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Clauses defining the scope of the guaranteed liabilities. 5. Careful consideration needs to be given to the wording used in the clause defining the scope of the liabilities covered by the guarantee. Problems frequently arise when the clause is not drafted in sufficiently wide terms or with sufficient clarity to cover a particular liability.
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- What Is A Guarantee?
- What Is A Personal Guarantee?
- Guarantees: Security For Performance
- Legal Requirements For A Guarantee
- Unenforceable Personal Guarantees
- Interpreting Guarantees: Loopholes
- Example Guarantee Clause
- What Is A Personal Guarantee on A Business Loan?
- Directors' Personal Guarantees
- Is It A Guarantee? Guarantees vs Indemnities
Guarantees and personal guarantees are important - and serious - commercial documents. They impose liability on a third party to a primary transaction (such as business loans), when the person meant to perform the obligation doesn't. Practically any contract obligation can be guaranteed by another person, not just business loans. Guarantees can be:...
A personal guarantee is a guarantee given by an individual rather than a company. The liability to honour the guarantee is personal to you. There's no protection from a company. This means that all of your personal assets are on the line. Personal guarantees are attractive to creditors when the guarantor has assets to cover the exposure of the cred...
Guarantees are a form of security of performance of a contract. The guarantor accepts liability to answer for the debt or obligation of another person. The guarantor may not sign up to pay damages for the breach of performance. But guarantors are nevertheless liable to the creditor for the failure of the first person to perform.
Many documents are called guarantees when they’re not. The factors that courts take into account are: 1. Proper interpretation: contracts of guarantee are interpreted “as a whole”. It is the particular words used in the relevant clauses that count. Not what it's called 2. Title of document: the title of the document is not decisive 3. Substance ove...
When do guarantees become unenforceable? In the worst case, they only become unenforceable after the relevant limitation periodexpires. A limitation period is the maximum period of time allowed by the law to commence legal proceedings for breach of the contract of guarantee. But then the contract may contain time bars, which restrict the period of ...
Frequently, contracts contain obvious ambiguity. When the facts of the case have come to pass (by the time courts come to consider them), they often contain latent ambiguities. That is, the contract can be interpreted in more than one way. Differences in interpretation - or “the construction of the contract” – may mean the difference between succes...
In an appropriate case, a guarantee clause might be worded as follows: Guarantees in contracts are rarely this straightforward or simple.
Suppose a friend wants to take out a business loan with a bank to start a business. The bank insists it receives a guarantee for the repayments of the loan, before it gives the loan to your friend. You offer to be the guarantor. If your friend then defaults on the repayments of the loan, the bank can call upon you to pay the outstanding sums on the...
Directors of companies are often requested by banks to provide personal guarantees for sums lent to companies which they control: ie director's guarantees. This situation is quite similar to the example above. When the director gives the guarantee, if the company can’t service the loan, the director is called upon for the sums owed on the loan. The...
There are significant differences between a guarantee and an indemnity. In a well drafted guarantee, it will usually include a guarantee and an indemnity.
· Check the formal requirements. A guarantee must comply with certain formal requirements to be valid and enforceable. For example, it must be in writing and signed by the guarantor or their authorised agent. It must also be supported by consideration, which is something of value given or promised in exchange for the guarantee.
A guarantee is not enforceable unless it, or a memorandum or note of it, is in writing and signed by the guarantor or at the guarantor's direction (section 4, Statute of Frauds (of 1677)). Guarantees should be distinguished from indemnities , on-demand bonds (also sometimes known as demand guarantees) and standby letters of credit .
guarantees) wholly independent of the liability (if any) that arises between the parties to the underlying contract.6 A demand guarantee is a good example of a contract of indemnity. It is a type of payment bond (similar, in some sense, to a letter of credit). Under a demand guarantee, the guarantor’s liability arises when (and simply because ...
A guarantee is a secondary obligation which secures the obligations of a third party. For a guarantee to crystallise and be called upon the third party must have failed to comply with one or more of the guaranteed obligations (for example not paying back a loan to a lender). An indemnity, which in many respects can be similar to a guarantee, is ...
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The note considers the legal distinctions between guarantees (as secondary obligations) and indemnities, performance bonds and similar instruments (as primary obligations), and provides an overview of the contractual issues (such as the Statute of Frauds and capacity) and legal issues (such as undue influence, duress and the role of directors) which relate to guarantees.
