Guarantee: contract clause

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This document is the clause wording for a contract to be included where a corporate guarantor will guarantee the obligations of one party to another party to the contract.  It is suitable where the guarantor and the guaranteed party are both companies incorporated in England and Wales.

 

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Guarantee: Contract guarantee clause

Form of corporate guarantee clause to be included in a contract

Background 

One party to a contract may require that the other party’s obligations under the contract are guaranteed by another person. Rather than entering into a separate deed of guarantee, the guarantee obligations and related wording can be included in the contract itself, with the guarantor also becoming a party to the contract.

What is a guarantee?

A guarantee is an undertaking by one person (the guarantor) to perform an obligation of another person (the guaranteed party), given in favour of the person to whom that obligation is owed (the beneficiary).

A guarantee is what is known as a “secondary” obligation – this means that the guarantor is only liable if the guaranteed party has failed to perform the “primary” obligation, which is the obligation of the guaranteed party which has been guaranteed.

Why are guarantees also given as indemnities?

Guarantees are almost always drafted both as a guarantee and as an indemnity.  Unlike a guarantee, an indemnity is a “primary” obligation – it is an undertaking from one person (the guarantor) to pay the beneficiary if the beneficiary suffers loss as a consequence of a specified event.  

As a primary obligation of the guarantor, the indemnity is independent of the obligations of the guaranteed party.  An indemnity should, unlike a guarantee, remain in effect should the guaranteed party be somehow discharged from its obligations under the contract.

What are the formalities of a guarantee?

A guarantee must be in writing and signed by the guarantor (or the guarantor’s agent).  It is usual also for a guarantee to be executed as a deed, to avoid an argument that it lacks contractual consideration.

About this document: Guarantee contract clause

This document is the wording for a contract to be included where a corporate guarantor will guarantee the obligations of one party to another party to the contract.

It is suitable where the guarantor and the guaranteed party are both companies incorporated in England and Wales.

Document features

Features include:

  • Wording for guarantor to be included as a party to the contract
  • Guarantee undertakings are given by way of both guarantee and indemnity
  • Warranties from the guarantor 
  • Wording for contract to be executed as a Deed

Explanatory guidance

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Contract guarantee clause

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