Banking / Finance Law
Guarantee (Financial)
A contract where one party (the guarantor) promises to perform an obligation, or pay a debt, if the principal debtor fails to do so.
A guarantee creates secondary liability — the guarantor is only required to pay if the primary borrower defaults — and lenders commonly require a guarantee, in addition to collateral, to strengthen their security for a loan.
A guarantor's liability, and the specific circumstances that can discharge it (such as a material change to the underlying loan terms without the guarantor's consent), are governed by well-established contract law principles.
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