Q&As

Is an agreement to pay x if y fails to make payment a guarantee or does the word guarantee need to be used? Does it make any practical difference?

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Produced in partnership with Emma Horner of 4 Stone Buildings
Published on LexisPSL on 13/06/2017

The following Banking & Finance Q&A Produced in partnership with Emma Horner of 4 Stone Buildings provides comprehensive and up to date legal information covering:

  • Is an agreement to pay x if y fails to make payment a guarantee or does the word guarantee need to be used? Does it make any practical difference?

The use of the word 'guarantee' is not determinative as to whether a contract of suretyship is indeed a contract of guarantee. The Court of Appeal decision in IIG Capital shows that using the word 'guarantee' does not always mean the contract will be treated as such; it is a question of construction. Failure to use the term 'guarantee' will not necessarily make a practical difference. It is a question of construction and 'every case must depend upon the true construction of the actual words in which the promise is expressed'. It is therefore important to ensure that the wording of the guarantee clearly provides that the guarantor’s (Z’s) liability is a secondary liability, that the agreement is in writing and signed, and the creditor is a party

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