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{{a|security|}}A form of {{t|credit support}} where one chap agrees to make good the obligations of another chap to a third party, if the second chap can’t or won’t.  
{{a|security|}}A form of {{t|credit support}} where one chap agrees to make good the obligations of another chap to a third party, if the second chap can’t or won’t.  
===Types of [[guarantee]]===
==Types of guarantee==
There’s a saying in legal circles: [[anus matronae parvae malas leges faciunt]]: ''little old ladies make bad law''.
There’s a saying in legal circles: [[anus matronae parvae malas leges faciunt]]: ''little old ladies make bad law''.
In the history of the common law, more [[little old ladies]] than you’d expect seem to have given [[guarantee]]s.The common law is therefore littered with well-meaning judgments applying (and, frankly, making up) idiosyncratic, counter-intuitive and at times plainly stupid rules just to let little old lady-guarantors off the hook.  
In the history of the common law, more [[little old ladies]] than you’d expect seem to have given guarantees.The common law is therefore littered with well-meaning judgments applying (and, frankly, making up) idiosyncratic, counter-intuitive and at times plainly stupid rules just to let little old lady-guarantors off the hook. This means it is a minefield for lawyers. You know what you find in mines: GOLD. So a guarantee is a place, like no other, where you need {{tag|magic words}}.  
 
===[[Continuing guarantee]]===
This means it is a minefield for lawyers. You know what you find in mines: GOLD. So a guarantee is a place, like no other, where you need {{tag|magic words}}.  
====[[Continuing guarantee]]====
{{Continuing guarantee description}}  <br />
{{Continuing guarantee description}}  <br />
====[[Demand guarantee]]====
====[[Demand guarantee]]===
{{Demand guarantee description}} <br />
{{Demand guarantee description}} <br />
====[[Guarantee]] vs [[Indemnity]]====
===guarantee vs [[Indemnity]]===
Not, strictly speaking, a [[guarantee]] at all, but a contractual obligation having a similar economic effect is the [[indemnity]]. Note the [[statute of frauds]] doesn’t apply to an [[indemnity]] - which is why it’s traditionally seen as a useful thing to attach to a guarantee.<br />
Not, strictly speaking, a guarantee at all, but a contractual obligation having a similar economic effect is the [[indemnity]]. Note the [[statute of frauds]] doesn’t apply to an [[indemnity]] - which is why it’s traditionally seen as a useful thing to attach to a guarantee.<br />
===Negotiation points===
==Negotiation points==
'''[[Assignment]] of a [[Guarantor]]’s rights'''<br>
'''[[Assignment]] of a [[Guarantor]]’s rights'''<br>
A Guarantor has certain rights it acquires at law, even where it executes as a deed (such as the right of subrogation), and there is a risk that a [[guarantor]] who assigns these rights might somehow mysteriously compromise a beneficiary’s rights under the guarantee. So, to be sure, limit that right of assignment.
A Guarantor has certain rights it acquires at law, even where it executes as a deed (such as the right of subrogation), and there is a risk that a [[guarantor]] who assigns these rights might somehow mysteriously compromise a beneficiary’s rights under the guarantee. So, to be sure, limit that right of assignment.
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{{isdaguaranteewarning|isdaprov}}
{{isdaguaranteewarning|isdaprov}}


===The perils of unilateral termination rights===
==The perils of unilateral termination rights==
A related point: be careful about allowing the [[guarantor]] a termination right, even if amounts owing before termination are meant to remain [[guarantee|guaranteed]]. For a [[mark-to-market]] exposure under a [[master agreement]], whither the guaranteed obligation? The [[mark-to-market]] exposure isn’t, of itself, an obligation, at least not until until the contract has been closed out. Until then it is an emergent property of all the live [[transaction|transactions]] under the [[master agreement]]. Nor are those transactions “existing obligations” in whole: each will comprise future obligations, which may be contingent, and in any case are not yet due.  
A related point: be careful about allowing the [[guarantor]] a termination right, even if amounts owing before termination are meant to remain [[guarantee|guaranteed]]. For a [[mark-to-market]] exposure under a [[master agreement]], whither the guaranteed obligation? The [[mark-to-market]] exposure isn’t, of itself, an obligation, at least not until until the contract has been closed out. Until then it is an emergent property of all the live [[transaction|transactions]] under the [[master agreement]]. Nor are those transactions “existing obligations” in whole: each will comprise future obligations, which may be contingent, and in any case are not yet due.  


Consider providing for a lengthy notice period in such a termination period, which allows the [[beneficiary]] to adjust [[initial margin]] and precipitate a [[failure to pay]] (or rebase its [[credit support]] into tangible [[collateral]]). Alternatively make the termination of the [[master agreement]] a [[condition precedent]] to terminating the [[guarantee]].
Consider providing for a lengthy notice period in such a termination period, which allows the [[beneficiary]] to adjust [[initial margin]] and precipitate a [[failure to pay]] (or rebase its [[credit support]] into tangible [[collateral]]). Alternatively make the termination of the [[master agreement]] a [[condition precedent]] to terminating the guarantee.


==A brief anatomy==
==A brief anatomy==
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*Is independent of any other security or [[credit support arrangement]] between beneficiary and obligor.
*Is independent of any other security or [[credit support arrangement]] between beneficiary and obligor.
===Indemnity===
===Indemnity===
In addition to the [[guarantee]], an [[indemnity]] against:
In addition to the guarantee, an [[indemnity]] against:
*'''Expenses''': Beneficiary’s expenses incurred as a result of obligor’s non-performance of the guaranteed obligation,  
*'''Expenses''': Beneficiary’s expenses incurred as a result of obligor’s non-performance of the guaranteed obligation,  
*'''Losses due to unenforceability''': the value of obligations which have become void or unenforceable against the obligor for any reason. Especially where you are lending to sovereigns or undertakings in unsophisticated jurisdictions, whose governments are apt to change local laws to protect struggling local undertakings besieged by vultures and locust capitalists, the risk that a perfectly sensible loan suddenly becomes beyond the jurisdictional pale is not beyond the realms of possibility. By its nature, a [[guarantee]] depends on the existence and validity of the underlying obligation. An [[indemnity]], being simply an unconditional obligation to pay a sum of money in a certain circumstance, does not.
*'''Losses due to unenforceability''': the value of obligations which have become void or unenforceable against the obligor for any reason. Especially where you are lending to sovereigns or undertakings in unsophisticated jurisdictions, whose governments are apt to change local laws to protect struggling local undertakings besieged by vultures and locust capitalists, the risk that a perfectly sensible loan suddenly becomes beyond the jurisdictional pale is not beyond the realms of possibility. By its nature, a guarantee depends on the existence and validity of the underlying obligation. An [[indemnity]], being simply an unconditional obligation to pay a sum of money in a certain circumstance, does not.
===Currency and payment===
===Currency and payment===
*'''[[Currency]]''': Payment must be in the currency of the underlying obligations  
*'''[[Currency]]''': Payment must be in the currency of the underlying obligations  
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