by D. Brent Wells
Introduction
As long as extension of credit has driven commerce, creditors have been wary of accepting naked promises of payment. In ancient times, the taking of hostages gave greater assurance that promises would actually be performed. In more modern times, the concept of taking hostages has evolved into practices of taking contractual enhancements to minimize the chance that the creditor/lender will suffer the consequences of an unpaid or unperformed obligation. One of the most popular of these contractual enhancements is the ‘guarantee. Guarantees are relevant in factoring transactions either to support collectibility of the factored account or to protect against default on the part of the client-borrower.
Concept And Legal Issues