Guarantees and Indemnities Vol 17 (3) 2009

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(A) Publisher's
Note
GUARANTEES AND INDEMNITIES VOL 17(3) 2009
(A) PUBLISHER'S NOTE
The commentary provides general guidance on the use of guarantees and indemnities, including sections on
formal requirements, interpretation, the rights of guarantors and creditors, and matters which may lead to
avoidance and discharge. The precedents cover a wide range of guarantees and indemnities, including
precedents relating to the lending of money, companies, the supply of goods, factoring and the
indemnification of trustees.
The commentary and precedents have been reviewed and updated to incorporate relevant legislative and
case law developments, including the decision of the Court of Appeal in Pitts v Jones [EWCA] Civ 1301 and
the actual and prospective entry into force of various provisions of the Companies Act 2006.
Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)
Commentary/A: SCOPE OF TITLE AND DEFINITIONS/1 General
(B) COMMENTARY
A: SCOPE OF TITLE AND DEFINITIONS
1 General
[1]
The difficulty in differentiating between guarantees and indemnities, and the loose and often misleading way
in which the terms 'guarantee' and 'indemnity' are used to describe a particular contract
1
, justify, even
compel, their being treated together
2
.
A guarantee or indemnity may take the form of a separate contract, or may be embodied in a document by
which other transactions are carried out to which the guarantee or indemnity is ancillary. In general, this title
comprises forms of guarantee or indemnity that are separate documents.
Guarantees or indemnities contained in ancillary clauses in documents relating to other transactions are
included in the titles of this work dealing with such transactions.
1 As to the distinction between guarantees and indemnities see Paragraph 4 [11] post.
2 It is not possible to cover the whole law relating to the contracts of guarantee and indemnity in this work, although an
attempt is made to cover the most important features.
Page 1
Commentary/A: SCOPE OF TITLE AND DEFINITIONS/2 Use of terms concerning guarantees/2.1 General
2 Use of terms concerning guarantees
2.1 General
[2]
Under a contract of guarantee, one person contracts with another to pay some debt or perform some act or
duty
1
owed by a third person who nevertheless remains primarily liable for such payment or performance, ie
the person giving the guarantee becomes liable only on the default of the third person. Without a principal
obligation, there can be no accessory obligation of guarantee
2
.
The giver of the guarantee is termed 'the surety', or more often in modern documents, 'the guarantor'. The
person receiving the guarantee is called 'the creditor', or in older documents, 'the guarantee', while the
person primarily liable is called 'the principal debtor', or 'the principal'.
[3]
1 An expression often found in guarantees is that the guarantor is answerable to a promisee for the 'debt', 'defaults', or
'miscarriages' of another. These words originate from the Statute of Frauds (1677) s 4 as amended. As to the Statute of Frauds
(1677) s 4 see Paragraph 10 [51] post.
2 The essential nature of a guarantee, namely that it is of an accessory nature, being always ancillary to some other contract
or liability is stressed in such cases as Mountstephen v Lakeman (1871) LR 7 QB 196, Ex Ch (affd sub nom Lakeman v
Mountstephen (1874) LR 7 HL 17).
Commentary/A: SCOPE OF TITLE AND DEFINITIONS/2 Use of terms concerning guarantees/2.2 Guarantor
and principal debtor
2.2 Guarantor and principal debtor
[4]
Even though a principal debtor may sometimes be bound by the same instrument as a guarantor, the former
is not a party to the guarantor's contract with the creditor. There is therefore not necessarily privity of contract
between the guarantor and the principal debtor, and they are not generally jointly liable to the creditor
1
.
The relationship of principal debtor and guarantor may arise not only where there is a contract of guarantee
in the full sense, to which the creditor is a party, but also where there is an agreement between joint obligors
expressly converting one into a guarantor for the other
2
, or in certain well defined instances where, without
there being a contract of guarantee, there is, as in the case of bills of exchange, a primary and secondary
liability of two persons for the same debt
3
.
[5]
Page 2
1 See Moschi v LEP Air Services Ltd [1973] AC 331, [1972] 2 All ER 393, HL.
Cases of joint liability are outside the Statute of Frauds (1677).
2 For an example of such an agreement see Form 35 [825] post. See also 49 Halsbury's Laws (5th Edn) para 1015.
3 See Duncan, Fox & Co v North and South Wales Bank (1880) 6 App Cas 1, HL; Wauthier v Wilson (1912) 28 TLR 239,
CA.
Commentary/A: SCOPE OF TITLE AND DEFINITIONS/2 Use of terms concerning guarantees/2.3
'Guarantee' and 'warranty'
2.3 'Guarantee' and 'warranty'
[6]
The term 'guarantee' is often misused to describe a warranty given by a manufacturer or vendor to a
purchaser, which is not concerned with the solvency or fidelity of a person but rather with the title, quantity or
quality of property sold
1
.
1 As to warranties and the sale of goods see generally vol 34 (2002 Reissue) SALE OF GOODS Paragraph 61 [401] et seq.
Commentary/A: SCOPE OF TITLE AND DEFINITIONS/2 Use of terms concerning guarantees/2.4 Kinds of
guarantee
2.4 Kinds of guarantee
[7]
There are three different kinds of guarantee:
2.4.1 those in which there is an agreement to constitute, for a particular purpose, the relation of
principal debtor and guarantor, to which agreement the creditor secured is a party;
2.4.2 those in which there is a similar agreement between the principal debtor and guarantor only, to
which the creditor is a stranger; and
2.4.3 those in which, without any such contract of guarantee, there is a primary and secondary
liability of two persons
1
for one and the same debt, the debt being, as between the two, that of
one of those persons only and not equally of both, so that the other, if he should be compelled
to pay it, would be entitled to reimbursement from the person by whom (as between the two) it
ought to have been paid
2
.
This title is principally concerned with the first category.
Page 3
[8]
1 Ie the principal debtor and the guarantor.
2 See Duncan, Fox & Co v North & South Wales Bank (1880) 6 App Cas 1 at 11, HL and see 49 Halsbury's Laws (5th Edn)
paras 1019 and 1103 for the effect of knowledge on the part of the creditor of the arrangement between the two debtors.
Commentary/A: SCOPE OF TITLE AND DEFINITIONS/3 Use of terms concerning indemnities
3 Use of terms concerning indemnities
[9]
An indemnity in the widest sense of the term is a contract whereby one party agrees to hold the other
harmless from loss. In this wide sense, the term 'indemnity' includes a guarantee
1
.
The term is, however, commonly used in a narrower sense to denote a contract under which the promisor
undertakes a primary obligation to indemnify and not, as in the case of a guarantee, an obligation that is
secondary, ie contingent on the default of a third party.
In its narrower sense, an indemnity is a contract by which the promisor undertakes to hold the promisee
harmless from some liability or possibility of loss, independently of any default by a third party
2
.
In determining whether an obligation is one of indemnity or guarantee, a court will look at whether the
obligation is an incident to the central object of the transaction (pointing to an indemnity) or is itself the
central obligation of the transaction (pointing to a guarantee) and also at whether the promisor has a real
interest in the subject matter of the transaction (pointing to an indemnity) or merely a motive for supporting
the transaction (in which case it will be a guarantee)
3
.
[10]
1 See Harburg India Rubber Comb Co v Martin [1902] 1 KB 778, CA.
2 See Guild & Co v Conrad [1894] 2 QB 885, CA. An example is an indemnity in respect of a debt owed by a third party
irrespective of default on the part of the debtor.
3 See Pitts v Jones [2007] EWCA Civ 1301, [2008] QB 706, CA.
Commentary/A: SCOPE OF TITLE AND DEFINITIONS/4 Distinctions between contracts of guarantee and
contracts of indemnity/4.1 Statute of Frauds (1677)
4 Distinctions between contracts of guarantee and contracts of indemnity
Page 4
4.1 Statute of Frauds (1677)
[11]
One of the two major reasons why the distinction between an indemnity in the narrower sense
1
and a
guarantee is important, lies in the fact that a guarantee comes within the Statute of Frauds 1677, whereas an
indemnity does not
2
.
1 As to the meaning of 'indemnity' see Paragraph 3 [9] ante.
2 As to the characteristics of contracts within the Statute of Frauds (1677) see Paragraph 11 [55] post.
contracts of indemnity/4.2 Principal agreement void
4.2 Principal agreement void
[12]
The second major reason is that a guarantee cannot be enforced if the principal agreement to which it is
accessory is void, whereas an indemnity whereby the promisor undertakes to indemnify the promisee
against loss arising out of a contract between the promisee and a third party may be enforceable even
though that contract is void
1
.
1 Coutts & Co v Browne-Lecky [1947] KB 104, [1946] 2 All ER 207; Yeoman Credit Ltd v Latter [1961] 2 All ER 294, [1961] 1
WLR 828, CA. As to indemnities that are themselves void for illegality see Paragraph 44 [287] post.
contracts of indemnity/4.3 Discharge
4.3 Discharge
[13]
The liability of a guarantor is normally co-extensive with that of the principal debtor; consequently discharge
of the latter entails discharge of the guarantor
1
. If the contract is one of indemnity, the indemnifier is not
usually discharged by the discharge of any other person because the obligation to indemnify does not
depend on the existence of any obligation on the part of any other obligor
2
.
Modern contracts of guarantee often contain clauses preserving the guarantor's liability in circumstances
where the principal debtor is not liable to the creditor, and clauses entitling the creditor to treat the guarantor
as principal debtor for certain purposes. Such contracts can be regarded as hybrids between guarantees and
indemnities.
Page 5
1 As to discharge of guarantees see Paragraph 32 [241] et seq post.
2 See 49 Halsbury's Laws (5th Edn) para 1021.
contracts of indemnity/4.4 Making the distinction
4.4 Making the distinction
[14]
The question whether any particular obligation is a guarantee or an indemnity has often been considered in
relation to hire purchase transactions
1
. The essential difference is that under a contract of guarantee, the
guarantor assumes a secondary liability to answer for the debtor who remains primarily liable, whereas in a
contract of indemnity, the indemnifier assumes a primary liability either alone, or jointly with the principal
debtor.
Which class of contract a particular instrument or transaction falls into, and to what extent it does so, is
ultimately a matter of construction
2
. Where the substance of the obligation undertaken is to "see to it" that
another party performs its obligations to the creditor, that creates a secondary liability, and so a guarantee,
rather than the primary liability required to create an indemnity
3
.
However, it should be noted that even though the relationship between indemnifier and creditor may be that
arising under a contract of indemnity, the principal debtor may still occupy the position of primary obligor as
between himself and the indemnifier
4
. This is to be contrasted with situations such as those involving
recourse agreements
5
to indemnify a finance company in which the indemnifier is not a guarantor either as
against the creditor or as against the debtor.
[15]
1 See Yeoman Credit Ltd v Latter [1961] 2 All ER 294, [1961] 1 WLR 828, CA; Western Credit Ltd v Alberry [1964] 2 All ER
938, [1964] 1 WLR 945, CA; Goulston Discount Co Ltd v Clark [1967] 2 QB 493, [1967] 1 All ER 61, CA.
2 For a recent example, see Marubeni Hong Kong and South China Ltd v Government of Mongolia [2005] EWCA Civ 395,
[2005] 2 All ER (Comm) 289, CA, in which an instrument was held to be a guarantee rather than an indemnity on the basis that
the obligation to pay arose only on the default of the principal. The court considered that cases on 'demand bonds' in the
banking context were of no assistance as the document in question (a guarantee by the Mongolian Government) was not a
banking document.
3 See Associated British Ports v Ferryways [2008] EWHC 1265 (Comm), [2008] 2 Lloyd's Rep 353. Where the obligor has a
legal interest in the subject matter of the main transaction that is a factor pointing to the obligation being one of indemnity; on
the facts of Ferryways, however, although the obligor had an interest in the performance of the main transaction, it was merely
a motive, and not a legal interest, and so was not sufficient to render the obligation an indemnity. See also Pitts v Jones [2007]
EWCA Civ 1301, [2008] QB 706, CA and Paragraph 3 [9] ante.
4 See the analogous case of an assignee under a lease covenanting to indemnify the assignor against liability for breach of
covenant: Baynton v Morgan (1888) 22 QBD 74, CA.
5 As to the meaning of 'recourse agreements' see Paragraph 47.1 [332] post.
Page 6
contracts of indemnity/4.5 Insurance
4.5 Insurance
[16]
There are important general distinctions between a contract of guarantee and a contract of insurance (which
is a contract of indemnity in its widest sense), principally in that a contract of insurance is, and an ordinary
contract of guarantee is not, a contract 'uberrimae fidei'
1
. Further, by a contract of insurance, the underwriter
contracts absolutely to pay in a particular event, whereas by a guarantee, the guarantor contracts to pay only
if some other person does not pay
2
.
[17]
1 Ie a contract whose validity depends on full disclosure of all relevant factors having taken place 'in the utmost good faith'.
2 See Dane v Mortgage Insurance Corpn Ltd [1894] 1 QB 54, CA; and Re Sentinel Securities plc [1996] 1 WLR 316.
For an example of a contract that was held to be a guarantee rather than a contract of insurance see Trade Indemnity Co Ltd v
Workington Harbour and Dock Board [1937] AC 1 at 16-17, [1936] 1 All ER 454 at 458-459 per Lord Atkin, HL.
[18]-[30]
Commentary/B: FORMAL AND ESSENTIAL REQUIREMENTS OF A GUARANTEE/1: GENERAL
REQUIREMENTS/5 Agreement and intention to create legal relations
B: FORMAL AND ESSENTIAL REQUIREMENTS OF A GUARANTEE
1: GENERAL REQUIREMENTS
5 Agreement and intention to create legal relations
[31]
As with any other contract, a valid guarantee must be constituted by a binding agreement
1
, usually involving
an offer and acceptance. There must also be an intention to create legal relations. The general requirement
of consideration also applies
2
.
