Ancillary Guarantee

From Open Risk Manual

Definition

Ancillary Guarantee. It is a Guarantee instrument where the guarantor joins with one of the parties to the contract and agrees to fulfill that party's obligations if necessary, effectively co-signing the contract.

Differently from an independent or demand guarantee, under an ancillary guarantee the guarantor also acquires rights under the contract and may resort to terms in the contract to dispute claims against the guarantee. It should be noted that financial institutions in the USA are generally prohibited by law from issuing ancillary guarantees. Financial institutions in other countries, which are not. USA financial institutions,issue demand guarantees or standby letters of credit.

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