What is a Guarantee?

A Guaranty/ Guarantee is a legally binding agreement in which a person (first party) agrees to be answerable for another person (second party), who wishes to obtain trust or credit from someone/institution (third party), and promises to fulfill the specified obligation of the other person (Second party) in case of default.

What is a Guarantor?

Parties who constitute a Guarantee contract are usually referred to as follows;

• Guarantor or Surety – The person who promises to take responsibility for another persons performance or obligation in case of default.
• Principal debtor or obligor -The person whose performance to an obligation or undertaking has been secured by a surety or guarantor.
• The creditor or obligee-The person or institution whom the guarantor promises to fulfill the performance or requirement of the principal debtor in case of default.

What is required to Execute a Guarantee? 

For a guarantee to be legally binding during formation the following common law elements of a contract must be adhered to;

• Mutual consent of all parties involved.
• Invitation to offer and acceptance.
• Parties must be of sound and sane mind.
• The form and content of the guarantee has to be legally correct
• And a valuable consideration.

What is a Surety?

Suretyship can be viewed or classified in three distinct categories;

• Where the relationship between the principal debtor and the surety is formed through an agreement and the creditor is party to the contract.
• Where the relationship between the surety and the principal debtor has been similarly constituted by way of an agreement, but the creditor is not a party to such.
• Where there is no constituted contract to establish a relationship between parties, however, there is a primary and secondary liability expressed for a debt. Should the person with the primary obligation default and the person with the secondary responsibility is forced to make payments, reimbursement of the same from the primary obligor can be sought.

What are the Types of Sureties?

Sureties can be divided into context such as being either;

• Legal
• Judicial
• Conventional
• Gratuitous and;
• Onerous