Guarantees

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This overview is a guide to the Lexis+® UK Banking & Finance content within the Guarantees subtopic, with links to the appropriate materials.

Guarantees are typically used in banking transactions as a form of collateral for a debt. In such circumstances, they are a contractual arrangement where one party agrees to answer for the liability of another party to another party. Guarantees do not create rights over property.

In this context, guarantees are characterised as quasi-security.

Characteristics of guarantees

A secondary obligation

A guarantee is a promise by one party (the guarantor) to another party (the guaranteed party) to be responsible for the due performance of the obligations of another party (the principal) to the guaranteed party if the principal fails to perform such obligations.

The principal retains primary liability for the obligations which have been guaranteed.

The liability of the guarantor is a secondary obligation which is contingent on the principal failing to perform the obligations which have been guaranteed.

The liability of a guarantor is dependant on the underlying obligation of the principal to the guaranteed party. This is known as the principle of co-extensiveness. The

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