Commercial Series

Guarantee-a simple introduction

By Goh Hoon Huar

Why do you ask for a guarantee?

When you are supplying goods and services to a limited company or an individual whom you are not convinced of his credit worthiness, you should ask for a guarantee.

The guarantee may be provided by either the directors or shareholders of the company or a third party who has a better credit worthiness. A guarantee is only as good as the credit standing of the person who gives it.

What kind of guarantee?

The implication of a guarantee are certainly governed by the terms incorporated in the guarantee. Some common terms are as follow:-

Single Guarantee

A guarantee may be given by a guarantor to assure the payment of a single transaction by a customer to its supplier. Upon payment of the money owed for that transaction, the responsibility of the guarantor is discharged.

 

Continuous Guarantee

On the other hand a continuing guarantee may be given to assure for the payment of debts incurred by the customer to the supplier over a series of transactions. The guarantor’s responsibility remains until he gave notice to the supplier that he no longer wishes to guarantee further transaction by the customer. However, the guarantor remains liable for debts incurred by the customer before his notice to the supplier.

 

Limited Guarantee

A guarantee may limit the amount of debt assured by the guarantee. The guarantor is not responsible for that portion of the debt incurred beyond the limit provided in the guarantee agreement.

 

Joint And Several Guarantee

A guarantee may be given by two or more person jointly and severally. This means the guarantors can be liable for the debt in equal amounts if all guarantors honour the debt. Where there are guarantors who fail to honour his share of the debt, the remaining guarantor can be liable for the whole debt as if he individually has guaranteed all the debt.