and Financial Practice", pages 10 to 31, No 1736 "New Guarantee System and Financial Practice", pages 20 to 33, and No 1738 "Civil Code Amendment of 2004", pages 41 to 51.
(5) A 'revolving guarantee agreement' is defined in Article 465-2, Paragraph 1 of the amended code as a guarantee agreement for securing, as the primary obligation, unspecified claims within a certain scope.
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