1 See also 49 Halsbury's Laws (5th Edn ) para 1023 et seq.
2 As to consideration see Paragraph 9 [39] post.
Page 7
REQUIREMENTS/6 Capacity--general
6 Capacity--general
[32]
Capacity to contract is as essential to the validity of a guarantee as it is to any other contract. Any individual,
except a minor
1
or a person lacking the mental capacity to contract
2
, can enter into contracts of guarantee
without limitation.
Where a person, just of age, becomes a guarantor for a parent or for someone standing in loco parentis, the
transaction may not be upheld unless the intending guarantor receives independent advice, but each case
turns on its own special circumstances
3
.
[33]
1 The position regarding contracts entered into by minors (ie persons under 18) has been governed by common law since
the repeal of the Infants Relief Act 1874 by the Minors' Contracts Act 1987. A minor does not have capacity to enter into a
contract of guarantee: see 49 Halsbury's Laws (5th Edn) para 1030.
The Minors' Contracts Act 1987 s 2 provides that where:
(a) a guarantee is given in respect of an obligation of a party to a contract made after the commencement of
that Act, and
(b) the obligation is unenforceable against him (or he repudiates the contract) because he was a minor when
the contract was made,
the guarantee shall not for that reason alone be unenforceable against the guarantor.
2 As to persons suffering from mental disorder see Paragraph 7 [34] post.
3 Lancashire Loans Ltd v Black [1934] 1 KB 380, CA. Cf Midland Bank plc v Perry [1988] 1 FLR 161, CA.
REQUIREMENTS/7 Persons suffering from a mental disorder
7 Persons suffering from a mental disorder
[34]
A person who is mentally disordered is, it seems, liable under a guarantee, provided that the party to whom it
was given was unaware of the disability
1
.
1 See Imperial Loan Co Ltd v Stone [1892] 1 QB 599, CA and see also, in relation to contracts generally, Hart v O'Connor
[1985] AC 1000, [1985] 2 All ER 880, PC; cf Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833, CA, where the liability of the
guarantor on a continuing guarantee was determined once the creditor had notice of the guarantor's insanity, and the guarantee
Page 8
ceased to be operative, but his representatives were liable for the amount due at the time he became insane.
REQUIREMENTS/8 Companies/8.1 General
8 Companies
8.1 General
[35]
The powers of a company incorporated under the Companies Act 1985
1
are those derived from its
memorandum of association. If the memorandum contains a power to give guarantees, it may be a limited
power or unfettered. However, in general, the validity of any act done by a company, including the granting of
a guarantee, cannot be challenged on the ground of lack of capacity by reason of anything in the
memorandum of the company
2
.
[36]
1 Ie the Companies Act 1985 or its predecessor, the Companies Act 1948. For the position of other corporations see 49
Halsbury's Laws (5th Edn) para 1031. Incorporation of companies will operate under the Companies Act 2006 when the
relevant provisions (see Part 2) come into force, which will occur on 1 October 2009.
2 See the Companies Act 1985 ss 35, 35A as substituted by the Companies Act 1989 s 108(1). Those sections will be
repealed on 1 October 2009 but the position will be the same under the Companies Act 2006 ss 39 and 40 when those
provisions replace the Companies Act 1985 ss 35 and 35A. The directors must, however, act in accordance with any limitations
on their powers imposed in the company's memorandum: Rolled Steel Products (Holdings) Ltd v British Steel Corpn [1986] Ch
246, [1985] 3 All ER 52, CA. See generally Form 16 [546] post. Also, transactions involving directors may in certain
circumstances be set aside at the instance of the company: see 49 Halsbury's Laws (5th Edn ) para 1032.
REQUIREMENTS/8 Companies/8.2 Specific powers
8.2 Specific powers
[37]
Where a power is contained in the memorandum by virtue of an independent objects clause, it would seem
that the company may give guarantees for any purposes whatever
1
. Otherwise the power to give guarantees
may only be incidental to the pursuit of its objects; if the giving of the guarantee is not in fact made for such a
purpose, the directors may be liable for acting outside their authority
2
.
1 See Cotman v Brougham [1918] AC 514, HL; Garrard v James [1925] Ch 616. Note that a new style of memorandum of
association will be introduced when the Companies Act 2006 s 8 is brought fully into force on 1 October 2009. Provisions of the
memorandum of association of existing companies which are not of a type covered by the new-style memorandum (when
Page 9
introduced) will then be treated as if they were part of the articles of association: Companies Act 2006 s 28 (also coming into
force on 1 October 2009). Unless restricted by the company's articles, a company's objects will be unrestricted: Companies Act
2006 s 31 (also not in force until 1 October 2009).
2 See the Companies Act 2006 s 171. In future, this issue is less likely to arise: see note 1 above.
REQUIREMENTS/8 Companies/8.3 Mortgages
8.3 Mortgages
[38]
Often a company may have power to mortgage to secure its indebtedness but not its obligations, and
therefore it may not be able to mortgage its property in support of a guarantee that it has given.
REQUIREMENTS/9 Consideration
9 Consideration
[39]
Although the promise of a guarantee must be recorded in writing
1
, the consideration for it need not be. The
distinction is due to the Mercantile Law Amendment Act 1856 which provides that:
'No special promise to be made by any person ... to answer for the debt, default, or miscarriage of another person,
being in writing, and signed by the party to be charged therewith, or some other person by him thereunto lawfully
authorised, shall be deemed invalid to support an action, suit or other proceeding to charge the person by whom such
promise shall have been made, by reason only that the consideration for such promise does not appear in writing, or by
necessary inference from a written document
2
.'
Generally, a guarantee given for past consideration is void
3
, but it remains open to the creditor to
demonstrate by parol evidence that in fact the consideration was not past
4
. The question of consideration is
important in considering whether the giving of a guarantee by a company constitutes a transaction at an
undervalue impeachable under the Insolvency Act 1986
5
.
[40]
1 See the Statute of Frauds (1677) s 4 as amended.
2 Mercantile Law Amendment Act 1856 s 3 as amended by the Statute Law Revision Act 1892. However, where the whole
promise cannot be collected from the written memorandum of the contract, the Statute of Frauds (1677) is not satisfied and oral
Page 10
evidence of the consideration may not be given to explain the promise: Holmes v Mitchell (1859) 7 CBNS 361.
Most common form bank guarantees do in fact state the express terms of the consideration. For examples of banking
guarantees see Form 12 [506] et seq post.
3 See Astley Industrial Trust Ltd v Grimston Electric Tools Ltd (1965) 109 Sol Jo 149.
4 See Goldshede v Swan (1847) 1 Exch 154. In that case the guarantee instrument itself was sufficiently ambiguous as to
the timing of the consideration that parol evidence could be admitted to show that the consideration was not in fact past
consideration.
5 Ie the Insolvency Act 1986 s 238 as amended by the Enterprise Act 2002 s 248 Sch 17.
[41]-[50]
Commentary/B: FORMAL AND ESSENTIAL REQUIREMENTS OF A GUARANTEE/2: WRITTEN
EVIDENCE/(a) The statutory provisions/10 The statutory requirements/10.1 The Statute of Frauds (1677)
2: WRITTEN EVIDENCE
(a) The statutory provisions
10 The statutory requirements
10.1 The Statute of Frauds (1677)
[51]
The Statute of Frauds (1677)
1
provides that:
'... noe action shall be brought ... whereby to charge the defendant upon any speciall promise
2
to answere for the debt
3
default
4
or miscarriages
5
of another person ... unlesse the agreement upon which such action shall be brought or
some memorandum or note thereof shall be in writeing and signed by the partie to be charged therewith or some other
person thereunto by him lawfully authorized
6
.'
Although an oral guarantee cannot be enforced by action, it is not, on that account, void
7
. Therefore money
actually paid under it probably cannot be recovered
8
, and its existence may be used as a defence
9
.
Although in principle it may be possible to invoke the doctrine of estoppel in aid of an oral guarantee, in
practice such cases are likely to be extremely rare. The oral promise itself cannot constitute the
representation, encouragement or inducement on which the estoppel is founded: there must be some other
action or statement that can constitute the required representation, encouragement or inducement
10
.
[52]
Page 11
1 Ie the Statute of Frauds (1677) s 4 as amended.
Much of the Statute of Frauds (1677) s 4 has been repealed, and it is now in force only in respect of the matters mentioned in
this Paragraph. It has also been disapplied in relation to certain financial collateral arrangements: see the Financial Collateral
Arrangements (No 2) Regulations 2003, SI 2003/3226.
2 'Special promise' excludes implied promises arising by operation of law: Gray v Hill (1826) Ry & M 420, and contracts
made by deed or of record: Holmes v Mitchell (1859) 7 CBNS 361 at 368, 369.
3 'Debt' refers to a contractual liability already incurred: Castling v Aubert (1802) 2 East 325 at 330. In modern terminology
'to answer for' is 'to accept liability for': Moschi v Lep Air Services Ltd [1973] AC 331 at 347, [1972] 2 All ER 393 at 400-401, HL,
per Lord Diplock.
4 'Default' refers to a future contractual liability: Re Young and Harston's Contract (1885) 31 Ch D 168, CA, and possibly to
any future liability whether founded in contract or not: Kirkham v Marter (1819) 2 B & Ald 613 at 617.
5 'Miscarriages' comprehends that species of wrongful act for the consequences of which the law would make a person
civilly responsible: Kirkham v Marter (1819) 2 B & Ald 613 at 616, though probably it and 'default' equally apply to a promise to
answer for another, with respect to the non-performance of a duty, even where the duty is not founded in contract: Kirkham v
Marter (1819) 2 B & Ald 613 at 617.
'Translated into modern terminology ... 'debt, default or miscarriages' is descriptive of failure to perform legal obligations,
existing or future, arising from any source, not only from contractual promises, but in any other factual situations capable of
giving rise to legal obligations such as those resulting from bailment, tort or unsatisfied judgments': Moschi v Lep Air Services
Ltd [1973] AC 331 at 347-348, [1972] 2 All ER 393 at 401, HL, per Lord Diplock.
7 See Maddison v Alderson (1883) 8 App Cas 467, HL.
8 Shaw v Woodcock (1827) 7 B & C 73; and see Sweet v Lee (1841) 3 Man & G 452.
9 See Lavery v Turley (1860) 6 H & N 239.
10 Actionstrength Ltd v International Glass Engineering IN. GL. EN SpA [2003] UKHL 17, [2003] 2 AC 541. In addition, the
other necessary elements (including unconscionability) would need to be established.
EVIDENCE/(a) The statutory provisions/10 The statutory requirements/10.2 The Statute of Frauds
Amendment Act 1828
10.2 The Statute of Frauds Amendment Act 1828
[53]
The Statute of Frauds Amendment Act 1828
1
(sometimes called Lord Tenterden's Act) provides that:
'No action shall be brought whereby to charge any person upon or by reason of any representation or assurance made
or given concerning or relating to the character, conduct, credit, ability, trade, or dealings of any other person
2
, to the
intent or purpose that such other person may obtain credit, money or goods upon, unless such representation or
assurance be made in writing, signed by the party to be charged therewith
3
.'
The representation must be untrue to the maker's knowledge, and must be made with the intention of
inducing another person to act on it, so that the other person does so, and thereby suffers damage
4
.
The enactment only applies to actions upon representations as such, and not to actions in which the gist of
Page 12
the action is a breach of duty
5
.
[54]
1 Ie the Statute of Frauds Amendment Act 1828, which was passed to deal with a method of evading the Statute of Frauds
(1677) that took the form of treating the guarantor's oral promise to be answerable to another as a false representation for
which he was made liable in tort although not in contract: see Lyde v Barnard (1836) 1 M & W 101 at 114.
2 'Person' includes a corporation: Banbury v Bank of Montreal [1918] AC 626 at 708, 714, HL.
3 Statute of Frauds Amendment Act 1828 s 6.
4 See Behn v Kemble (1859) 7 CBNS 260.
Only statements going to an assurance of personal credit are, it seems, within the Statute of Frauds Amendment Act 1828:
Clydesdale Bank Ltd v Paton [1896] AC 381, HL.
5 Banbury v Bank of Montreal [1918] AC 626, HL. It also applies only to fraudulent misrepresentations, not negligent
misrepresentations; see also 49 Halsbury's Laws (5th Edn) para 1054.
EVIDENCE/(a) The statutory provisions/11 Characteristics of contracts within the Statute of Frauds (1677)
11 Characteristics of contracts within the Statute of Frauds (1677)
[55]
For a promise of guarantee to fall within the Statute of Frauds (1677)
1
:
11.1 when the promise is made, the liability of a third party for the debt or duty guaranteed must
exist or be contemplated
2
;
11.2 the promise of guarantee must be made to the creditor
3
;
11.3 the guarantor must not be liable independently of his promise of guarantee for what he
undertakes by such promise, or have any legal, as distinguished from a mere business, interest
in any property released by means of his promise
4
;
11.4 the main and direct object of the promise of guarantee (and not merely an incident of it) must
be to secure the doing of something by another person
5
; and
11.5 the promise of guarantee must not be part of an agreement for the assignment of the debt to
the guarantor or the transfer or surrender to him of some lien or security for the same
6
.
Where an alleged promise of guarantee does not present these features, it is outside the Statute of Frauds
(1677), and need not be reduced to writing.
[56]
1 Ie the Statute of Frauds (1677) s 4 as amended. As to the Statute of Frauds (1677) see Paragraph 10.1 [51] ante; and 49
Page 13
Halsbury's Laws (5th Edn ) para 1058 et seq.
