Formalities for creating a guarantee
Formalities for creating a guarantee

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Formalities for creating a guarantee
  • A guarantee is a contractual arrangement
  • Guarantees must be in writing and signed by the guarantor
  • Companies giving guarantees—commercial (or corporate) benefit
  • No formalities for indemnities

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:

  1. contractual formalities involved in creating a guarantee

  2. other formalities which are specific to the granting of guarantees, and

  3. 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:

  1. guarantees from individuals (see Practice Note: Key issues in taking a guarantee from an individual), or

  2. on demand guarantees (see Practice Note: On demand guarantees and bonds)

A guarantee is a contractual arrangement

Like any contractual arrangement, the following are required to create an effective guarantee:

  1. offer and acceptance, with the intention to create legal relations, and

  2. sufficient certainty of terms

Contract formation

Guarantees are contractual arrangements so the requirements for creating contracts in general apply to them:

  1. 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

  2. the contract must be supported by good consideration or be executed as a deed—for information in general on consideration, see Practice Note: Forming enforceable contracts—consideration, and

  3. the parties must intend to create legal relations—for information in general on the intention to create legal relations, see Practice