Can a security guarantee a contract?

Abstract

It is a common commercial practice to use securities - mainly promissory notes and bills of exchange - as guarantees of a different contractual obligation. A large section of Ecuadorian precedents considers that because of this practice, the security loses its validity. This position is based on Article 113 of the Ecuadorean Commercial Code, which states that securities incorporate an unconditional promise. In short, an unconditional promise means that the enforceability of the security cannot be subject to a condition. This condition is compromised if, at the time of issuing the security, its enforceability depends on the debtor breaching the original contract. Supporters of this position are vigorous and do not allow this practice under any circumstances. However, this modality is so ingrained in the commercial practice that it is worth dedicating this essay to the study of its legal feasibility, research its implications and inquire possible scenarios in which this useful tool can be used without compromising the unconditional component of the security.