The Chattel Collateral in Guatemala, General Definition

By: Ligia Cordón -A.D. SOSA & SOTO-.

In 2007, through Legislative Decree 51-2007, the Law of Movable Guarantees was enacted, defining the term as “the real right of guarantee, constituted by the guarantor debtor in favor of the secured creditor, to guarantee the compliance of one or several obligations of the principal debtor or of a third party”. This concept offers important elements that integrate and determine the definition of Chattel Collateral.

It begins by establishing the Chattel Collateral as a real right that grants the holder a direct power over a thing against any third party, that is to say, it is enforceable against any person.

The Chattel Collateral must be constituted, which is created by means of the manifestation of will between the parties, by means of a security agreement executed between the guarantor debtor and the secured creditor.

Although the Chattel Collateral Law does not specifically refer to the form in which the collateral must be formalized, it does refer that the collateral contract by which possession is not transferred, must be recorded in writing either in a Public Deed or in a private document with legalized signatures, in electronic form or in any medium in which there is a permanent record of the consent of the parties with respect to the constitution of the collateral. Now, with respect to the possessory security interest, that is, the guarantee granted by the debtor to the creditor transferring the possession of the property, it is presumed and becomes fully valid between the parties only by the delivery of the property in guarantee, unless the parties agree different circumstances.

The parties to a contractual relationship of this nature are the principal debtor, the guarantor debtor or the third party guarantor, parties that may be joined in a single person if the principal debtor is the owner of the collateral; otherwise, if the property of the collateral is owned by someone other than the principal debtor, the obligor is called the guarantor debtor. Likewise, the secured creditor, who is ultimately the beneficiary of the guarantee and to whom the performance of the agreed obligation is owed. The chattel collateral guarantees the performance of an obligation between debtor and creditor, whose performance is subject to the agreed conditions and which is guaranteed by means of the movable property granted, either with or without possession.

This broad definition of chattel collateral in Guatemala allows us to have access to a wide range of movable property that may be subject to this guarantee. The law contemplates by way of example movable assets that were not regulated as movable collateral in the previous provisions contained in the Civil Code and refers to contracts, clauses of contracts, financial leases, guarantee trusts, credits, titles of credit, titles representing goods, bank accounts, investments in securities, inventories of goods, intellectual property rights, future goods, establishing a vast potential of assets that may be the object of movable collateral.

Definitely, one of the main reasons for the enactment of this Law was to create ample and accessible possibilities for common debtors to grant guarantees on their assets, promoting and empowering the credit activity.