A secured loan is a viable option for borrowers with poor or no credit history. In such a case, the guarantor`s promise may allow borrowers to obtain loans that would otherwise be inaccessible. The law also does not apply to an agent`s promise not to make sales on behalf of his principal, except to absolutely solvent persons, and holds the agent liable for any loss that may result from the non-performance of his promise. The promise to give a guarantee is required by law, but not the obtaining of a guarantee. The general principles that determine what safeguards are provided by the Fraud Act are as follows: (1) The primary liability of a third party must exist or be taken into account; [19] (2) The promise is made to the creditor; (3) the guarantor is not liable independently of an express guarantee promise; (4) The primary objective of the guarantors must be the performance of the obligation of a third party; [20] and (5) The contract entered into must not amount to a sale of the security of a debt or the debt itself by the creditor to the insurer.[21] By providing the guarantee, the guarantor undertakes to fulfil the obligations of the third party (the debtor) if the debtor fails to do so. If you guarantee a loan to the family`s black sheep, you agree that if the loan is not paid by the black sheep, you will make the payment. The guarantee is usually a loan. However, you can guarantee any type of obligation. The Fraud Act does not invalidate a verbal guarantee, but renders it unenforceable. It may therefore be available to support a defence to an action, and the money paid under it cannot be recovered. Indemnification is not a guarantee within the meaning of the law, unless it provides for the primary liability of a third party.
It is therefore not necessary to be made in writing if it is only a promise to be responsible for a debt if the person to whom the promise is made is to become liable. [18] Another defence is “no est factum”. In this case, the guarantor is really saying that the purported guarantee is so fundamentally different from the agreement that it thought it would conclude that it could not have intended to provide the guarantee. But again, if the document you signed contains the guarantee; It will be difficult to make such a defence. The appropriate facts in support of such a defence may be established if, for whatever reason, the respondent cannot read or understand the language. This may also be the case if, when signing a new warranty or a replacement warranty, the terms of the warranty are changed without the guarantor`s knowledge. The German Civil Code requires that the guarantor`s undertaking be verified in writing if he has not fulfilled the principal obligation. [34] The Portuguese Code makes it possible to prove a guarantee by all the means provided by law for proof of the main contract.[35] According to most civil codes, a guarantee, like any other contract, can usually be given orally in the presence of witnesses and, in certain cases (for example, in the case of large sums of money), by a judicial or notarial act.
[36] The French and Belgian codes also provide that a guarantee must not be presumed but always expressed. [37] Sometimes a person may feel that they have no choice but to ensure safety; This is to help a family member with a new business, or your business needs the loan to pursue an expansion program. However, if you grant the guarantee due to coercion or undue influence, the guarantee will not be valid in court. The creditor cannot always act solely in his own interest. Depending on the circumstances, the creditor may have a fiduciary duty to the person to whom the security is entrusted. If this obligation exists and the creditor breaches it, he cannot invoke the guarantee. A guarantee serves as additional protection on a loan and makes a loan more attractive to potential lenders. Lenders are more willing to make secured loans, even to applicants with a poor credit profile, because the presence of a guarantor reduces the likelihood that a lender will not be repaid. The contract of guarantee clearly defines the nature and extent of the debt that the creditor must recover from the principal debtor. Its main purpose is to enforce the payment of an unresolved claim by a third party, namely the person who gives the guarantee, also known as guarantor or guarantor. As with all contracts, the guarantee must be taken into consideration. Typically, this is the loan given to the company.
It could also be an agreement to postpone certain actions that the creditor is otherwise entitled to take or to give the company more time to meet its obligations to the creditor under the existing arrangements. The amount or nature of the consideration is irrelevant as long as there is consideration. A person who is liable as guarantor for another guarantee has rights vis-à-vis the person to whom the guarantee has been granted. With respect to the guarantor`s rights vis-à-vis the principal debtor, if the security was provided with the debtor`s consent but not otherwise,[62] after the debtor`s default, the guarantor will be obliged by the guarantor to release the guarantor from liability by paying the secured debt. [63] If the guarantor has paid part of the secured debt, he is entitled to be considered a creditor for the amount paid and to force repayment. When granting a personal guarantee, a person promises to repay the outstanding loan amount in the event of the borrower`s default or pledges their own assets, which can be used to repay the loan to the lender. In England, the requirements of a common law guarantee are the same as for any other contract. The mutual consent of two or more parties, contractual competence and valuable consideration. [38] [39] An offer of guarantee must be accepted either by express or tacit acceptance. A guarantee is a contract between the guarantor (the person who gives the guarantee) and the creditor (usually the creditor who grants the loan).
As a contract, it must meet the essential conditions necessary to form a valid and enforceable contract. There must be certainty as to the terms of the guarantee: what is the scope of the guarantee, when can the creditor demand performance of the guarantee and how can it be withdrawn? If the amount of the guarantor`s liability is lower than that of the principal debtor, the question arises in England and America whether the guarantor is liable only for a part of the debt corresponding to the limit of its liability or up to that limit for the entire debt. [48] The warranty can only be held liable for damage caused by the guaranteed defect.