If a bank lends money, they normally look for guarantees from the trader, partner or company directors.
They promise to meet debts from their personal resources if the business fails.
Bank guarantees are usually joint or several, as any of them are obliged to pay the debt and sue others.
Guarantees can be open to cover all loan figure or limited to a fixed amount.
However, we need to emphasise that, there are acute problems in relation to the personal guarantees.
Legally, this may be unenforceable because of undue influence.
This could happen, in cases of spouses where one gave guarantee to the other.
Also, the guarantor may not be liable because he claimed there was no clear full understanding of the commitment made.
Be careful, lenders should insist, especially where a wife or older partner is guaranteeing or joining in a guarantee of the business controlled by the husband or child, that the guarantor obtains legal advice independent of the lender.
The lawyer who gives the independent advice should act as a witness to the guarantor’s signature on the guarantee and confirm that he has fully explained to the guarantor the nature and content of the guarantee.
Although, lien is of a different nature to a charge over property, it is effect is somewhat the same.
A lien is a right to keep possession of an item of personal property as a form of security until the actual owner of the property has paid debts owed by him to the person who is keeping possession of the item.
General lien covers all the liabilities of the owner of the item to the person keeping possession of it. Particular liens are more common than general liens. They give a right to retain an item until all liabilities of the owner in regard to the item only have been settled.
A pledge differs from lien because the items to be used as security are handed to the lender with the idea that they are to be used as security for a loan.
The items over which a lien is exercised are handed to a person with the idea that he will do work over them, as invoices.
A lien does not give the right to sell the items.
A pledge, usually gives the lender the right to sell the items pledged. You need to put this in the contract of pledge.