Contract guarantee (known also as ancillary guarantee) is a type of guarantee in which guarantor not only gives letter of credit, but also becomes a co-signatory of the contract. That means that he is able to challenge obligee's demand for payment of the guarantee sum.
Contract guarantees are not allowed in certain countries, e.g. in U.S.
The guarantee is a situation when third person (not involved in contract) guarantees to repay in case of default of the guaranee. In contract guarantee that third person is in fact involved in contract, as he/she gains some powers.
Contract guarantee requires:
- concurrence of all the parties,
- existence of a debt,
- should be written,
- essentials of a valid contract,
- no concealment of facts,
- no misrepresentation.
- Yan, N., Sun, B., Zhang, H., & Liu, C. (2016). A partial credit guarantee contract in a capital-constrained supply chain: financing equilibrium and coordinating strategy. International Journal of Production Economics, 173, 122-133.
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