Case studies

"While we began looking at LexisNexis products primarily for cost saving, it quickly became more about customer service, ease of onboarding, ongoing training and breadth of resources available."

Co-Op

Access all 5 documents on Contract of guarantee

GET ACCESS NOW

GLOSSARY

Contract of guarantee definition

Published by a LexisNexis Banking & Finance expert

What does Contract of guarantee mean?

A contract of guarantee is an accessory contract by which the promisor (i.e., the guarantor or surety) undertakes to accept liability on behalf of the promissee (i.e., creditor) for the debt, default or miscarriage of another person, whose primary liability to the promisee must exist or be contemplated.

A valid guarantee requires an agreement, made between parties intending to create legal relations and having the capacity to contract, supported by consideration, actual or implied. As an additional statutory requirement, the contract of guarantee is required to be either in writing or evidenced by a written note or memorandum signed by or on behalf of the party to be charged. Whether any particular contractual promise may be classified as a guarantee depends on the words in which the parties have expressed the promise. The use of the word 'guarantee' is not itself conclusive. There are three kinds of situations in which the principles of the law of guarantees may apply where there is: (1) an agreement constituting the relation of principal debtor and guarantor, to which agreement

Speed up all aspects of your legal work with tools that help you to work faster and smarter. Win cases, close deals and grow your business–all whilst saving time and reducing risk.

Formalities for creating a guarantee

Guarantees are typically used in banking transactions as a form of collateral for a debt. For information on the characteristics of guarantees, see Practice Note: Guarantees.This Practice Note examines:•contractual formalities involved in creating a guarantee•other formalities which are specific to the granting of guarantees, and•whether there are any formalities for indemnities that need to be considered (since guarantee documentation typically includes an indemnity provision)This Practice Note does not deal with:•guarantees from individuals (see Practice Note: Key issues in taking a guarantee from an individual in a commercial financing context), or•on demand guarantees (see Practice Note: On demand guarantees and bonds)A guarantee is a contractual arrangementLike any contractual arrangement, the following are required to create an effective guarantee:•offer and acceptance, with the intention to create legal relations, and•sufficient certainty of termsContract formationGuarantees are contractual arrangements so the requirements for creating contracts in general apply to them:•there must be an offer and acceptance—for information in general on offer and acceptance, see Practice Notes: Forming enforceable contracts—offer and Forming enforceable contracts—acceptance•the contract must...

Guarantees

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 (the guarantor) agrees to answer for the liability of another party (the principal) to another party. They do not create rights over property. In this context, guarantees are characterised as quasi-security.This Practice Note examines:•the key characteristics of guarantees•how guarantees are used in financing transactions•why lenders prefer guarantee documentation to include both a guarantee and an indemnity•which obligations are commonly guaranteed in finance transactions—obligations under a specific transaction or 'all moneys'?•whose obligations are commonly guaranteed in finance transactions•the use of limited guarantees, and•the importance for lenders of understanding the rights of guarantors and guarantor protectionsThis Practice Note does not deal with on demand guarantees (see Practice Note: On demand guarantees and bonds).Characteristics of guaranteesA guarantee is a secondary obligation in a tripartite structure.Meaning of 'tripartite structure'Guarantee arrangements involve three parties. A guarantee is a promise by one party (the guarantor) to another party (the guaranteed...

Discover our 3 Practice Notes on Contract of guarantee

Does an unfair credit relationship, including releasing debtors from their liabilities and changing contract terms (sections 140A–C of the Consumer Credit Act 1974 (CCA 1974)) apply to guarantors? Is a guarantee an agreement related to a credit agreement (or to a linked transaction) under CCA 1974, s 140C(4)(c)? If so, can an unfair relationship arise?

Does an unfair credit relationship, including releasing debtors from their liabilities and changing contract terms (sections 140A–C of the Consumer Credit Act 1974 (CCA 1974)) apply to guarantors? Is a guarantee an agreement related to a credit agreement (or to a linked transaction) under CCA 1974, s 140C(4)(c)? If so, can an unfair relationship arise? Section 140A(1) of the Consumer Credit Act 1974 (CCA 1974) provides for the court to make an order if it determines the ‘relationship between the creditor and debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair to the debtor…’. For that purpose, ‘the agreement’ is obviously the primary credit agreement in question. A ‘related agreement’ is defined by CCA 1974, s 140C(4)(c) as including ‘a security provided in relation to the main agreement…’. As per the definition of ‘security’ in CCA 1974, s 189(1), that will include a contract of guarantee. CCA 1974, s 140B(1) gives the court a number of powers in the...

See the 1 Q&As about Contract of guarantee

Financial Services—other developments (12/5/2025)

A round-up of other developments, which have not been covered in full by the LexisNexis Financial Services practical guidance team but may nevertheless be of interest.

Read the latest 1 News articles on Contract of guarantee