Before the guarantor can be held liable for its guarantee, the principal debtor must be in default. However, if this is the case, the creditor may, unless expressly agreed otherwise, sue the guarantor without informing him of the breach before bringing an action against the principal debtor or resorting to a guarantee for the debt he has received. In countries where domestic law is based on civil law, guarantees generally have the right (which they can do without) to force the creditor to insist on the assets, etc. (if any) of the principal debtor, which is first “discussed”, i.e. valued and sold and used for the liquidation of the secured debt before the guarantees are invoked. [54] This right “is consistent with the common sense of justice and the natural equality of humanity.” [55] In England, this right has never been fully recognized, nor does it prevail in America and Scotland. [56] In England, the common law requirements for a 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 warranty must be accepted by express or implied acceptance. In the law, the giver of a guarantee is called guarantor or “guarantor”. The person to whom the security is granted is the creditor or “creditor”; while the person whose payment or performance is so secured is referred to as the “debtor”, the “principal debtor” or simply the “principal debtor”. In summary, there are many considerations that can affect a lender`s ability to recover under collateral, and it is worthwhile for both parties to the agreement to look at it very closely as soon as the collateral is likely to be claimed. In certain circumstances, the obligations of a guarantor are fulfilled; for example, if changes are made to the underlying agreement without the guarantor`s consent.
(Note, however, that a clause that allows such a deviation without resulting in the performance of the warranty can be found in many standard forms.) No particular phraseology is required to provide a guarantee. What distinguishes a guarantee from insurance is not the difference between the words “insurance” and “guarantee”, but the content of the contract concluded by the parties. [11] As with any contract, it is important to carefully consider what has been agreed. Does the warranty actually cover the circumstances and claims that have arisen due to its design? If this is not the case, the guarantor`s liability does not intervene or is reduced, although the guarantee itself is valid. In the event of bankruptcy of the principal debtor, the guarantor may bring an action in England against the bankruptcy estate of the bankrupt debtor, not only for payments made before the bankruptcy of the principal debtor, but apparently also in respect of contingent liabilities to be paid under the guarantee. [64] If the creditor has already acted, the guarantor who paid the secured debt is entitled to all dividends received by the bankrupt`s creditor in respect of the secured debt and future dividends to replace the creditor. [65] The guarantor`s rights against the creditor may also be exercised in England by a person who was the principal debtor at first instance but has since become guarantor by agreement with his creditor. [66] The most productive reason for the obligation to exempt a guarantor usually stems from the creditor`s conduct. The guiding principle is that if the creditor violates the rights that the guarantor had when the security was lodged, even if the damage is only nominal, the security cannot be enforced. Discharge of the guarantor`s debt may (1) be obtained by modifying the terms of the contract between the creditor and the principal debtor or the contract between the creditor and the guarantor; [74] (2) by the creditor taking a new security from the principal debtor instead of the original debtor; (3) exempting the principal debtor from any liability; 4. by the creditor who undertakes to give the principal debtor time to settle the secured debt; or (5) by the loss of security received by the creditor in connection with the secured debt. The first four of these acts are collectively called novation.
In general, anything that extinguishes the primary duty necessarily determines that of the guarantor, not only in England, but also elsewhere. [75] According to most civil codes, the guarantor is relieved by creditor conduct that is inconsistent with the guarantor`s rights,[76] although the rule in force in England, Scotland, America and India, which exempts the guarantor from any liability if the creditor extends the period of performance of the principal obligation without the guarantor`s consent, while it is recognized by two existing civil codes, [77] is rejected by the majority of them. [78] The revocation of the guarantee contract by the action of the parties or, in some cases, by the death of the guarantor may also result in the performance of the guarantor. If the guarantor`s liability is less extensive than that of the principal debtor, the question arises in England and America as to whether the guarantor is liable for only part of the debt corresponding to its limit of liability, or up to that limit for the entire debt. [48] The guarantor cannot be held liable except for damage caused by the guaranteed delay. In addition, in the event of a joint and several guarantee by several guarantors, unless they all sign it, no liability under this guarantee will be incurred. [49] The guarantor`s limitation of liability must be interpreted as meaning that what can be drawn from the reasonable conclusion is the intention of the parties as expressed in writing. In case of dubious importation, the use of Parol evidence is permitted in order to explain the written proof of the guarantee, but not to contradict it. In India, a guarantee may be made orally or in writing,[26] while in Australia, Jamaica and Sri Lanka it must be in writing. A guarantee is a contract and must therefore meet the basic requirements of a contract, including the need for “consideration” for the promise – a problem that is often overcome by performing the guarantee as an act. A person who is liable as guarantor of another person under a guarantee has rights vis-à-vis the person to whom the guarantee was granted […].