Legal Definitions - caution

In certain legal systems, particularly Civil Law jurisdictions and Scots law, the term caution refers to a form of security or guarantee. It has two primary meanings:

• First, it refers to the security itself, which is provided to ensure that a specific obligation will be fulfilled. This security can take various forms, such as a sum of money, a bond, or a pledge of assets.
• Second, it can refer to the person or entity who provides this security, often called a cautioner. This individual or entity essentially acts as a guarantor for the obligation.

Example 1: Environmental Permit Guarantee

Imagine a company seeking a permit to operate a new industrial facility that could potentially impact the environment. The regulatory authority might require the company to provide a financial guarantee to ensure that if the facility causes pollution or is abandoned, there are funds available for cleanup and restoration. This guarantee protects the public interest by ensuring environmental obligations are met, even if the company faces financial difficulties.

• In this scenario, the financial guarantee (which could be a bond or a dedicated fund) is the caution. It serves as the security given to assure the regulatory authority that environmental responsibilities will be fulfilled.
• The company providing this financial guarantee is the cautioner. They are the entity offering the security to obtain their permit.

Example 2: Guarantee for a Loan in a Civil Law System

Consider a small business owner in a country with a Civil Law system applying for a bank loan. The bank might require a personal guarantee from a third party to secure the loan, especially if the business is new or lacks substantial assets. This third party promises to repay the loan if the business owner defaults.

• Here, the personal guarantee provided by the third party is the caution. It acts as the security to ensure the bank's loan will be repaid.
• The individual who provides this personal guarantee is the cautioner. They are the person taking on the responsibility to back the loan.