What is a Guarantee?

A Guaranty/ Guarantee is a legally binding agreement in which a person (first party) agrees to be answerable for another person (second party), who wishes to obtain trust or credit from someone/institution (third party), and promises to fulfill the specified obligation of the other person (Second party) in case of default. 

Back To: COMMERCIAL LAW: CONTRACTS, PAYMENTS, SECURITY INTERESTS, & BANKRUPTCY

What is a Guarantor?

Parties who constitute a Guarantee contract are usually referred to as follows;

• Guarantor or Surety - The person who promises to take responsibility for another persons performance or obligation in case of default.
• Principal debtor or obligor -The person whose performance to an obligation or undertaking has been secured by a surety or guarantor.
• The creditor or obligee-The person or institution whom the guarantor promises to fulfill the performance or requirement of the principal debtor in case of default.

What is required to Execute a Guarantee? 

For a guarantee to be legally binding during formation the following common law elements of a contract must be adhered to;

• Mutual consent of all parties involved.
• Invitation to offer and acceptance.
• Parties must be of sound and sane mind.
• The form and content of the guarantee has to be legally correct
• And a valuable consideration.

What is a Surety?

Suretyship can be viewed or classified in three distinct categories;

• Where the relationship between the principal debtor and the surety is formed through an agreement and the creditor is party to the contract.
• Where the relationship between the surety and the principal debtor has been similarly constituted by way of an agreement, but the creditor is not a party to such.
• Where there is no constituted contract to establish a relationship between parties, however, there is a primary and secondary liability expressed for a debt. Should the person with the primary obligation default and the person with the secondary responsibility is forced to make payments, reimbursement of the same from the primary obligor can be sought.

What are the Types of Sureties? 

Sureties can be divided into context such as being either;

• Legal
• Judicial
• Conventional
• Gratuitous and;
• Onerous

Related Topics

• Commercial Paper (Intro)
• What is Commercial Paper?
• Negotiable Instrument
• What are the common types of commercial paper?
• Promissory Note
• Cashier's Check
• Convenience Check
• Certified Check
• Substitute Check
• Bill of Exchange
• Bank Draft Definition
• Sight Draft Definition
• Bankers Acceptance 
• Who is a Holder of a negotiable instrument?
• Commercial Paper Funding Program
• What is Negotiability and why is it important?
• What is required for commercial paper to be negotiable?
• Sum Certain (Contracts)
• Inflation Adjustment Clause
• When does commercial paper contain an Unconditional promise to pay?
• Backup Line of Credit
• What is Payable on Demand or Payable on Time?
• What is Order Paper and Bearer Paper?
• Bearer Form
• How is a payee identified on the negotiable instrument?
• What rules does the court apply in determining negotiability?
• How is commercial paper negotiated to a holder?
• What is Transfer of a negotiable instrument?
• What is Indorsement of a negotiable instrument?
• What are the various types of indorsement?
• Bank Endorsement
• Blank Endorsement
• Accommodation Endorsement
• How does a holder receive payment on a negotiable instrument?
• Who is potentially liable on (or obligated to pay) a negotiable instrument?
• When is an individual liable for a representative signing a negotiable instrument?
• What rules apply if a holder loses a negotiable instrument?
• When is payment of a negotiable instrument overdue?
• What effect does a negotiable instrument have on the underlying obligation?
• What is a holder in due course?
• What are the requirements for a holder to become a holder in due course?
• Receive an instrument for value?
• Receive an instrument in good faith?
• Receive an instrument without notice of a valid defense?
• How does discharge of the Underlying Obligation affect a holder in due course?
• What is the Shelter Rule?
• Can you limit a transferee from becoming a holder in due course?
• Personal Defenses?
• Real Defenses?
• What is a Claim in Recoupment?
• What are the rights of a holder in due course if the instrument involves a consumer transaction?
• What happens if a negotiable instrument is Forged?
• What happens if a negotiable instrument is Stolen?
• Guaranty or Guarantee
• Letter of Guarantee
• Personal Guarantee
• What is the role of a Guarantor or Surety of a negotiable instrument?
  
• Surety 
  
• Cosign
• Accommodation Paper Definition
• Secondary Liability
• Avalize Definition
• What is an Accord & Satisfaction?
• What is primary and secondary liability on an instrument?
• What is Drawer or Maker Liability for a negotiable instrument?
• What is Transferor Warranty of a negotiable instrument?
• What is Indorser Warranty of a negotiable instrument?
• What is Presentment Warranty of a negotiable instrument?
• What is a warrantors liability for a dishonored note or draft?
• What is the time limitation for warranty of a negotiable instrument?
• When are the warranties of a negotiable instrument discharged?