A guarantee is an undertaking by one person (the guarantor) to perform an obligation of another person (a borrower or other debtor), 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 borrower or debtor has failed to perform the “primary” obligation, which is the obligation of the borrower or debtor which has been guaranteed. In the context of a loan agreement, a guarantee is an undertaking from the guarantor to the lender that the borrower will perform the borrower’s obligations under the loan agreement, the most relevant obligation being to repay the loan and interest. If the borrower does not pay, the guarantor will perform the obligation itself and make the payment instead of the borrower.

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. In the case of an indemnity which is part of a guarantee for a loan, the specified event is the non-payment of the loan or other breach of the loan agreement. As a primary obligation of the guarantor, the indemnity is independent of the obligations of the debtor or borrower. An indemnity should, unlike a guarantee, remain in effect should the underlying loan agreement or equivalent transaction be set aside or if the borrower is somehow discharged from its obligations under the loan agreement.

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.

Does an individual require independent legal advice before giving a personal guarantee?

To avoid the possibility of a guarantee given by an individual being potentially set aside by reason of the guarantee having been given under duress or having been procured by undue influence, a lender may require the individual guarantor to seek independent legal advice before entering into the guarantee. This is particularly the case if the individual guarantor is the husband or wife of a shareholder of the corporate borrower.

Guarantee: individual guarantor

Name: Guarantee: individual guarantor - Paper Rock Docs
SKU: FIN008.001
Price: 35.00 GBP
Availability: InStock

£35.00 exc VAT

This Guarantee is for an individual to guarantee the obligations under a loan agreement of another company. It is suitable where the borrower is a company incorporated in England and Wales.

Description

Guarantee from an individual (as opposed to a company) for a corporate borrower’s obligations under a loan agreement. The guarantee is in the form of a standalone Deed of Guarantee between the guarantor and the lender

Use this document:

for a guarantee to be given by an individual for a company’s obligations under a loan agreement
for a guarantee in the form of a standalone Deed of Guarantee
where the borrower is a company incorporated in England and Wales

Key features include:

13 clauses over 6 pages
standalone deed of guarantee
guarantee undertakings given by way of both guarantee and indemnity
standard creditor protections for the continuing effect of the guarantee
limit of liability of guarantor for up to a specified amount
warning notice to guarantor to take independent legal advice

Does a personal guarantee require independent legal advice?

A lender will typically require that an individual guarantor takes independent legal advice before entering into the guarantee. This is done to avoid the possibility of a guarantee being potentially set aside by reason of the guarantee having been given under duress or having been procured by undue influence. This is particularly the case if the individual guarantor is the husband or wife of a shareholder or director of the corporate borrower.

The lender will also require that the independent legal advisor confirms in writing to the lender that the guarantor has received independent legal advice on the guarantee, that the guarantor understood that advice and is willing to enter into the guarantee. For a form of independent legal advice letter, see Individual guarantor: independent legal advice letter.

Alternative guarantees

For a form of guarantee to be given by a company (as opposed to an individual), see Guarantee: corporate guarantor. For a guarantee clause to be included in a loan or other agreement, see Guarantee: contract clause.

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Guarantee: individual guarantor

Does a personal guarantee require independent legal advice?

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