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Ancillary Guarantee
An ancillary guarantee is one in which the guarantor joins with one of the parties to the contract and agrees to fulfill that party's obligations if necessary. With an ancillary guarantee, the guarantor is in effect co-signing the contract to the extent that the guarantor has a legal duty to fulfill it.
In contrast to an independent or demand guarantee, under an ancillary guarantee the guarantor acquires rights under the contract. Therefore, the guarantor may look to terms in the contract to dispute their payment obligation to the creditor company. This is also known as a "contract guarantee." Banks in the United States are generally prohibited from issuing ancillary guarantees. Banks in other countries are not. American banks issue demand guarantees or standby Letters of Credit instead.
Edited by Michael C. Dennis. Mr. Dennis is a business consultant and can be reached by email at mcdennis13@yahoo.com with questions, comments or inquiries.