Reconciling the obligations to divulge information to financial institutions and the duty of secrecy - challenges and dilemmas facing financial institutions: part 1
A contract of suretyship or guarantee is a unique kind of contract. Despite the fact that guarantees are commonplace in Australia, it is not generally known that there is a distinct and complex body of law relating to suretyship. A guarantee is the promise of one person to be answerable for a debt or obligation of another person if that person defaults. Thus, the High Court of Australia defined a contract of guarantee as "a collateral contract to answer for the debt, default or miscarriage of another who is contemplated to be or to become liable to the person to whom the contract is given". 1 There has been a growing concern in Australia about the consequences of the widespread use of these contracts of guarantee to secure loans given by financial institutions, such as banks or finance companies. Such contracts are given when a financial institution will not lend money or will not extend a loan, unless the loan is secured by a contract of guarantee provided by a person other than the borrower. Sureties do not derive any tangible benefits from the loan transactions and many fall victim to failed loans they have guaranteed. It is not uncommon for the guarantees to be enforced against these sureties, often with traumatic and unjust consequences such as the sureties losing their assets, including their homes and, in some cases, ending up as bankrupts.