The Rural Voice, 1993-01, Page 18Agrilaw
Guarantees — a matter of negotiation
"Just sign here." It is so easy to
do and many people sign guarantees
without really understanding just how
one-sided that standard form
guarantee is.
For those who do ask questions,
they arc often told that it is the bank's
standard, normal or usual guarantee.
Somehow that is supposed to make
the guarantee easier to sign and Icss
objectionable. The fact is that
virtually all standard form bank
guarantees are written in legal terms.
These guarantees arc difficult to
understand. They arc designed to
protect the bank, not the guarantor.
Unfortunately, most guarantors
believe that these standard -form
guarantcc contracts cannot be
changed or negotiated; this is a big
mistake. As a prospective guarantor,
there are a number of steps you can
take to protect yourself before you
sign that contract.
Firstly, you must carefully read
the guarantcc. If there arc any
clauses that you do not understand,
you should seek clarification from the
banker or from a lawyer: the worst
question is the one not asked.
You should
also keep care-
ful notes of
what you are
told and, if
possible, have
the bank put that
explanation in
writing. Most
guarantee
contracts
contain a clause
that says that
there are no
representations,
warranties or
collateral
agreements other than what is
embodied in the agreement. This
means that if it is not in writing in the
contract, you cannot rely upon it.
Therefore, if it is important to you,
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14 THE RURAL VOICE
you should make sure that it is
written into the contract.
Similarly, if you are not satisfied
with any of the clauses found in the
guarantee, you should delete those
clauses before signing. You should
consider the following:
1. Ensure that the guarantee specifies
the maximum amount you are
prepared to be liable for, rather than
leaving the amount open-ended to
secure all present and future advances
made to the borrower;
2. Specify exactly the loan which
you are guaranteeing, particularly
where the borrower has a number of
accounts or lines of credit;
3. Limit the period of time over
which the guarantee is effective;
4. Require the bank to look first to
other specified collateral before start-
ing legal proceedings against you;
5. Require the bank to obtain your
consent before any alterations are
made to the loan arrangement with
the borrower, so that you are fully
informed as the loan goes along;
6. Refuse to allow the bank to deal
with the security in any way it sees
fit; that is, put the onus on the bank to
ensure that other security is properly
in place, so that it is available for
repayment of the debt.
Unlike the borrower, guarantors
are not always in the position of
needing the bank's loan. Guarantors
too often fail to protect themselves
before things go wrong. When you
sign the guarantee, you are telling the
bank that you will repay the debt,
including any accrued interest. As
the old adage goes, an ounce of
prevention is worth a pound of cure.0
Agrilaw is a syndicated column pro-
duced by the full service law firm of
Cohen Highley Vogel & Dawson. Rus-
sell Raikes, a partner in the firm, prac-
tises in the area of commercial litiga-
tion. Agrilaw is intended to provide
information to farmers on subjects of
interest and importance. The opinions
expressed are not intended as legal
advice. Before acting on any infor-
mation contained in Agrilaw, readers
should obtain legal advice with respect
to their own particular circumstances.