Nature Strictly speaking, a guarantee is an agreement to meet the obligations of another person. Where that other person’s liabilities do not, for some technical reason, arise or are legally invalid, then the guarantee would not apply. Standard bank guarantees take many of the rights that might otherwise be available to the guarantor against a bank and against the guaranteed party. For this reason, many […]
Interpretation The general principles of interpretation of contracts apply to guarantees. The courts seek to give effect to the intention and the understanding of the parties as expressed by them in the guarantee. Difficult questions of interpretations may arise, particularly in relation to the scope of the guarantee and the debts intended to be covered. Where a surety gives a continuing guarantee, limited in amount […]
Nature of Guarantee A true guarantee is a collateral undertaking. The guarantor is liable only if the guaranteed principal defaults on the guaranteed obligations. It is a separate obligation from the guaranteed obligation. However, if the principal obligation terminates, a guarantee will terminate a common law unless a contrary provision is made. The guarantee requires mutual assent, the capacity of the parties, express or implied […]
Rights Acquired The guarantor’s right against the creditor. The guarantor or guarantor obtains rights against the creditor by reason of the guarantee. The rights arise at the outset on the signing of the guarantor and are not dependent on the guarantor being enforced. After the guaranteed debt is due but before it is demanded, the guarantor may require the creditor to call on the principal […]
Indemnity from Debtor There is an implied right of indemnity for the guarantor against the guaranteed/principal debtor. This may be varied by an express right of indemnity. Until the guarantor has paid the creditor, the rights of indemnity are not a debt owed to the guarantor. A person cannot make himself a creditor by volunteering to discharge another’s obligations. It seems, however, that a guarantee […]
General Payment of the guaranteed debt will discharge the guarantor. It must be a valid payment. Accordingly, a fraudulent preference, which may be set aside, does not discharge the guarantee. An express release by the creditor will operate as a discharge. However voluntary declarations giving an intention to release is not sufficient unless there is consideration on some equitable ground that makes it inequitable to […]