Guarantee of contract debt OR Deed of guarantee of loan

This is a simple agreement where a guarantor steps in to guarantee the payment of a debt. It is to be used where one party has no cash or cash flow problems and the other party refuses credit or refuses to continue his own contractual obligations. The guarantor rescues the first party by guaranteeing payment to the other.

Suitable for use in: England & Wales and Scotland
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About this document

This is a professionally drawn, short agreement that identifies an original contract, then ties a new guarantor to it, to stand in the shoes of the debtor, should that be necessary.

The agreement provides an option for changed terms of payment should you so require. You could also change any other term in the original contract.

For example, the debtor may agree to an increased rate of default interest, or the creditor may consent to extended payments or a different schedule of work against which payments are made.

Note: if you make a change that affects the obligations of the creditor or debtor, that party must also sign. If that happens, no-one needs to sign as a deed.

Examples of use

A young entrepreneur borrows from a friend to start a new business. The loan requires monthly repayments and the borrower fails to meet them. His father agrees to provide an “after the event” guarantee. The lender is happy and the son can carry on with his business. No changes are required to the terms of the original agreement.

A website developer agrees to create a website for a new client company. There is no guarantee clause in the contract. Before the site is completed, the client decides to add a great deal more work. The developer, now worried about being paid, insists on the directors of the client guaranteeing payment for the enlarged contract. This agreement would include adding a new schedule to the original, by reference, and new schedule of payments.

A builder agrees to build a house against stage payments. When house is up to the first floor level, the client fails to make a payment as required by the contract. The builder threatens to walk out. The client persuades his brother-in-law to give a guarantee of the debt as instalments become due. The builder agrees to complete the contract.

The law in this document

There is no modern statutory law relating to guarantees. This document is based on contract common law.

Alternative documents

In these examples, the guarantee is for a loan or debt. If you are looking for a guarantor of the performance of obligations, look at this agreement.

Features and contents

The key benefit of using this contract over adding a guarantee paragraph to the original is the simplicity of use. There is no need to edit and agree the original. That means less room for making a mistake and invalidating it.

  • Can join one or more guarantors
  • Guarantee for all aspects of the original contract
  • Option to change the terms of original agreement
  • Option to limit the guarantee if necessary
  • Guarantor can be a business or individual (as a personal guarantee)
  • Suitable for any type of contract
Draftsman

This document was written by a solicitor for Net Lawman. It complies with current English law.

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