2 See Birkmyr v Darnell (1704) 1 Salk 27; Lakeman v Mountstephen (1874) LR 7 HL 17.
3 Eastwood v Kenyon (1840) 11 Ad & El 438; and see Re Hoyle, Hoyle v Hoyle [1893] 1 Ch 84, CA.
4 Fitzgerald v Dressler (1859) 7 CBNS 374; Harburg India Rubber Comb Co v Martin [1902] 1 KB 778, CA.
5 Macrory v Scott (1850) 5 Exch 907 at 914. See also Harburg India Rubber Comb Co v Martin [1902] 1 KB 778, CA.
6 See Castling v Aubert (1802) 2 East 325; Williams v Leper (1766) 3 Burr 1886.
EVIDENCE/(a) The statutory provisions/12 Requirement of writing not applicable to indemnities
12 Requirement of writing not applicable to indemnities
[57]
The requirement of writing only applies to a contract of guarantee, ie a contract by which the promisor
undertakes a liability that is secondary and contingent on the default of a third person who, notwithstanding,
remains primarily liable
1
. It does not apply to a contract of indemnity whereby the promisor undertakes a
primary liability independently of the question of whether a third party makes default or not
2
.
1 As to terms relating to guarantees see Paragraph 2 [2] ante. See Harburg India Rubber Comb Co v Martin [1902] 1 KB
778, CA; Guild & Co v Conrad [1894] 2 QB 885, CA.
2 As to terms relating to indemnities see Paragraph 3 [9] ante. See Guild & Co v Conrad [1894] 2 QB 885, CA.
[58]-[70]
EVIDENCE/(b) The written evidence/13 When memorandum to be made
(b) The written evidence
13 When memorandum to be made
[71]
The written memorandum required to satisfy the Statute of Frauds (1677)
1
need not be contemporaneous
with the agreement arrived at, but must be in existence before action is brought
2
. It must usually be a
memorandum of an already completed contract
3
, although exceptionally it need not necessarily be so. For
example, where there is a written and signed offer of guarantee, that offer constitutes a sufficient
memorandum to bind the offeror whether the acceptance is oral or written
4
.
Page 14
The Statute of Frauds (1677) need only be satisfied by a written memorandum once, so that where the
original written evidence of a guarantee is lost, oral evidence is admissible to show that the memorandum
existed
5
.
[72]
1 Ie the Statute of Frauds (1677) s 4 as amended. As to the evidence required see 49 Halsbury's Laws (5th Edn) para 1064
et seq.
2 Lucas v Dixon (1889) 22 QBD 357, CA; Re Hoyle, Hoyle v Hoyle [1893] 1 Ch 84 at 97, CA. So in Birmingham Joinery v
Phillips (26 February 1999, unreported), CA, a letter which referred to an oral guarantee constituted a sufficient memorandum
for the purposes of the Statute of Frauds.
3 Munday v Asprey (1880) 13 Ch D 855, but note Parker v Clark [1960] 1 All ER 93, [1960] 1 WLR 286.
4 Parker v Clark [1960] 1 All ER 93 at 102, [1960] 1 WLR 286 at 295 per Devlin J.
5 Barrass v Reed (1898) Times, 28 March; Crays Gas Co v Bromley Gas Consumers' Co (1901) Times, 23 March, CA.
EVIDENCE/(b) The written evidence/14 Form of a memorandum
14 Form of a memorandum
[73]
A strictly formal agreement in writing, complete in itself without the aid of other instruments to prove its
completion, is not required. Any letter or memorandum or correspondence in writing from which the terms of
the contract between the parties can be collected, and furnishing evidence of a guarantee under the hand of
the guarantor, will suffice, even though it is apparent that a more formal document was really contemplated
or intended
1
.
It is necessary for the memorandum to contain all material terms of the guarantee
2
and desirable that a
guarantee should be evidenced by some formal document, comprising within it all the terms agreed upon. It
is, however, permissible to use oral evidence to identify a document referred to in another document so as to
connect them, or to show that a reference in one document that may refer to another document, does so in
fact
3
.
Where the written evidence of a contract within the Statute of Frauds (1677) Section 4
4
consists of
correspondence between the parties, the whole of it must be taken into consideration, even though the initial
letters themselves apparently constitute a complete and binding contract
5
.
A contract of guarantee may be made:
14.1 by a company incorporated under the Companies Act 1985
6
by writing under its common seal,
or
14.2 on behalf of a company by any person acting under its authority, express or implied,
Page 15
and any formalities required by law in the case of a contract made by an individual also apply to a contract
made by or on behalf of a company
7
.
[74]
1 Gray v Smith (1889) 43 Ch D 208, CA; Re Hoyle, Hoyle v Hoyle [1893] 1 Ch 84, CA; Rossiter v Miller (1878) 3 App Cas
1124, HL.
2 Birmingham Joinery v Phillips (26 February 1999, unreported), CA.
3 Fitzmaurice v Bayley (1860) 9 HL Cas 78, HL; Pearce v Gardner [1897] 1 QB 688, CA; Long v Millar (1879) 4 CPD 450,
CA; Ridgway v Wharton (1857) 6 HL Cas 238, HL.
4 Ie the Statute of Frauds (1677) s 4 as amended.
5 Bristol, Cardiff and Swansea Aerated Bread Co v Maggs (1890) 44 Ch D 616.
As to the admissibility of extrinsic evidence to explain a term in a guarantee within the Statute of Frauds (1677), irrespective of
whether the liability is present or future, see Perrylease Ltd v Imecar AG [1987] 2 All ER 373 at 380, [1988] 1 WLR 463 at 472
per Scott J.
6 Ie the Companies Act 1985 replacing the Companies Act 1948. Incorporation of companies will operate under the
Companies Act 2006 when the relevant provisions (see Part 2) are brought into force on 1 October 2009.
7 See the Companies Act 1985 s 36 as substituted by the Companies Act 1989 s 130(1) (and the position will be the same
under the Companies Act 2006 s 43 when that section is brought into force on 1 October 2009, replacing the Companies Act
1985 s 36). See generally vols 9-11 COMPANIES.
As to execution of documents by a company, see the Companies Act 2006 s 44 as and vol 12(2) (2007 Reissue) DEEDS,
AGREEMENTS, DECLARATIONS AND ELECTRONIC SIGNATURES.
EVIDENCE/(b) The written evidence/15 Parties to be named in a memorandum
15 Parties to be named in a memorandum
[75]
Whatever form the written evidence of a guarantee may take, it must, in order to satisfy the statutory
requirements
1
, comprise the names of the contracting parties as such
2
. It is not sufficient that their names
are mentioned merely as descriptive of the subject matter of the contract
3
. The memorandum need not be
actually addressed to the person to whom the promise of guarantee is made
4
.
2 Williams v Lake (1859) 2 E & E 349; Sheers v Thimbleby & Son (1897) 76 LT 709, CA.
3 Vandenbergh v Spooner (1866) LR 1 Exch 316.
4 Gibson v Holland (1865) LR 1 CP 1.
[76]-[90]
Page 16
EVIDENCE/(c) Signature/16 Signature of memorandum
(c) Signature
16 Signature of memorandum
[91]
The written memorandum relied upon as evidence of a guarantee must be signed by the party to be charged
or his agent
1
. The signature need not be written in ink, but may be printed or pencilled
2
. It may even consist
of a mark, initials or signed instructions for a telegraphic or similar message
3
.
An endorsement made on a signed guarantee by the guarantor in his own handwriting with a creditor's
consent, for the purpose of correcting a mistake in the guarantee, is sufficiently authenticated by the
guarantor's signature to the guarantee
4
.
[92]
1 See Elpis Maritime Co Ltd v Marti Chartering Co Inc, The Maria D [1992] 1 AC 21, [1991] 3 All ER 758, HL, where it was
held that the intention or capacity of the party signing the memorandum is irrelevant. See the Statute of Frauds (1677) s 4 as
amended.
2 See generally Schneider v Norris (1814) 2 M & S 286; Geary v Physic (1826) 5 B & C 234; and Leeman v Stocks [1951]
Ch 941, [1951] 1 All ER 1043.
3 See Selby v Selby (1817) 3 Mer 2; Godwin v Francis (1870) LR 5 CP 295. It has been held that any writing in a
memorandum of a guarantee by which the guarantor can be identified, and that indicates an intention to adopt the guarantee, is
sufficient to constitute a signature for this purpose: Decouvreur v Jordan (1987) Times, 25 May, CA.
4 Bluck v Gompertz (1852) 7 Exch 862. See Holmes v Mitchell (1859) 7 CBNS 361 where it was held that oral evidence is
inadmissible to explain a written promise under the Statute of Frauds (1677) s 4, but now see Perrylease Ltd v Imecar AG
[1987] 2 All ER 373, [1988] 1 WLR 463 where objective extrinsic evidence was held admissible to construe guarantees, and
where Holmes v Mitchell (above) was distinguished.
EVIDENCE/(c) Signature/17 Signature of memorandum by agents and partners/17.1 Agents
17 Signature of memorandum by agents and partners
17.1 Agents
[93]
Page 17
Where an agent signs for the guarantor, his authority to do so need not be in writing
1
, nor need he expressly
sign as agent, since oral evidence that he signed in that capacity is admissible
2
.
Where an agent expressly signs as principal, he cannot retreat from this position
3
; although in an action on a
guarantee so signed, the claimant may establish, by oral evidence, the existence of an undisclosed
principal
4
.
One of the contracting parties cannot act as authorised agent for the other so as to bind him by his
signature5.
[94]
1 Emmerson v Heelis (1809) 2 Taunt 38 at 46; Heard v Pilley (1869) 4 Ch App 548.
2 Young v Schuler (1883) 11 QBD 651, CA, as explained by Elpis Maritime Co Ltd v Marti Chartering Co Inc [1992] 1 AC 21
at 28 et seq, [1991] 3 All ER 758 at 762 et seq, HL.
3 Higgins v Senior (1841) 8 M & W 834 at 844.
4 Wilson v Hart (1817) 7 Taunt 295; Higgins v Senior (1841) 8 M & W 834; Basma v Weekes [1950] AC 441, [1950] 2 All ER
146, PC.
5 Farebrother v Simmons (1822) 5 B & Ald 333; Sharman v Brandt (1871) LR 6 QB 720, Ex Ch.
EVIDENCE/(c) Signature/17 Signature of memorandum by agents and partners/17.2 Directors
17.2 Directors
[95]
A company is bound by a guarantee or other contract entered into by a director or other person purporting to
act as its agent, only if he is acting within his actual authority, express or implied, or if he is acting within his
ostensible authority, so that the company is bound by his act
1
. Accordingly, where the party dealing with the
company has actual knowledge of the lack of authority of the director or other person, the company will not
be bound.
1 See Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549, [1967] 3 All ER 98, CA. See also Freeman & Lockyer (a firm) v
Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 500, [1964] 1 All ER 630 at 642, CA, per Pearson LJ.
EVIDENCE/(c) Signature/17 Signature of memorandum by agents and partners/17.3 Partners
17.3 Partners
Page 18
[96]
Every partner is an agent of the firm and his other partners, for the purpose of the business of the
partnership. The acts of any partner who does any act for carrying on in the usual way, business of the kind
carried on by the firm of which he is a member, binds the firm and his partners. This rule does not apply if the
partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom
he is dealing either knows that he has no authority or does not know or believe him to be a partner
1
.
Therefore, for a guarantee given by one partner to be binding on the rest, where it has not been expressly
authorised, it must be necessary for carrying on, or at least relate to, the business of the firm
2
.
[97]
1 Partnership Act 1890 s 5.
2 See Brettel v Williams (1849) 4 Exch 623. See also Sandilands v Marsh (1819) 2 B & Ald 673, applied in Governor and Co
of the Bank of Scotland v Henry Butcher & Co [2003] EWCA Civ 67, [2003] 2 All ER (Comm) 557. Where a solicitor (A)
undertook to B's solicitor that the firm of which A was a partner would pay a sum in discharge of a loan made by B to A's client,
the undertaking was not binding on A's partner C, as it was not a normal part of a solicitor's business to guarantee repayment of
a loan made to his client: Hirst v Etherington [1999] All ER (D) 797, [1999] 31 LS Gaz R 42, CA.
[98]-[120]
Commentary/C: CLASSIFICATION OF GUARANTEES/18 Classes of guarantee
C: CLASSIFICATION OF GUARANTEES
18 Classes of guarantee
[121]
In this title, guarantees are treated according to whether they relate to the supply of goods
1
, payment of
money
2
, or to contracts of various types other than for the payment of money
3
.
1 For examples of guarantees relating to the supply of goods see Forms 2 [441]-7 [455] post.
2 For examples of guarantees relating to the payment of money see Forms 8 [491]-17 [550] post.
3 For examples of guarantees relating to other contracts see Forms 27 [701]-29 [708] post.
Commentary/C: CLASSIFICATION OF GUARANTEES/19 Continuing and non-continuing guarantees
19 Continuing and non-continuing guarantees
Page 19
[122]
A guarantee may be confined to a single credit or transaction, or may be made to cover and comprise
several credits or transactions on a running account (for example bank overdrafts), in which latter case it is
termed a 'continuing guarantee'
1
.
The effect of the term 'continuing' is not to give a fresh right of action against the guarantor from day to day,
but to extend the guarantee beyond the original transaction to subsequent transactions
2
. Where, however, a
continuing guarantee was expressly stated to apply to the balance that there was or at any time thereafter
might be owing, it was held that the period of limitation ran from the time the balance sued for had been
constituted
3
.
Especially in the case of bank guarantees, the guarantee is usually expressed so as to extend to subsequent
transactions, in order to avoid the operation of the rule in Clayton's Case, by which credit items are treated
as appropriated to the earliest debits to the account
4
.
