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ZOOM ON... The First Demand Guarantee
February 13, 2020
Since 1982, the French Court of Cassation has recognized the "First Demand Guarantee" as a different type of security than a traditional bond.
The first demand guarantee is an autonomous guarantee, i.e. independent of the issuing contract, in accordance with the provisions of Article 2321 of the Civil Code.
This security constitutes an undertaking by which the guarantor undertakes, in consideration of an obligation undertaken by a third party, to pay a sum either at the first request of the creditor or according to previously agreed terms.
Originally, in business practice, contractors required their co-contractors to deposit a sum of money with a bank as a guarantee. The deposit of this sum, sometimes substantial and binding, constituted a guarantee in case of failure of the commercial partnership.
In order to relax this constraint, business practice has established the GAPD to provide the same security to the beneficiary of the guarantee.
The guarantor may not raise any exception under the basic contract (issuing contract) to avoid its obligation to pay, except in the case of manifest abuse or fraud by the beneficiary or the beneficiary's illegal agreement with the principal. In other words, unlike a surety bond, under a first demand guarantee, the guarantor must perform without being able to defer payment or raise any objection, exception or dispute relating to the base contract or the guaranteed obligation.
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