Nour Al-Huda Bassem Ismail – researcher in legal accounting
The reserve guarantee is one of the guarantees approved by Iraqi law in commercial papers, and it is one of the most frequent and widespread guarantees in practice. This is due to many reasons, including the expansion of the activities of banks, financial institutions, and other economic companies. Also, one of the main things that prompted the emergence of guarantees, and the reserve guarantee, in particular, is the large number of frauds, and the behavior of contractors aimed at obtaining as much illegal money as possible. In addition, the contractors may resort to requesting the reserve guarantee to get rid of their financial obligations.
The name of the reserve guarantee has been different in Iraqi laws. In the Iraqi Trade Law No. 60 of 1943, repealed in Article 482, it was called the word “Takaful” (alafal), the previous Iraqi Trade Law No. 149 of 1984 called it “reserve guarantee”, while in the current Iraqi Trade Law No. 30 of 1984 it was called the word “guarantee”. In this paper, we will discuss the definition of the concept of commercial papers, and then the concept of a reserve guarantee.
A commercial paper can be defined as a formal document that a person pledges, or by order of another person, to pay a specific amount to a specific person at a specific place and time, and is negotiable by endorsement or by subcontracting (based on Article 39 of the Iraqi Trade Law No. 30 of 1984 in force). By the foregoing definition; It turns out that the commercial paper consists of three main people:
- Borrower (the person who orders someone to pay the amount).
- Lender (the bank or a person who carries out the Borrower’s order to pay the amount to the third party).
- Third-party (the beneficiary who receives the cash amount from the Lender by order of the Borrower).
Among the most important functions of the commercial paper:
- The commercial paper represents a tool for transferring money, and this represents the basic role played by the commercial paper, and it is the main function of the commercial paper that was in the Middle Ages, which was called (the exchange of cash for cash).
- Commercial paper is a tool for fulfilling mutual contractual obligations.
- Commercial paper is also a cash credit instrument.
Based on those functions that commercial papers perform, it is possible to identify the types of commercial papers, which are:
- Commercial transfer: It is in the form of a deed issued in accordance with the formal conditions stipulated by the law, according to which a person requests from another person to pay to the third person (the beneficiary) a sum of money at a specific date, or upon sight.
- Check: It is issued according to the form required by law, according to which the Borrower asks the Lender to pay a specific amount to the beneficiary person, and the time of maturity is upon sight only.
- Promissory note: It is a document issued according to the form required by law. Based on this document, the undertaking pays a sum of money from the beneficiary person upon sight, or by specifying a specific date.
The Iraqi legislator approved the reserve guarantee but did not assign it a specific definition. From the side of jurisprudence, many definitions have emerged, including that the reserve guarantee is “a contract by which one of the contracting parties, or a foreign person from the contract, is obligated to pay the value of the bond at the agreed time (due date), in the event that the Borrower does not fulfill it.”
And some of them said that the reserve guarantee is a pledge by which a person is obligated to pay the value of the bond when the debtor refuses to fulfill it. The backup guarantee is a type of guarantee that is included in all types of commercial papers, whether (Promissory note, a check, or a bond), to distinguish the Reserve Guarantee from other overlapping topics. The law has also established many guarantees; The holder of the commercial paper to ensure that his fixed right to the commercial paper is fulfilled, and to refer to all other obligors. Among these guarantees are the surety and the mortgage, and each of them has a similar aspect and a different aspect from the reserve guarantee. The surety is one of the personal guarantees that the guarantor is entrusted with the implementation of the debtor’s obligations towards his creditor if the debtor fails to implement his obligations at the due date. The Iraqi legislator has defined the surety as the joining of debt to debt in the demand for the implementation of an obligation. Also, one of the similarities between the reserve guarantee and the surety, is that the guarantee is a type of surety, it is a dependent obligation, that is: in the sense of surety, and the reason for this is that the obligations of the guarantor are based on the obligations of the guaranteed.