The question of characterising a guarantee as continuing can raise difficult problems of construction. A
guarantee stated to cover 'future advances' may not cover a situation in which on the date for repayment, a
fresh loan is arranged at an increased rate of interest, but no money is actually transferred
5
. Where there is
ambiguity, a court may look at surrounding circumstances and resort to parol evidence
6
.
[123]
1 The fact that a guarantee is a continuing one may sometimes be implied from a reference to liability for an 'ultimate
balance'. For examples of banking guarantees see Form 12 [506] et seq post.
2 Parr's Banking Co Ltd v Yates [1898] 2 QB 460 at 466, CA, per Rigby LJ. A continuing guarantee may be discharged by
the opening of a new account if, on the construction of a contract of guarantee, the opening of the new account amounts to an
unauthorised departure from the terms of the contract: see National Bank of Nigeria Ltd v Awolesi [1964] 1 WLR 1311, PC.
3 Wright v New Zealand Farmers' Co-operative Association of Canterbury Ltd [1939] AC 439, [1939] 2 All ER 701, PC; but
see Hartland v Jukes (1863) 1 H & C 667.
4 Ie the rule in Devaynes v Noble, Clayton's Case (1816) 1 Mer 529, 572. As to this rule generally see vol 4(1) (2008
Reissue) BANKING Paragraph 6. See also Re Quest Cae Ltd [1985] BCLC 266 at 270 per Nourse J. See also 49 Halsbury's
Laws (5th Edn ) para 1108.
5 As in Burnes v Trade Credits Ltd [1981] 2 All ER 122, [1981] 1 WLR 805, PC.
6 Coles v Pack (1869) LR 5 CP 65 at 70; Hogarth v Miller, Brother & Co [1891] AC 48 at 53, HL. See also 49 Halsbury's
Laws (5th Edn) para 1084.
Commentary/C: CLASSIFICATION OF GUARANTEES/20 Limited and unlimited guarantees
20 Limited and unlimited guarantees
[124]
In relation to guarantees containing a limitation as to amount, certain principles have been enunciated with a
view to determining whether the liability of the guarantor extends to the whole debt of the principal, with a
Page 20
limitation on the amount he can be called upon to pay, or covers a part only of the debt, co-extensive with the
amount of the guarantee
1
.
The distinction is important in relation to the bankruptcy of the guarantor or the debtor. If the guarantor
guarantees only part of the debt and pays the creditor the amount for which he is liable, then if the debtor
becomes bankrupt, the creditor can only prove in the debtor's bankruptcy for the balance of the debt, but the
guarantor can prove in the same bankruptcy to recover the amount he has actually paid
2
. However, in the
case of a guarantee of the whole debt, subject to a limit on the amount that can be recovered from the
guarantor, the creditor can prove for the whole debt in the bankruptcy of the debtor, even though the
guarantor may have paid, and the guarantor cannot prove in his own right until the creditor has received a
dividend of 100p in the pound
3
.
A guarantee should therefore be so worded as to put the matter beyond doubt
4
.
[125]
1 See Ellis v Emmanuel (1876) 1 Ex D 157, CA, applied in Forster Dry Cleaning Co Ltd v Davidson (1963) 187 Estates
Gazette 519. For a statement of these principles see 49 Halsbury's Laws (5th Edn) para 1088.
2 Re Sass, ex p National Provincial Bank of England Ltd [1896] 2 QB 12, where the language of a limited guarantee given to
secure a floating balance indicated a clear intention that the guarantee was to apply to the whole debt. See also Re Rees, ex p
National Provincial Bank of England (1881) 17 Ch D 98, CA; and Midland Banking Co v Chambers (1869) 4 Ch App 398
(provision relinquishing the guarantor's right of proof in favour of creditor held to be effective where payment had been made by
the guarantor out of proceeds of counter-security given by principal).
3 Re Sass, ex p National Provincial Bank of England Ltd [1896] 2 QB 12. In the event of the bankruptcy of the guarantor who
has guaranteed the whole debt, the creditor can again prove in such bankruptcy for the whole amount up to receipt by him of
the same level of dividend.
4 For forms of clauses expressly providing that the guarantee shall be a guarantee for the whole debt, that the guarantor's
right to subrogation shall not arise until the creditor has received the full payment of his claim against the principal debtor, and
that the guarantee shall be security for the whole amount due to the creditor, see eg Form 2 [441] post. For forms of clauses in
guarantees to banks negativing any right of the guarantor to claim or prove or to be entitled to the benefit of a security in
competition with the bank see eg Form 11 [499] et seq post.
Commentary/C: CLASSIFICATION OF GUARANTEES/21 Revocation of continuing guarantees
21 Revocation of continuing guarantees
[126]
Every continuing guarantee should contain, in the interests of the guarantor, a power enabling him or his
representative to revoke it
1
. Otherwise a guarantee is irrevocable if the consideration for it was entire
2
,
although not if the consideration was fragmentary (that is to say, supplied from time to time, and therefore
divisible)
3
.
In either case, however, in the absence of agreement to the contrary
4
, a revocation by operation of law takes
place where a guarantee is given to or for a firm, whenever subsequent changes take place in the
constitution of the firm. The Partnership Act 1890 Section 18 provides that a continuing guarantee given
either to a firm or to a third person in respect of the transactions of a firm is, in the absence of agreement to
the contrary, revoked as to future transactions by any change in the constitution of the firm to which, or of the
Page 21
firm in respect of the transactions of which, the guarantee or obligation was given
5
.
[127]
1 For a notice of revocation see Form 32 [783] post. For such a provision included in the body of an agreement see Form 2
clause 8 [443] post and Form 4 clause 8 [448] post. See also 49 Halsbury's Laws (5th Edn) para 1200 et seq.
2 See Lloyd's v Harper (1880) 16 Ch D 290 at 319-320, CA.
3 Lloyd's v Harper (above); Bastow v Bennett (1812) 3 Camp 220; Coulthart v Clementson (1879) 5 QBD 42 at 46.
4 For examples of an agreement to the contrary see Form 2 clause 6 [443] and Form 14 clause 14 [522] post.
5 As to change of parties and of position see Paragraph 37 [255] post.
[128]-[140]
Commentary/D: CONSTRUCTION OF GUARANTEES/22 Rules
D: CONSTRUCTION OF GUARANTEES
22 Rules
[141]
The ordinary rules of construction applicable to all contracts also govern contracts of guarantee
1
.
The whole agreement must be considered as for any other contract, and the natural meaning be given to the
words used, unless such meaning involves obvious absurdity. The surrounding circumstances may also be
taken into consideration where the guarantee requires explanation
2
.
A guarantor will not be charged beyond the precise terms of his engagement
3
, because a guarantor is
regarded in the light of a 'favoured debtor'
4
.
Where the terms of a guarantor's engagement admit of doubt, and all other rules of construction and
explanation fail, the principle that the guarantee should be construed 'contra proferentem' has been applied
5
.
If the operative part of a guarantee is ambiguous, but not otherwise, the recitals may provide the eventual
interpretation
6
, even though the recitals themselves are inconsistent with a meaning the operative part might
otherwise have been taken to bear
7
.
Finally, in construing a guarantee, such a meaning will be given to it as will, if possible, give effect to the
instrument and to the expressed intention of the parties
8
. If a written guarantee is ambiguous, oral evidence
is admissible to construe the meaning, though not to alter or vary in any way the terms of the instrument
9
.
[142]
Page 22
1 See Mason v Pritchard (1810) 12 East 227; Mayer v Isaac (1840) 6 M & W 605. As to the construction of a guarantee
limited in amount see Paragraph 20 [124] ante.
2 See Heffield v Meadows (1869) LR 4 CP 595; Perrylease Ltd v Imecar AG [1987] 2 All ER 373, [1988]1 WLR 463; Bank of
Scotland v Wright [1991] BCLC 244 at 259. In addition, see Gastronome (UK) Ltd v Anglo Dutch Meats (UK) Ltd [2006] EWCA
Civ 1233, [2006] 2 Lloyd's Rep 587, where extrinsic evidence was admitted to identify the correct party to a guarantee. See also
Amalgamated Investment and Property Co Ltd (in liquidation) v Texas Commerce International Bank Ltd [1982] QB 84, [1981] 3
All ER 577, CA, in which consideration of the surrounding facts set up an estoppel.
3 Wright v Russel (1774) 2 Wm Bl 934 at 935; Henton v Paddison (1893) 68 LT 405.
4 Re Sherry, London and County Banking Co v Terry (1884) 25 Ch D 692 at 703, CA, per Lord Selborne LC.
5 See Eastern Counties Building Society v Russell [1947] 2 All ER 734, CA; First National Finance Corpn Ltd v Goodman
[1983] BCLC 203, CA. However, see also Mayer v Isaac (1840) 6 M & W 605; Heffield v Meadows (1869) LR 4 CP 595;
Eshelby v Federated European Bank Ltd [1932] 1 KB 254 at 266, DC (on appeal [1932] 1 KB 423, CA); and Moschi v Lep Air
Services Ltd [1973] AC 331 at 345, [1972] 2 All ER 393 at 399, HL.
6 See generally Lord Arlington v Merricke (1672) 2 Saund 403.
7 Australian Joint Stock Bank v Bailey [1899] AC 396, PC; Oswald v Berwick-upon-Tweed Corpn (1856) 5 HL Cas 856, Ex
Ch.
8 See Barber v Mackrell (1892) 68 LT 29, CA; York City and County Banking Co v Bainbridge (1880) 43 LT 732. As to the
modern approach of the courts, see Bank of Scotland v Wright [1991] BCLC 244 at 259 per Brooke J.
9 See generally 49 Halsbury's Laws (5th Edn) para 1084 et seq.
[143]-[160]
Commentary/E: RIGHTS OF A GUARANTOR/23 Rights of a guarantor against the creditor
E: RIGHTS OF A GUARANTOR
23 Rights of a guarantor against the creditor
[161]
A guarantor has the following rights against the creditor, unless they are excluded by the terms of the
guarantee or otherwise waived:
23.1 to have his guarantee discharged when he pays the sum for which he has made himself
liable
1
;
23.2 where he has discharged the whole debt or liability of the principal debtor, to be subrogated to
all the rights possessed by the creditor in respect of the debt or liability to which the guarantee
relates, and to have assigned to him all the securities held by the creditor in respect of the debt
or liability
2
;
23.3 to be discharged where the creditor varies his contract with the principal debtor without the
guarantor's consent
3
;
23.4 when the debt is due, to require the creditor to call upon the principal debtor to pay off the
debt4.
Page 23
[162]
Where a guarantor is a guarantor for part only of the debt (as distinct from a guarantor for the whole debt
with a limitation on the amount of his liability)
5
, the guarantor, on paying that part, is in the absence of an
agreement to the contrary, entitled to be subrogated to the rights of the creditor in respect of the amount
paid. In practice, however, where the guarantor is not to be liable for the whole amount of the debt, his rights
of subrogation are usually suspended by the terms of the guarantee until the creditor has been paid in full
6
.
A guarantor paying the creditor is also subrogated to the creditor's rights against the debtor, and this entitles
him to the benefit of all securities belonging to the debtor, including securities given to the creditor after the
guarantee is given
7
. There is no such right until actual payment, although the court will protect the
guarantor's potential right even before payment.
If sued by the creditor for payment under the guarantee, the guarantor may rely upon any right of set-off or
counterclaim that would be available to the debtor in reduction of the debt
8
.
[163]
1 As to appropriation of payments to the guaranteed debt see Re Sherry, London and County Banking Co v Terry (1884) 25
Ch D 692, CA. As to the discharge of the guarantee otherwise than by payment by the guarantor see Paragraphs 32 [241]-38
[257] post.
2 See the Mercantile Law Amendment Act 1856 s 5. That section does not, however, cover rights such as a landlord's right
of distress and forfeiture under a lease: see BSE Trading Ltd v Hands (1996) 75 P & CR 138, CA.
3 As to discharge by variation see Paragraph 34 [249] post. See also National Bank of Nigeria Ltd v Awolesi [1964] 1 WLR
1311, PC. This right is often excluded in modern guarantees.
4 See Rouse v Bradford Banking Co [1894] 2 Ch 32 at 75, CA (affd [1894] AC 586, HL). In the absence of agreement, the
creditor is not, however, obliged to sue the principal debtor before suing the guarantor: see 49 Halsbury's Laws (5th Edn) para
1104. The guarantor cannot compel the creditor to proceed against the principal debtor unless he undertakes to indemnify the
creditor for the risk, delay and expense in so doing: Wright v Simpson (1802) 6 Ves 714 at 734 per Lord Eldon LC.
5 As to this distinction see Paragraph 20 [124] ante.
6 As to the guarantor's right to share in the security held by the creditor see eg Goodwin v Gray (1874) 22 WR 312 and Re
Butlers Wharf Ltd [1995] 2 BCLC 43, (1995) Times, 17 April. See also 49 Halsbury's Laws (5th Edn) paras 1138 et seq.
7 Forbes v Jackson (1882) 19 Ch D 615. And the creditor owes the guarantor, as well as the principal debtor, when realising
a security for the liabilities of the principal debtor, a duty to do so at a proper price: Barclays Bank plc v Kingston [2006] EWHC
533 (QB), [2006] 1 All ER (Comm) 519.
