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Guarantee Agreement

2 signers
1 Guarantor
2 Lender
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Protect Your Assets with a Guarantee Agreement

A guarantee agreement form is common in transactions that are financial in nature or involve real estate. It involves the agreement of a third party, in this case, a “guarantor” represents, depending on the subject matter hereof, and provides assurance, such payment in case the parties hereto involved in the transaction fail to fulfill the demands of the contract.

guarantee agreement template

In such obligations, the guarantor assumes all the risk of the transaction (if such person unconditionally guarantees) of the other party and in some conditions, may also become the primary obligor, and may be considered liable to the extent permitted in the event a customer breaches the terms.

A guarantee agreement is duly executed and is most common in college loans, rent, and mortgage payments. It is undertaken with prior written consent and is exercised by providing such notice to the parties concerned.

For example, if a renter fails to pay the landlord his or her rent, the landlord will look to the guarantor to make good on the rent agreement. In the case of a college loan, the government acts as the other guarantors.

In a case like this, if a student decides to default on the loan, the bank shall turn to the government to collect the debt the student has.

Why is a Guarantee Agreement Important?

Having a guarantee agreement is important for the parties, especially the asset owner, as it gives him or her protection in case such person fails to complete their end of the bargain in financial transactions.

As it is a commitment signed with a financial institution or a party with financial capacity, it covers the beneficiary in case of a breach or default of a contractual obligation.

Any of the following entities can request a guarantee agreement:

  • A bank may ask for a guaranty agreement (of which it is the beneficiary) when granting a loan.
  • An agency of the government, depending on the governing law and the valuable consideration involved, may require a guarantor hereunder when it contracts its services with an individual or a third party.
  • An individual who provides a service may request a guarantee hereunder from another individual under an agreement such as rent.

What is included in a Guarantee Agreement?

A guarantee agreement must include the following:

  • Identification of the guarantor, the guaranteed party (obligor), and the person who is considered the beneficiary of the guarantee and that all party agrees to the terms.
  • The specific details of the underlying guaranteed obligations hereunder.
  • The duration, waiver thereof, such amendment, and the manner provided for the enforceability of the guarantee agreement.
  • The list of requirements needed for the beneficiary to enforce the guarantee that has to be honored.
  • The conditions for the termination are in case there is no date of expiry.
  • Any single or partial exercise against the expense the guaranteed party is liable for.
  • That the guarantor agrees to the entire agreement or until such time he or she may be required to fulfill the obligations provided

Absolute Guarantee

An absolute guarantee has no aspects that would restrict a creditor from the exercise thereof of such right or remedy hereunder on moving to assume relief and other obligations (usually other liability such as interest, credit, or cash equivalents) permitted if the party who is initially involved defaults on the contract. Without the presence of the conditions, a guarantee is by default absolute.

Conditional Guarantee

In the case of a conditional guarantee, it would take more than just the default on the debt to trigger the guarantor’s responsibility to pay the debt of the transaction. It would require action on the creditor’s part based on the documents executed between the two parties and other documents and other materials that can be used to give meaning to the defined terms of such action.

Payment Guarantee

The payment guarantee creates a responsibility of the guarantor to pay the creditor when the debt is due if the borrower defaults on the contract at the time. It occurs at a fixed date by default.

Collection Guarantee

A collection guarantee is supposed to assure the creditor after all other reasonable efforts have been exhausted. There are lesser-known types of guarantees as well including a performance guarantee, a continuing guarantee, and a restricted guarantee. It is important to know the different types of roles you may have to take on as a guarantor.


FAQ Regarding a Guarantee Agreement Form

A personal guarantor is an individual who agrees to take on the responsibilities of a debt for a debtor. On the other hand, a corporate guarantor is a corporation that takes on the obligations of the debt.

In a Guarantee Agreement, the parties involved are the:

  • The “surety”, is the guarantor.
  • The “principal debtor” or the person who is protected by the surety in case he/she defaults on payment.
  • The “creditor” to whom the guarantee is given.

One example of a guarantee is when an individual provides financial support for a friend or family member who needs help paying off a debt. This could be in the form of providing a loan, making payments on behalf of the debtor, or offering to serve as guarantor for the debt.

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