Guarantees, whether issued by individuals or corporates form an
essential feature of doing business and creating or receiving
credit. In most cases, banks are usually on the receiving end of
guarantees because they constitute one of the forms of consensual
security available as collateral for loans created. The question
may then be asked, how enforceable are guarantees? Are they viable
forms of security?
Guarantees are, essentially, contracts where an individual or
corporate entity promises to be responsible for the due performance
of one party's obligations to a third party e.g. the payment of
a debt. This typically arises where a company guarantees that it
will repay a loan granted to its subsidiary in the event the
subsidiary defaults; or where the Managing Director of a company,
in his personal capacity, guarantees the repayment of the
Company's debts. The courts have repeatedly held that where a
person guarantees the liability of another, a distinct,