8 See also 49 Halsbury's Laws (5th Edn) para 1135. This right is often excluded in modern guarantees.
Commentary/E: RIGHTS OF A GUARANTOR/24 Rights of a guarantor against the principal debtor
24 Rights of a guarantor against the principal debtor
[164]
There may be an express right to indemnification granted to the guarantor by the principal debtor
1
; otherwise
Page 24
an implied right to an indemnity analogous to the rights enjoyed by one guarantor against another
2
arises
whenever the guarantee has been entered into at the principal debtor's actual or constructive request
3
. The
right of indemnity is not normally available to a person who assumed or discharged the liability of another
without any antecedent request of that other being made
4
.
When the creditor has acquired the right to immediate payment of the debt from the guarantor
5
, the latter is
entitled to call upon the principal debtor to pay the debt, and can take proceedings for exoneration against
the principal debtor
6
. Similarly, a guarantor may by action against the principal debtor and creditor brought
before payment, obtain a declaration that he is relieved from all further liability under his guarantee where the
acts and conduct of the principal debtor and creditor have in fact so relieved him
7
.
A guarantor for a company may, even before payment of the guaranteed debt, present a petition for the
winding up of the principal debtor because he is a contingent or prospective creditor
8
.
[165]
Whenever a guarantor pays any sum under his guarantee to relieve the principal debtor, he enjoys, subject
to the terms of the guarantee, an immediate right of action against the principal debtor
9
, but a guarantor can
sue for such amount as against the principal debtor only if the liability is properly due
10
.
To the extent that he has paid the creditor so as to relieve his principal, the guarantor in effect becomes in
turn a creditor of the principal debtor
11
. The Mercantile Law Amendment Act 1856 transforms such a
guarantor from a simple contract creditor into a specialty creditor if the contract under which the principal
debtor's liability arose was under seal
12
.
The guarantor's right of indemnification is a right to be reimbursed the amount that he has actually paid for or
on behalf of the principal debtor, together with interest
13
, as well as compensation for any damage sustained
over and above such amounts
14
.
[166]
1 Re Robinson, ex p Burrell (1876) 1 Ch D 537, CA.
2 As to rights of guarantors against each other see Paragraph 25 [168] post.
3 In these circumstances, the indemnity is an incident of the suretyship, and the principal debtor is liable to the guarantor for
any sums he pays, without any further request being made by the guarantor: Leigh v Dickeson (1884) 15 QBD 60, CA. See also
generally Anson v Anson [1953] 1 QB 636, [1953] 1 All ER 867.
4 Owen v Tate [1976] QB 402, [1975] 2 All ER 129, CA. However, if he can show that there was some necessity that led him
to assume the obligation, the guarantor will have a right of reimbursement: Owen v Tate as above.
5 As to when the liability of a guarantor arises see Paragraph 26 [191] post.
6 See Ascherson v Tredegar Dry Dock and Wharf Co Ltd [1909] 2 Ch 401; Watt v Mortlock [1964] Ch 84, [1963] 1 All ER
388 and Thomas v Nottingham Incorporated Football Club Ltd [1972] Ch 596, [1972] 1 All ER 1176. A requirement that the
creditor serve a written demand upon the guarantor is for the latter's benefit and can be waived by him: Stimpson v Smith
[1999] Ch 340, [1999] 2 All ER 833, CA. The amount must be due in the sense that the creditor could proceed against the
guarantor immediately. In exceptional cases, equity may assist the guarantor where there is good evidence that liability will fall
upon him, but the liability has not yet been ascertained: see Re Anderson-Berry, Harris v Griffith [1928] Ch 290, CA.
[167]
7 Oakeley v Pasheller (1836) 4 Cl & Fin 207, HL.
Page 25
8 See the Insolvency Act 1986 s 124(1) as amended. See also 49 Halsbury's Laws (5th Edn) para 1155.
9 Davies v Humphreys (1840) 6 M & W 153.
10 Morrison v Barking Chemicals Co Ltd [1919] 2 Ch 325.
11 Badeley v Consolidated Bank (1886) 34 Ch D 536; on appeal (1888) 38 Ch D 238, CA.
12 Mercantile Law Amendment Act 1856 s 5. That section does not, however, cover rights such as a landlord's right of
distress and forfeiture under a lease: see BSE Trading Ltd v Hands (1996) 75 P & CR 138, CA. See Badeley v Consolidated
Bank (1886) 34 Ch D 536 at 556; on appeal (1888) 38 Ch D 238, CA; Ferguson v Gibson (1872) LR 14 Eq 379.
13 Re Fox Walker & Co, ex p Bishop (1880) 15 Ch D 400, CA.
14 Badeley v Consolidated Bank (1886) 34 Ch D 536; on appeal (1888) 38 Ch D 238, CA.
Commentary/E: RIGHTS OF A GUARANTOR/25 Rights of a guarantor against a co-guarantor
25 Rights of a guarantor against a co-guarantor
[168]
Guarantors may, by express agreement, determine in what proportions each shall contribute towards the
common liability, with a view to avoiding complications with regard to the precise amount of each guarantor's
contribution
1
. In the absence of such express agreement, each solvent guarantor must contribute equally, if
each is guarantor for an equal amount, or otherwise proportionately to the amount for which each is
guarantor
2
. The amount recoverable by way of contribution is at law and in equity dependent on the number
of solvent guarantors, and is not regulated by the number originally liable
3
.
Where guarantors are bound by different instruments for equal portions of a debt due from the same
principal debtor, and the suretyship of each being is a separate and distinct transaction, then there is no right
of contribution
4
.
[169]
Where there is liability in damages as opposed to liability for debt, the Civil Liability (Contribution) Act 1978
5
entitles any person liable in respect of any damage suffered by another person, to recover contribution from
such other person as might be liable in respect of the same damage (whether jointly with him or otherwise)
6
.
The amount of the contribution is such as may be found by the court to be just and equitable, having regard
to the extent of that person's responsibility for the damage in question
7
.
The right to seek contribution only arises when a guarantor has actually paid more than his due share
8
.
However, a guarantor may be able to enforce his potential right before any payment by him by compelling his
co-guarantors to contribute towards discharge of a common liability
9
. If the creditor is party to such an action,
the guarantor can obtain an order directing his co-guarantor to pay his share directly to the creditor
10
. The
principal debtor is normally joined as a party to any proceedings for contribution
11
, unless there is no
practical purpose in doing so, eg because of his insolvency.
In a case where one of two joint and several co-sureties made a payment under the guarantee without the
other's knowledge and in the absence of a written demand, it was held that he was still entitled to a
contribution from the other co-surety, as the debt was ascertained or ascertainable and, the creditor being
entitled to make immediate demand upon the sureties, the payment was not voluntary or officious
12
.
Page 26
[170]
1 See as an example of such difficulties Re Ennis, Coles v Peyton [1893] 3 Ch 238, CA, where the amount payable by the
estate of a deceased guarantor was involved. See also Scholefield Goodman & Sons Ltd v Zyngier [1986] AC 562, [1985] 3 All
ER 105, PC. For a form of agreement setting out rights of co-guarantors between themselves see Form 34 [821] post.
2 Pendlebury v Walker (1841) 4 Y & C Ex 424 at 441, per Alderson B. The right of contribution exists only where guarantors
are subject to a common liability and does not exist, eg where each is liable only for a separate sum.
If guarantors are not liable for the whole of the amount, but for different amounts, they are often ordered to pay in proportion to
the maximum liability that each assumed (cf the so-called 'independent liability' principle in indemnity insurance, used where
one of the guarantors has an unlimited liability but the liability of the others is in a limited amount): See Commercial Union
Assurance Co Ltd v Hayden [1977] QB 804, [1977] 1 All ER 441, CA.
3 See Lowe v Dixon (1885) 16 QBD 455 at 458 per Lopes J.
4 See Coope v Twynam (1823) Turn & R 426 and Pendlebury v Walker (1841) 4 Y & C Ex 424. Contrast Scholefield
Goodman & Sons Ltd v Zyngier [1986] AC 562, [1985] 3 All ER 105, PC.
5 Ie the Civil Liability (Contribution) Act 1978. This Act covers the case where there is a guarantee of a general obligation
under the main contract, eg to perform work, breach of which would result in the guarantor being liable for damages, as distinct
from a guarantee of a general or stated indebtedness where the claim against the guarantor would not normally lead to
damages; see however, Moschi v Lep Air Services Ltd [1973] AC 331, [1972] 2 All ER 393, HL. See also Hampton v Minns
[2002] 1 All ER (Comm) 481, [2002] 1 WLR 1 where the Act was not applicable as the guarantor was liable for a debt.
[171]
6 Civil Liability (Contribution) Act 1978 s 1(1).
7 Civil Liability (Contribution) Act 1978 s 2(1).
8 Davies v Humphreys (1840) 6 M & W 153. In the case of a guaranteed liability payable in instalments, a co-guarantor has
to await payment of all the instalments: Stirling v Burdett [1911] 2 Ch 418.
9 Wolmershausen v Gullick [1893] 2 Ch 514.
10 Wolmershausen v Gullick (above).
11 Hay v Carter [1935] Ch 397, CA.
12 Stimpson v Smith [1999] Ch 340, [1999] 2 All ER 833, CA, where it was held that the requirement of a written demand
was evidentiary or procedural, and as it was for the benefit of the surety, the requirement could be waived by one surety even
though the liability of the two sureties was joint and several. If the arrangement between the paying surety and the creditor had
been disadvantageous to the other surety, he might have deprived himself of the right to contribution.
[172]-[190]
Commentary/F: LIABILITY OF THE GUARANTOR/26 When the liability arises
F: LIABILITY OF THE GUARANTOR
26 When the liability arises
Page 27
[191]
Any conditions precedent to the guarantor's liability must be fulfilled before recourse can be made to him
1
.
However, the creditor is not obliged to notify the guarantor of the principal's default, at least in the absence of
express provision to the contrary
2
. Nor is there any general principle that the creditor must first proceed
against the principal debtor before suing the guarantor
3
. Similarly, there is no requirement that the creditor
must first make demand upon the guarantor before enforcing the guarantee
4
, unless the guarantee stipulates
otherwise, as most modern ones do. If a demand is stipulated, no cause of action can arise until demand is
made
5
.
If the guarantee contains a clause characterising the guarantor as principal as between the creditor and the
guarantor, there is no need for the former to make demand
6
.
Guarantees may also contain 'conclusive evidence' clauses, designed to make a certificate from the creditor
conclusive evidence of the amount due from the guarantor under the guarantee
7
. Such clauses will generally
be effective in the absence of fraud or bad faith or other special circumstances
8
.
[192]
2 See Eshelby v Federated European Bank Ltd [1932] 1 KB 423, CA; MS Fashions Ltd v Bank of Credit and Commerce
International SA (in liquidation) (No 2) [1993] Ch 425, [1993] 3 All ER 769), CA, per Dillon LJ. Cf Bank of Scotland v Wright
[1991] BCLC 244.
3 See Moschi v Lep Air Services Ltd [1973] AC 331 at 356-357, [1972] 2 All ER 393 at 408-409 per Lord Simon of Glaisdale,
HL.
4 Norton v Ellam (1837) 2 M & W 461 at 464.
5 Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833, CA; Re Brown's Estate, Brown v Brown [1893] 2 Ch 300. As this
requirement is for the benefit of the guarantor, it can be waived by the guarantor. It can also be waived by one of two or more
jointly and severally liable under the guarantee without losing the right to contribution against the co-guarantors, provided the
debt is ascertained or ascertainable: Stimpson v Smith [1999] Ch 340, [1999] 2 All ER 833, CA.
6 See MS Fashions Ltd v Bank of Credit and Commerce International SA (in liquidation) (No 2) [1993] Ch 425, [1993] 3 All
ER 769. See also Esso Petroleum Co Ltd v Alstonbridge Properties Ltd [1975] 3 All ER 358, [1975] 1 WLR 1474, where a
demand was held to be necessary because the indebtedness under the guarantee was not a 'present debt'. This is true of most
modern guarantees that provide for payment of money that may from time to time be owing or unpaid, or contain similar
language importing the need for a demand.
7 For an example, see Form 8 clause 2 [492] post.
Commentary/F: LIABILITY OF THE GUARANTOR/27 Extent and duration of guarantor's liability
27 Extent and duration of guarantor's liability
[193]
The extent and nature of the liabilities of a guarantor depend on the wording of the guarantee itself, as a
Page 28
guarantor should in general not be charged beyond the precise terms of his engagement
1
. A common
example of a continuing guarantee is a guarantee of a bank overdraft, where the guarantee covers
transactions on a running account but the guarantor can terminate his liability for further advances by giving
notice to the bank
2
.
In the absence of provisions specifying a condition precedent, the guarantor's liability arises on the principal's
default
3
.
[194]
1 See Tanner v Woolmer (1853) 8 Exch 482; Moschi v Lep Air Services Ltd [1973] AC 331 at 345, [1972] 2 All ER 393 at
399, HL, per Lord Reid. As to construction of guarantees, see Paragraph 22 [141] ante. As to when the liability arises, see
Paragraph 26 [191] ante.
2 For continuing guarantees see Paragraph 19 [122].
3 See also 49 Halsbury's Laws (5th Edn) para 1103 and Eshelby v Federated European Bank Ltd [1932] 1 KB 423, CA;
however, see also Parr's Banking Co Ltd v Yates [1898] 2 QB 460, CA, where in the case of a guarantee of the repayment of
advances made from time to time, the right of action accrued as soon as the first advance was made. See also Wright v New
Zealand Farmers' Co-operative Association of Canterbury Ltd [1939] AC 439, [1939] 2 All ER 701, PC.
Commentary/F: LIABILITY OF THE GUARANTOR/28 Enforcement
28 Enforcement
[195]
In general only the person named as creditor may sue upon the guarantee. Any change in the identity of the
creditor therefore revokes the guarantee as to future transactions unless a contrary intention is manifested in
the instrument
1
. However, a third party may enforce the guarantee where the contract expressly permits him
to or where the term purports to confer a benefit on him
2
.
