The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:
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), or
on demand guarantees (see Practice Note: On demand guarantees and bonds)
Like 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 terms
Guarantees 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 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
the parties must intend to create legal relations—for information in general on the intention to create legal relations, see Practice
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