Tool to recover money
A personal guarantee is a promise by the guarantor to the lender that guarantor will carry out the entire outstanding obligation in the case of default by the debtor. A personal guarantee is useful tool to recover the money because it provides the two choices to the lender. Such as:
First It provides the opportunity to pursue the debtor to payback the amount and fulfill contractual obligation;
Second, it provides the remedy to pursue the guarantor to fulfill the remaining obligations of the creditor.
Minimizes the fraud
So, personal guarantee protect the money of the lender and there are less chances of fraud in presence of personal guarantee. Guarantee creates the secondary obligation because primary obligation is always lie on the debtor to ensure the contractual obligations. You must set down precisely in the contract what you want the guarantor to guarantee.
The contract of guarantee must be in written form and it must be signed by the guarantor. Oral guarantee has no value in the eye of law and law does not recognize the oral guarantee. It is the statutory requirement that contract of guarantee must be in written form.
Causes of personal guarantee
Mostly the lender requires the guarantee when the business is new and has no previous credit history. Generally, the director of the company provides the personal guarantee to repay the loan if the company fails to do so.
The guarantor liability commenced when the debtor fails to perform his obligation. The Guarantor may not assign nor transfer all or any of its rights and obligations without first obtaining the prior written consent of the creditor.
Understanding of the contract
The guarantor must read the agreement before signing it. He must know and understand the nature of liability. Because once the agreement is signed it becomes the legal document. Basically, personal guarantee is a promise of the guarantor to repay the loan.
Assurance to the lender
Persona guarantee bound the guarantor to fulfill his obligation because the lender gives the money to the debtor on the surety of the guarantor. In fact, guarantor imposes the burden on the guarantor. Guarantor is a person who gives the assurance to the lender that his money will be repaid in all cases otherwise he will be liable for this. It is the guarantor who satisfies the lender about the debtor.
Difference between guarantee and indemnity
There are three parties involved in the contract of guarantee such as the surety, principal debtor and the creditor. While there are two parties involved in indemnity such as indemnifier and indemnity holder.
Indemnity is a contract by one party to keep the other harmless against a loss.
Usually lender demands the guarantee to secure their payment because the debtor can be escaped. In the case Linda Jane Inkster v Mountain Wear 2004 Limited High Court held that guarantor must take legal advice before signing the agreement. Indemnity can be oral and there is no need to be in written form.
Discharge of the duties
Guarantee discharges the liabilities and obligations of the third parties and bound to perform the obligations.
Net Lawman provides the comprehensive Guarantee of contract debt. Such as:
This is a supplementary contract that brings in a guarantor to a situation where the client of a provider of a service or supplier of goods has failed or is likely to fail to make payment when due. It can be used with any performance contract and can add a personal guarantee for an individual, or bring in another party, such as a business. The key benefit of this document is that the original contract remains unchanged, making this a neat solution to adding a guarantor.