The person to whom a guarantee is given may assign the guaranteed debt and the securities for the debt
3
,
and on such assignment, the assignee acquires all the rights of the assignor. Where the assignment is
equitable only, the assignee must usually join the assignor in any proceedings
4
.
A creditor may of course become estopped from enforcing a guarantee by reason of misrepresentation
5
.
A creditor may not always have a right of action personally against the guarantor: the suretyship may take
the form of a pledge or security
6
.
[196]
1 See First National Finance Corpn Ltd v Goodman [1983] BCLC 203, CA. The person to whom the guarantee is given may
be a trustee of the benefit of the guarantee for others: Lloyd's v Harper (1880) 16 Ch D 290, CA.
2 See the Contracts (Rights of Third Parties) Act 1999, by virtue of which a third party to a contract may enforce a term of
the contract if the contract expressly permits him to do so, or if the term purports to confer a benefit on him. In circumstances
Page 29
where there is a possibility of a third party claiming the benefit of a term, the matter should be put beyond doubt, one way or the
other, by suitable drafting.
3 Wheatley v Bastow (1855) 7 De GM & G 261 at 279, but see also Re Barned's Banking Co, ex p Stephens (1868) 3 Ch
App 753. See also 49 Halsbury's Laws (5th Edn) para 1124.
4 See generally Three Rivers District Council v Bank of England (Governor and Co) [1996] QB 292, [1995] 4 All ER 312, CA.
5 Where a guarantor approached the manager of the creditor bank to obtain assurance that he would be released from
liability under the guarantee if he sold his shareholding in the principal debtor company, and such assurance was given, and the
sale went ahead in reliance upon it, the bank was estopped from relying on the guarantee: Bank of Baroda v Shah (30 July
1999, unreported), CA.
[197]-[210]
Commentary/G: AVOIDANCE AND DISCHARGE OF THE GUARANTEE/1: AVOIDANCE/29 Principal
grounds of avoidance
G: AVOIDANCE AND DISCHARGE OF THE GUARANTEE
1: AVOIDANCE
29 Principal grounds of avoidance
[211]
The main grounds for avoiding
1
a guarantee are fraud attendant upon its execution, in certain cases, the
breach by the creditor of his duty towards the guarantor to disclose material facts, undue influence,
misrepresentation and non est factum
2
. As with any contract, it may also be voidable for mistake in certain
cases
3
.
A guarantee may also be avoided where there is a total failure of consideration. A guarantee cannot be
enforced if the primary obligation is illegal or void
4
.
A guarantee may also become unenforceable where the instrument creating the obligation is materially
altered. An alteration will be material if it affects the very nature or character of the document, or if it might
operate to the prejudice of the guarantor
5
.
[212]
1 As to factors vitiating a guarantee see 49 Halsbury's Laws (5th Edn) para 1033 et seq.
2 As to these matters see Paragraph 30 [213] post.
3 As to avoidance for mistake see 49 Halsbury's Laws (5th Edn) para 1033.
4 As to void obligations see Paragraph 31 [221] post.
Page 30
5 See Raiffeisen Zentralbank Osterreich AG v Crossseas Shipping Ltd [2000] 3 All ER 274, [2000] 1 WLR 1135, CA. It is not
necessary for the guarantor to show actual prejudice. Where it is clear that there can be no prejudice to the guarantor by virtue
of an alteration, the guarantee will not be avoided: Governor and Co of the Bank of Scotland v Henry Butcher & Co [2003]
EWCA Civ 67, [2003] 2 All ER (Comm) 557.
Commentary/G: AVOIDANCE AND DISCHARGE OF THE GUARANTEE/1: AVOIDANCE/30
Misrepresentation, fraud, undue influence, non est factum/30.1 Misrepresentation, non-disclosure and fraud
30 Misrepresentation, fraud, undue influence, non est factum
30.1 Misrepresentation, non-disclosure and fraud
[213]
A contract of guarantee, like any other contract, may be avoided where there has been a material
misrepresentation of fact inducing entry into the contract, even if the misrepresentation is innocent
1
. Where a
misrepresentation is made fraudulently and is of a kind that would be likely to induce a person to enter into
the contract, there is a presumption of reliance in favour of the victim of the misrepresentation. The creditor
then has the burden of proving that there was no reliance by the victim on the misrepresentation
2
.
A guarantee is not a contract uberrimae fidei
3
. The extent to which the creditor must disclose to the
guarantor what he knows of the principal debtor with regard to the proposed contract depends on the
circumstances of each case. Partial disclosure of the facts may well in itself amount to misrepresentation
4
,
so that a request for a prospective guarantor to enter into the guarantee may amount to a representation that
there are no unusual risks attaching to the transaction of which the proposed guarantor ought to be made
aware
5
. Indeed, it has been held that the creditor is under a duty to the guarantor to disclose to the latter
contractual arrangements made between the creditor and the principal debtor which make the terms of the
principal contract materially different in a potentially disadvantageous respect from those which the guarantor
might naturally expect
6
. In the case of a continuing guarantee, this limited duty of disclosure continues to
operate as regards the future liability of the guarantor
7
. On the other hand, exceptional circumstances are
required before a bank is required to disclose to a guarantor that an account is being used other than in
accordance with the terms of the guarantee
8
.
A stronger duty of disclosure may be applicable to the case of a guarantor being asked to guarantee the
services of an employee or an official under a fidelity bond
9
.
On the other hand, a bank that chooses to give advice to a customer on the effect of a mortgage document
which the customer is about to sign in favour of the bank is under a duty of care not to misstate the effect of
the document, although the remedy lies solely in damages and does not extend to setting aside the
mortgage in the absence of undue influence
10
.
[214]
1 See also 49 Halsbury's Laws (5th Edn) para 1035.
2 County NatWest Bank Ltd v Barton [2002] 4 All ER 494, CA. Where a fraudulent misrepresentation had been made, there
was a presumption that the guarantors, who had already decided to enter into the contracts of guarantee by the time of the
misrepresentation, had been induced to continue with the decision that they had already made. See also Ross River Ltd v
Cambridge City Football Club [2007] EWHC 2115 (Ch), [2008] 1 All ER 1004.
Page 31
3 Ie a contract requiring the utmost good faith. See Hamilton v Watson (1845) 12 Cl & Fin 109, HL, and London General
Omnibus Co Ltd v Holloway [1912] 2 KB 72, CA.
4 As in With v O'Flanagan [1936] Ch 575, [1936] 1 All ER 727, CA; DPP v Ray [1974] AC 370, [1973] 3 All ER 131, HL; and
Goldsmith v Rodger [1962] 2 Lloyd's Rep 249, CA. These are all non-guarantee cases.
5 Lee v Jones (1864) 17 CBNS 482 at 503.
6 See Levett v Barclays Bank plc [1995] 2 All ER 615, [1995] 1 WLR 1260, and see also Hamilton v Watson (1845) 12 Cl &
Fin 109, HL and Cooper v National Provincial Bank Ltd [1946] KB 1, [1945] 2 All ER 641.
7 See Phillips v Foxall (1872) LR 7 QB 666; Sanderson v Aston (1873) LR 8 Exch 73.
8 See Governor and Co of the Bank of Scotland v Henry Butcher & Co [2001] 2 All ER (Comm) 691; affd [2003] EWCA Civ
67, [2003] 2 All ER (Comm) 557, CA.
9 See London General Omnibus Co Ltd v Holloway [1912] 2 KB 72, CA. See also 49 Halsbury's Laws (5th Edn ) para 1042.
10 Cornish v Midland Bank plc [1985] 3 All ER 513, CA. As indicated above, there is no obligation upon a bank or other big
lender to explain, in the absence of a request, the meaning or effect of a guarantee, whether the guarantor is a customer of the
bank or not: Barclays Bank plc v Khaira [1992] 1 WLR 623; O'Hara v Allied Irish Banks Ltd [1985] BCLC 52. Cf Lloyd's Bank plc
v Waterhouse [1993] 2 FLR 97, CA.
Misrepresentation, fraud, undue influence, non est factum/30.2 Undue influence
30.2 Undue influence
[215]
The House of Lords reviewed the law of undue influence in Barclays Bank plc v O'Brien
1
and again in Royal
Bank of Scotland v Etridge (No 2)
2
. Undue influence falls into two principal categories. The first category is
that of actual undue influence, where the complainant must prove affirmatively that the wrongdoer exerted
undue influence on the complainant to enter into the transaction, and that the claimant did not enter into it of
his own free will.
The second category is that of 'presumed' undue influence, where the complainant must establish the
existence of a relationship of trust and confidence with the wrongdoer, and a transaction that calls for an
explanation, such that it is fair to 'presume' that the wrongdoer abused the relationship in procuring the
complainant to enter into the impugned transaction. It is, however, only an evidential presumption and can be
rebutted. Once that relationship has been established, there is an evidential burden upon the wrongdoer to
show that the complainant entered into the transaction of his own free will
3
.
The second class has often been subdivided into two, as the relationship can be established in two ways.
The first subset consists of those relationships which are presumed by law to involve the necessary degree
of trust and confidence (eg solicitor and client, medical adviser and patient, parent and child). This
presumption is not rebuttable
4
. The second subset consists of those where the relationship is not one to
which such a presumption applies, but the complainant proves in fact that he reposed the requisite trust and
confidence in the wrongdoer
5
.
[216]
In the case of presumed undue influence (both subsets), the complainant must show that the transaction
calls for an explanation
6
. There is no reason why a guarantee cannot in certain circumstances be such a
Page 32
transaction to the guarantor
7
but it should not be assumed that the mere fact that a wife has guaranteed her
husband's debts always calls for an explanation
8
. There must be a balancing exercise between the
seriousness of the risk of enforcement and the benefits acquired by the guarantor in accepting those risks.
This exercise must be carried out primarily with regard to matters in existence at the time of the transaction,
and must be viewed from the point of view of an independent and reasonable person who might have
considered the transaction at such time, with knowledge of all the relevant facts
9
. Where the complainant
establishes that the transaction calls for an explanation, it assists him in establishing a claim against the
wrongdoer. It also affects the way the transaction appears to third parties, and so assists in establishing a
case of constructive notice against a third party.
The presumption of undue influence can be rebutted by proof that the guarantee was given on a full, free and
unforced basis
10
, usually as a result of the receipt of independent advice at the time. Where a solicitor is
instructed to advise a person who may be subject to the undue influence of another, the advice should cover
certain issues, as a minimum: (1) the nature of the documents and the practical consequences if the person
enters into them (including the possibility of losing their home and becoming bankrupt); (2) the seriousness
of the risks involved, including the risk of the principal transaction being varied without reference to the
guarantor, and the extent of potential liability under the guarantee; (3) the fact that the person has a choice
and that the decision is theirs alone; (4) the solicitor should check whether the person wishes to proceed and
whether they are content for the solicitor to confirm to the creditor that advice has been given, or whether
they would prefer to negotiate with the creditor on the terms of the guarantee
11
.
Where the entry of the complainant into the transaction was obtained by the undue influence of the
wrongdoer, the question of whether the complainant can set aside the transaction as against a third party
who is not guilty of the undue influence depends on the doctrine of notice
12
. Such notice may be either
actual, imputed or constructive.
[217]
Constructive notice applies when the creditor is put on inquiry as to the existence of the guarantor's equity. In
cases involving relationships presumed by law to involve the necessary degree of trust and confidence,
notice of the relationship itself puts the creditor on inquiry. Although the relationship of husband and wife is
not such a relationship, nor is that between cohabitees, a bank is nevertheless put on inquiry when it is
proposed that a wife guarantee her husband's debts, or where one cohabitee is to guarantee the other's
debts
13
. However, the bank is not put on inquiry where money is to be advanced jointly to both spouses (or
cohabitees) unless the bank knows that the money is to be used solely for the purposes of one spouse (or
cohabitee). The bank is put on inquiry where a wife offers to stand surety for a company jointly owned by the
husband and wife, even if the wife has an equal shareholding and is a director of the company
14
.
Where a bank is put on inquiry, it should take the steps set out in the decision in Royal Bank of Scotland v
Etridge (No 2). One path a bank can take is to insist on a private meeting with the wife, at which the wife is
told of the potential extent of the liability, warned of the risks involved, and urged to take independent legal
advice (including, in exceptional cases, insisting that she be separately represented from her husband)
15
. In
practice, few banks choose to take this course, in which case they should then take the following steps: (1)
the bank should insist that the wife take independent legal advice, telling her that it will require confirmation
from the solicitor that she has been appropriately advised; (2) check with the wife which solicitor she wishes
to instruct, including asking her whether she would prefer a separate solicitor, where there is already a
solicitor acting for both husband and wife; (3) provide sufficient financial information to the solicitor to enable
appropriate advice to be given; (4) warn the solicitor if the bank already suspects that some impropriety is
taking place (eg by the husband misleading or putting undue pressure on the wife); (5) obtain written
confirmation from the solicitor that the wife has been appropriately advised. Having followed such steps, the
bank will be able to rely on the solicitor's confirmation unless it knows or ought to know that the wife has not
received the appropriate advice
16
.
Although the text above assumes that it is a wife that is being proposed as guarantor, the same steps would
Page 33
need to be taken where a husband is guaranteeing a wife's debts or one cohabitee is guaranteeing the debts
of the other (where the bank knows of the cohabitation).
In other cases where the complainant proves in fact that he reposed the requisite trust and confidence in the
wrongdoer, the creditor may be put on inquiry if the transaction is not on its face to the advantage of the
guarantor, and the creditor is aware that there is a substantial risk that, in procuring the guarantor to enter
into the guarantee, the principal debtor has acted improperly
17
.
