Commercial agreements often include supporting obligations intended to improve a creditor’s prospects of recovery if the principal debtor defaults. These may be described as guarantees, suretyships, undertakings or acknowledgments of liability.
The terminology is not always used consistently. This can create difficulty when enforcement becomes necessary, particularly where a party’s liability depends on whether the obligation is primary or accessory.
A document that appears to provide security may not operate in the way the parties expected. For creditors, this can weaken recovery. For signatories, it can create exposure that was not properly understood at the time of signature.
The legal distinction between a guarantee and a suretyship
