Covenantor: Definition, Example and Related Terms
What is a Covenantor ?
In the world of business, a 'Covenantor' is a person, company, or entity that makes a promise in a formal agreement or contract. These promises are called 'covenants.' The covenantor is legally bound to fulfill the promise they've made. This is a big responsibility because if the covenantor doesn't keep their promise, they could get into legal trouble. For example, they might have to pay money to the other party, or they might have to do something they don't want to do. In business, these promises are often about things like maintaining certain levels of financial performance, or doing certain things to protect the other party's interests. Covenantors play a crucial role in commercial contracts, ensuring that all parties involved in an agreement are held accountable for their promises and responsibilities.
Scenario Description A manufacturing company enters into a contract with a supplier, where the manufacturing company promises to purchase a minimum quantity of raw materials each quarter. In this case, the manufacturing company is the 'Covenantor.' They have made a covenant (promise) to the supplier to buy a certain quantity of raw materials every quarter. If the manufacturing company fails to buy the agreed quantity, they may face penalties as specified in the contract. A software company signs a service level agreement (SLA) with a client, promising a certain level of uptime for their software product. Here, the software company is the 'Covenantor.' They have made a covenant to the client that their software will be operational for a certain percentage of time. If their software is down more often than promised, the software company may be liable for damages, as outlined in the SLA.