[218]
1 Barclays Bank plc v O'Brien [1994] 1 AC 180, [1993] 4 All ER 417, HL.
2 Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44, [2002] 2 AC 773, [2001] 4 All ER 449.
3 Royal Bank of Scotland v Etridge (No 2) (above) at para 14, per Lord Nicholls.
4 Royal Bank of Scotland v Etridge (No 2) (above) at para 18, per Lord Nicholls.
5 See Barclays Bank plc v O'Brien [1994] 1 AC 180, [1993] 4 All ER 417, HL.
6 Goldsworthy v Brickell [1987] Ch 378, [1987] 1 All ER 853, CA; National Westminster Bank plc v Morgan [1985] AC 686,
[1985] 1 All ER 821, HL; CIBC Mortgages plc v Pitt [1994] 1 AC 200, [1993] 4 All ER 433, HL. This requirement does not apply
to cases of actual undue influence: see CIBC Mortgages plc v Pitt. While the requirement has often been expressed as showing
the existence of 'manifest disadvantage', that is simply one instance of a transaction that calls for an explanation: Royal Bank of
Scotland v Etridge (No 2) [2001] UKHL 44, [2002] 2 AC 773, [2001] 4 All ER 449, paras 22-24, per Lord Nicholls. Even when
looked at in terms of 'manifest disadvantage' this simply means that the disadvantage be 'clear and obvious', but the
disadvantage itself may be small: Cheese v Thomas [1994] 1 All ER 35, [1994] 1 WLR 129, CA; Barclays Bank plc v Coleman
[2001] QB 20, [2000] 1 All ER 385, CA. Whether the transaction can be said to involve such disadvantage, or otherwise call for
an explanation, is to be assessed objectively, and such assessment is carried out upon the circumstances prevailing at the date
on which the transaction was entered into: Barclays Bank plc v Coleman [2001] QB 20, [2000] 1 All ER 385, CA.
7 See eg Lloyds Bank Ltd v Bundy [1975] QB 326, [1974] 3 All ER 757, CA
8 See Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44, [2002] 2 AC 773, [2001] 4 All ER 449 para 30, per Lord
Nicholls.
[219]
9 See eg Lloyd's Bank Ltd v Bundy [1975] QB 326, [1974] 3 All ER 757, CA.
10 See eg Zamet v Hyman [1961] 3 All ER 933 at 938, [1961] 1 WLR 1442 at 1446, CA.
11 See Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44, [2002] 2 AC 773, [2001] 4 All ER 449 para 65, per Lord
Nicholls.
12 See Barclays Bank plc v O'Brien [1994] 1 AC 180, [1993] 4 All ER 417, HL. If the creditor is not fixed with notice of the
undue influence, then he has no duty to ensure that the intending guarantor has independent advice: see eg Bank of Baroda v
Shah [1988] 3 All ER 24, CA.
13 See Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44, [2002] 2 AC 773, [2001] 4 All ER 449 paras 44-48, per
Lord Nicholls.
14 See Royal Bank of Scotland v Etridge (No 2) (above) at para 49, per Lord Nicholls.
15 See Royal Bank of Scotland v Etridge (No 2) (above) at para 50, per Lord Nicholls.
16 See Royal Bank of Scotland v Etridge (No 2) (above) at paras 56-57 and 79-80, per Lord Nicholls. When giving advice to
the guarantor, the solicitor is acting exclusively as his solicitor: Royal Bank of Scotland v Etridge (No 2), at para 74. Accordingly,
the creditor is not fixed with imputed notice of what the solicitor learns during the course of giving such advice. These principles
also apply where the advice is given by a legal executive: see Barclays Bank plc v Coleman [2001] QB 20, [2000] 1 All ER 385,
CA.
Page 34
17 See Barclays Bank plc v O'Brien [1994] 1 AC 180, [1993] 4 All ER 417, HL.
Misrepresentation, fraud, undue influence, non est factum/30.3 Non est factum
30.3 Non est factum
[220]
Even if the creditor has no knowledge of fraud, misrepresentation or undue influence, the guarantor can
claim 'non est factum' where he has entered into the guarantee in the belief that its effect was materially or
radically different from that which in fact it was
1
. As a plea of non est factum can only succeed where the
guarantor has not been careless in arriving at his belief, it is very rarely invoked with success.
1 Saunders v Anglia Building Society [1970] 3 All ER 961 HL; and see Avon Finance Co Ltd v Bridger [1985] 2 All ER 281,
CA; Norwich and Peterborough Building Society v Steed [1993] Ch 116, [1993] 1 All ER 330, CA. The document must be
radically or fundamentally different from the document that the person thought he was signing: Saunders v Anglia Building
Society (see above); and see Alex Lawrie Factors Ltd v Morgan (1999) Times, 18 August, CA.
Commentary/G: AVOIDANCE AND DISCHARGE OF THE GUARANTEE/1: AVOIDANCE/31 Illegal and void
obligations
31 Illegal and void obligations
[221]
A guarantee cannot be enforced if the principal obligation is illegal or void
1
. On the other hand, an indemnity
by which the promisor agrees to indemnify the promisee will remain valid in such circumstances
2
. However,
a director's guarantee of an ultra vires corporate loan will in general be effective
3
. Further, where a bank
continued to honour cheques drawn on a company's account with the bank after the presentation of a
winding-up petition, and a winding-up order was later made against the company, the bank was entitled to
enforce payment from the guarantor (who had guaranteed the indebtedness of the company) as although the
disposition to the third party payee was of no legal effect (such that the company could recover the amounts
from the third party payee)
4
there had been no disposition of money from the company to the bank, and as
between the company and the bank, the money was validly borrowed
5
.
A guarantee given regarding an obligation of a minor is enforceable against the guarantor even if the
obligation is unenforceable against the minor because of his age or his repudiation
6
.
[222]
1 See generally Heald v O'Connor [1971] 2 All ER 1105, [1971] 1 WLR 497; Swan v Bank of Scotland (1836) 10 Bli NS 627,
HL. Therefore where two guarantors guaranteed the obligation of a company to pay monies to a creditor in consideration of the
Page 35
creditor licensing the company to operate a scheme which was held to be an illegal lottery, the creditor was unable to enforce
payment from the guarantors: Russell v Fulling and Page (1999) Times, 23 June. For avoidance in the context of the Consumer
Credit Act 1974, see also 49 Halsbury's Laws (5th Edn ) para 1207 et seq.
2 As to illegal indemnities see Paragraph 44 [287] post.
3 See Garrard v James [1925] Ch 616.
4 By virtue of the Insolvency Act 1986 s 127 as amended by the Enterprise Act 2002.
5 Coutts & Co v Stock [2000] 2 All ER 56, [2000] 1 WLR 906, which also emphasises that any clause in the guarantee which
purports to maintain the liability of the guarantor in circumstances where the liability of the principal debtor is void, must be in
the clearest language.
6 Minors' Contracts Act 1987 s 2.
[223]-[240]
Commentary/G: AVOIDANCE AND DISCHARGE OF THE GUARANTEE/2: DISCHARGE/32 General
considerations
2: DISCHARGE
32 General considerations
[241]
The discharge of the guarantor can be accomplished in many ways
1
. The governing principles are the same
at law and in equity
2
. The discharge of a guarantor (except on fulfilment of his undertaking) is generally
brought about by the conduct of the creditor who by some act or omission, inconsistent with the rights of the
guarantor, relieves the latter wholly or partially from liability under his guarantee.
A guarantor may, however, contract out of his right to be discharged in accordance with the above
principles3. Consequently, clauses designed to avoid the discharge of the guarantor have become
commonplace, with the effect that the legal principles involved have assumed much less importance. Most
common law and equitable principles that normally protect a guarantor are negatived by the terms of modern
guarantees, not only in the context of bank guarantees but in most others in common use such as hire
purchase guarantees, guarantees for the performance of contracts and leases, as well as guarantees for the
payment of money.
The more important of the events that will discharge a guarantor in the absence of express provision to the
contrary are discussed in the following paragraphs.
[242]
1 For a form of deed releasing a guarantor from liability under his guarantee see Form 36 [828] post.
2 Samuell v Howarth (1817) 3 Mer 272 at 277, 278 per Lord Eldon.
3 See eg Greenwood v Francis [1899] 1 QB 312, CA; Perry v National Provincial Bank of England [1910] 1 Ch 464, CA.
Page 36
Commentary/G: AVOIDANCE AND DISCHARGE OF THE GUARANTEE/2: DISCHARGE/33 Performance,
release and novation/33.1 Performance
33 Performance, release and novation
33.1 Performance
[243]
Performance by the principal debtor that discharges him necessarily also discharges the guarantor
1
.
Similarly, part performance by the debtor discharges the guarantor pro tanto
2
. However, since a creditor can
normally appropriate money paid by his debtor to a debt that may not be guaranteed, where a guarantor
guarantees a running account with a bank and the account is then closed, the bank may be entitled to
appropriate payments to the new account on the ground that the debtor had not appropriated them to the
current account
3
.
[244]
1 This is the case even if the discharge occurs by premature termination of the principal contract, eg by return of the goods
combined with part payment: see Western Credit Ltd v Alberry [1964] 2 All ER 938, [1964] 1 WLR 945, CA.
2 Perry v National Provincial Bank of England [1910] 1 Ch 464, CA.
3 See Re Sherry, London and County Banking Co v Terry (1884) 25 Ch D 692, CA. See also 49 Halsbury's Laws (5th Edn)
paras 1191-1193.
release and novation/33.2 Release and novation
33.2 Release and novation
[245]
The creditor may discharge the principal debtor by a binding legal agreement that also effects the discharge
of the guarantor
1
. However, not all releases in favour of the principal debtor will have this effect, as the
release may be personal to the principal debtor, and the creditor's rights may be reserved against the
guarantor
2
. Release of one co-guarantor may also release the others, but again the question turns upon
whether the release is absolute, or a personal release in favour of one with a reservation of rights against
others
3
.
Similarly, should the creditor enter into a novation as a consequence of which the debtor is discharged in
consideration of a new debtor assuming the liability in question, the guarantor under the original agreement
is also discharged in the absence of provision to the contrary
4
.
Page 37
[246]
1 See Moss v Hall (1850) 5 Exch 46.
2 See Watts v Aldington (1993) Times, 16 December, CA, and Johnson v Davies [1999] Ch 117, [1998] 2 All ER 649, CA,
which make clear that it is no longer appropriate to try to fit a particular agreement into one category (release) or the other
(covenant not to sue); instead the true question is whether the agreement between the creditor and the debtor precludes the
creditor from enforcing his rights against the guarantor, or whether the creditor has reserved his rights against the guarantor.
3 See Johnson v Davies [1998] 2 All ER 649, CA, where one co-guarantor was to be released by virtue of the provisions of
an individual voluntary arrangement under the Insolvency Act 1986 Pt VIII (ss 252-263G). It was held that such a release was in
principle capable of releasing the other co-guarantors, but on the facts, the release was not intended to be immediate and
absolute, such that the creditor's rights against the co-guarantors were preserved.
4 Commercial Bank of Tasmania v Jones [1893] AC 313, PC. Where a clause in the guarantee provided that the guarantor's
liability should not be affected by any variation of the principal contract, and there was subsequently a rescheduling of the
amounts due under the loan to the debtor, it was held that the rescheduling was a variation and not a novation, with the result
that the guarantor remained liable: Samuels Finance Group plc v Beechmanor Ltd (1993) 67 P & CR 282, CA.
release and novation/33.3 Breach of contract
33.3 Breach of contract
[247]
The commission of a breach of contract by the creditor discharges a guarantor if the principal is also
discharged
1
. If, however, such a breach only gives the principal debtor a right to counterclaim for damages,
the guarantor may only be able to claim this right by way of set-off provided he joins the principal as a party
to the proceedings
2
.
Where the principal debtor commits a repudiatory breach of the principal contract which is accepted by the
creditor, the extent of the guarantor's liability generally depends upon whether the guarantor has guaranteed
complete performance of the contract by the principal debtor
3
.
In the case of contracts involving payment by instalments, the guarantor normally is not liable for payments
yet to fall due, as the principal would also not be liable in such event, but he is liable in debt for any
instalments that have accrued due as at the date of termination of the contract
4
.
There is no general principle that any form of 'irregular' conduct on the part of the creditor discharges the
guarantor, even if prejudicial to his interests
5
. The creditor can act in any way he chooses, provided that he
does not commit an act of bad faith, misrepresentation, or concealment amounting to misrepresentation, or
in any way connive with the default of the principal debtor
6
.
[248]
1 Watts v Shuttleworth (1861) 7 H & N 353. A non-repudiatory breach of the principal contract does not effect a discharge of
the guarantor: see National Westminster Bank plc v Riley [1986] BCLC 268, CA.
Page 38
2 See Bechervaise v Lewis (1872) LR 7 CP 372, but see also Wilson v Mitchell [1939] 2 KB 869, [1939] 2 All ER 869. Clear
words must be used to exclude a right of set-off: see BOC Group plc v Centeon LLC [1999] 1 All ER (Comm) 970, CA.
3 See generally Moschi v Lep Air Services Ltd [1973] AC 331, [1972] 2 All ER 393, HL; Hyundai Heavy Industries Co Ltd v
Papadopoulos [1980] 2 All ER 29, [1980] 1 WLR 1129, HL; and Hyundai Shipbuilding and Heavy Industries Co Ltd v Pournaras
[1978] 2 Lloyd's Rep 502, CA.
4 See generally Moschi v Lep Air Services Ltd [1973] AC 331, [1972] 2 All ER 393, HL, and Hyundai Shipbuilding and Heavy
Industries Co Ltd v Pournaras [1978] 2 Lloyd's Rep 502, CA. Depending on the terms of the guarantee, the guarantor may be
liable for damages by reason of the principal debtor's breach.
5 Bank of India v Trans Continental Commodity Merchants Ltd and Patel [1983] 2 Lloyd's Rep 298, CA. The position is
different if the creditor acts in bad faith or connives at the default by the principal debtor.
6 As to misrepresentation see Paragraph 30.1 [213] ante.
Commentary/G: AVOIDANCE AND DISCHARGE OF THE GUARANTEE/2: DISCHARGE/34 Discharge by
variation of the principal agreement
34 Discharge by variation of the principal agreement
[249]
Variation of the terms of the principal contract without the guarantor's consent, in the absence of contrary
provision in the guarantee
1
, discharges him, especially if he states that he contracts on the faith of the
principal agreement. However, unless he can show that he had notice of its terms
2
, only a material variation
of the principal agreement discharges him
3
. A variation will be material unless it is manifestly insubstantial or
incapable of prejudicing the guarantor.
[250]
1 For a clause negativing discharge in a guarantee for the performance of a contract see Form 27 clause 3 [603] post. See
also Samuels Finance Group plc v Beechmanor Ltd (1993) 67 P & CR 282, where a provision preserving the liability of the
guarantor in the event of a variation of the principal contract had the effect of maintaining the guarantor's liability despite the
rescheduling of the loan made to the principal debtor. However, see also Triodos Bank NV v Dobbs [2005] EWCA Civ 630,
(2005) Times, 30 May, CA, where a provision in a contract of guarantee that permitted variations and amendments to be made
to the principal contract without avoiding the guarantee was held not to cover the making of a new loan agreement entirely
replacing the original principal agreement.
2 Sanderson v Aston (1873) LR 8 Exch 73 at 76.
3 See Holme v Brunskill (1878) 3 QBD 495, CA; Stewart v M'Kean (1855) 10 Exch 675; Smith v Wood [1929] 1 Ch 14, CA.
The question is whether there has been any agreement between the principals (ie the creditor and debtor) which alters the
principal contract or the mode of performance thereof in such a manner as to bring about a risk of prejudice to the guarantor.
Unless the variation is obviously insubstantial or cannot be otherwise than beneficial to the guarantor, the guarantor is
discharged unless he has consented to the alteration: Holme v Brunskill (1878) 3 QBD 495, 505-506. For example, where a
landlord granted a licence under a user covenant in a lease to a tenant by assignment, the guarantors of the original tenant
were discharged because in any subsequent rent review, the licence might lead to a higher rental value than would have been
the case in the absence of the licence, thus potentially increasing the risk borne by the guarantors: Howard de Walden Estates
Ltd v Pasta Place Ltd [1995] 1 EGLR 79.
Page 39
Commentary/G: AVOIDANCE AND DISCHARGE OF THE GUARANTEE/2: DISCHARGE/35 Agreement to
give time
35 Agreement to give time
[251]
A binding agreement, express or implied, to give time to the principal debtor without reserving the creditor's
remedies against the guarantor, and without the guarantor's consent, discharges the guarantor
1
.
Mere inactivity on the part of the creditor, extending, possibly, for several years
2
, or an omission to sue the
debtor
3
or to press him to fulfil his obligation, does not discharge the guarantor, or amount in a legal sense to
a giving of time. 'Giving of time' has been defined to mean extending the period at the end of which, by the
contract between them, the principal debtor was originally liable to pay the creditor, and extending it by a
new and valid contract between the creditor and the principal debtor, to which the guarantor does not
assent4. The new and valid contract must be made with the principal debtor himself (rather than eg with a
stranger or with one of several guarantors
5
), or it will not discharge the guarantor
6
. It makes no difference
whether the creditor contracts with the principal debtor to give him time, or to give time to the guarantor, as in
either case, the guarantor will be discharged
7
.
An agreement permitting the creditor to grant '[any other] indulgence or consideration' to the debtor has been
held not to cover the making of a fresh loan at an enhanced rate of interest. The guarantor was not liable for
such increased liability without his assent
8
.
[252]
1 Mahant Singh v U Ba Yi [1939] AC 601 at 606-607, PC. For a clause waiving the guarantor's right where time is granted to
the principal debtor see Form 2 clause 4 [442] post.
2 Orme v Young (1815) Holt NP 84; Samuell v Howarth (1817) 3 Mer 272 at 278; Midland Motor Showrooms Ltd v Newman
[1929] 2 KB 256 at 263, CA; Durham Corpn v Fowler (1889) 22 QBD 394 at 417; Clarke v Birley (1889) 41 Ch D 422 at 434.
3 Overend, Gurney & Co Ltd (Liquidators) v Oriental Financial Corpn Ltd (Liquidators) (1874) LR 7 HL 348.
4 Howell v Jones (1834) 1 Cr M & R 97 at 107.
5 Clarke v Birley (1889) 41 Ch D 422; Frazer v Jordan (1857) 8 E & B 303.
6 Frazer v Jordan (1857) 8 E & B 303.
7 Overend, Gurney & Co Ltd (Liquidators) v Oriental Financial Corpn Ltd (Liquidators) (1874) LR 7 HL 348. See also Midland
Counties Motor Finance Co Ltd v Slade [1951] 1 KB 346, [1950] 2 All ER 821, CA.
8 Burnes v Trade Credits Ltd [1981] 2 All ER 122, [1981] 1 WLR 805, PC.
Commentary/G: AVOIDANCE AND DISCHARGE OF THE GUARANTEE/2: DISCHARGE/36 Release or loss
of securities and negligence regarding realisations
36 Release or loss of securities and negligence regarding realisations
[253]
Page 40
The guarantor is also discharged where the creditor releases securities, even if others are taken in
substitution; but not where they are realised
1
or temporarily released to the principal debtor against his
undertaking to return them
2
.
If the creditor through negligence fails to realise the security or realises the same negligently, the guarantor
may be discharged to the extent of his prejudice
3
, but does not enjoy a claim against the creditor for breach
of duty
4
, unless the creditor is in breach of an express or implied term of the guarantee.
[254]
1 Taylor v Bank of New South Wales (1886) 11 App Cas 596, PC.
2 Bushell v Collett (1862) 6 LT 20.
3 See Wulff v Jay (1872) LR 7 QB 756 and Barclays Bank plc v Kingston [2006] EWHC 533 (QB), [2006] 1 All ER (Comm)
519, but see also Carter v White (1883) 25 Ch D 666, CA. The guarantor will not automatically be discharged completely, but
his liability will be reduced by the extent to which the creditor's negligence has caused him loss: Skipton Building Society v Stott
[2001] QB 261, [2000] 2 All ER 779, CA, where in fact the best price reasonably obtainable for the security would, had it been
obtained by the creditor, have discharged the debt, and so the guarantor's liability was in fact extinguished completely. There is,
however, generally no duty upon a creditor to prevent a security from becoming worthless: China and South Sea Bank Ltd v
Tan Soon Gin (alias George Tan) [1990] 1 AC 536, [1989] 3 All ER 839, PC.
4 Watts v Shuttleworth (1861) 7 H & N 353; Rouse v Bradford Banking Co [1894] AC 586, HL; China and South Sea Bank
Ltd v Tan Soon Gin (alias George Tan) [1990] 1 AC 536 at 544, [1989] 3 All ER 839 at 841, PC; Downsview Nominees Ltd v
First City Corpn Ltd [1993] AC 295 at 315, PC.
Commentary/G: AVOIDANCE AND DISCHARGE OF THE GUARANTEE/2: DISCHARGE/37 Change of
parties and of position
37 Change of parties and of position
[255]
Where there is a change in the constitution of a firm, a continuing guarantee given to or in respect of the firm
is revoked, in the absence of agreement to the contrary
1
.
In the case of amalgamation and reconstruction of companies, a guarantee given before either event is
generally invalidated as to future transactions unless a contrary provision is contained in the guarantee
2
. A
guarantee of a definite amount due to a company (ie the creditor) at the date of its amalgamation has been
held to enure for the benefit of the new company formed to take over the assets and liabilities of that
company and another company
3
.
A guarantee of the regular payment of the interest payable in respect of a debenture until repayment by the
company of the principal sum due is not discharged by the dissolution of the company
4
.
Where a lease to a limited company contains a covenant by guarantors for the due payment of rent during
the term, and the company is later dissolved, the guarantors remain liable as the lease does not come to an
end, but vests in the Crown, the Duchy of Lancaster or the Duke of Cornwall, as appropriate, as bona
vacantia
5
. Where the liquidator of a company that is a tenant under a lease disclaims the lease, such
disclaimer terminates the liability of the company under the lease, but the lease is deemed to continue for the
purpose of continuing liabilities of third parties such as the original tenants and guarantors
6
.
Page 41
The release of one of several joint or joint and several guarantors without consulting the rest or reserving
remedies against them may discharge the remaining guarantors
7
.
[256]
1 Partnership Act 1890 s 18.
2 As to changes in the parties see 49 Halsbury's Laws (5th Edn) para 1205 et seq.
3 Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833, CA.
4 Re Fitzgeorge, ex p Robson [1905] 1 KB 462.
5 Companies Act 1985 s 654 (to be repealed from 1 October 2009, but the position will be the same under the Companies
Act 2006 s 1012, which comes into force on the same day).
6 Hindcastle Ltd v Barbara Attenborough Associates Ltd [1997] AC 70, [1996] 1 All ER 737, HL (but see now the Landlord
and Tenant (Covenants) Act 1995 s 5 as regards the position of tenants who assign the premises). If no vesting order is made,
though, and the landlord takes possession, the liabilities of such persons also ceases as regards the future, as the lease is then
treated as at an end for all purposes. The position is the same in cases of bankruptcy of individuals. The position is, however,
different where the disclaimer is by the Crown after dissolution of the company, as such a disclaimer by the Crown releases the
guarantor from liability, but his liability revives if the company is restored: Allied Dunbar Assurance plc v Fowle [1994] 1 EGLR
122, [1994] 2 BCLC 197.
7 Mercantile Bank of Sydney v Taylor [1893] AC 317, PC; see also Liverpool Corn Trade Association Ltd v Hurst [1936] 2 All
ER 309. However, whether any particular release has the effect of releasing co-guarantors will depend on construction of the
release, and suitable wording can reserve the creditor's rights against the released's co-guarantors: see Watts v Aldington
(1993) Times, 16 December, CA, and Johnson v Davies [1999] Ch 117, [1998] 2 All ER 649, CA and see generally Paragraph
33.2 [245] above.
Commentary/G: AVOIDANCE AND DISCHARGE OF THE GUARANTEE/2: DISCHARGE/38 Revocation
38 Revocation
[257]
A guarantor has power in certain circumstances to revoke a continuing guarantee
1
. If a guarantee does not
expressly stipulate for revocation by notice, and if the consideration for the guarantee is entire (ie a
once-and-for-all transaction), no notice can be given without the creditor's agreement
2
. If, on the other hand,
the consideration is divisible (eg advances made or to be made from time to time), the guarantee is
revocable in respect of liability to accrue in the future
3
. In such a case, the guarantor remains liable for any
sums incurred by the principal debtor up to and including the date of the notice
4
.
The death of a guarantor does not always automatically determine a guarantee
5
, although notice of death
does so if the guarantee was revocable and there is nothing to the contrary in its terms
6
.
[258]
1 As to revocation of continuing guarantees see Paragraph 21 [126] ante.
Page 42
2 Lloyd's v Harper (1880) 16 Ch D 290, CA.
3 Coulthart v Clementson (1879) 5 QBD 42.
4 If the guarantee is payable only on demand and a guarantor gives the prescribed notice (eg three months) at the end of
which liability ceases, the guarantor may escape liability if no demand is made before the end of the notice period: National
Westminster Bank plc v Hardman [1988] FLR 302, CA.
5 Bradbury v Morgan (1862) 1 H & C 249. In general, personal representatives are bound by the deceased's contractual
obligations even though they are not named in the contract: Basch v Stekel [2001] L & TR 1, CA.
6 Coulthart v Clementson (1879) 5 QBD 42, and see also Re Silvester, Midland Rly Co v Silvester [1895] 1 Ch 573.
[259]-[270]
Commentary/H: STAMP DUTY/39 Stamp duty on guarantees and indemnities
H: STAMP DUTY
39 Stamp duty on guarantees and indemnities
[271]
An instrument comprising a guarantee or indemnity would not itself be subject to stamp duty
1
, although an
instrument that is labelled an indemnity but is in fact more than an indemnity (and constitutes a transfer on
sale of stock or marketable securities) could give rise to a charge to stamp duty or stamp duty reserve tax.
The giving of an indemnity does not generally rank as consideration for the purposes of the 'transfer on sale'
as it is usually unascertainable at the date the instrument is executed. However if the indemnity were
ascertainable at that point, it is submitted that the value of that indemnity would result in the transfer being
stampable on that value.
For the purposes of stamp duty reserve tax, such an indemnity could rank as dutiable consideration on the
ground that it may amount to 'money's worth'
2
, although this would be relevant only in the case of transfers of
'chargeable securities' as defined
3
.
An instrument that purports to indemnify someone or which guarantees the payment of a stamp duty liability
is itself void
4
. The usual way round this is to draft the agreement such that the indemnifying party or the
guarantor agrees to pay 'an amount equal to the stamp duty liability' rather than the stamp duty itself. As
such, it is not an agreement falling within Section 117.
[272]
1 Stamp duty is, since the enactment of the Finance Act 2003 only chargeable on instruments transferring stock or
marketable securities: Finance Act 2003 s 125.
2 Finance Act 1986 s 87(1).
3 Finance Act 1986 s 99(4), (5) as amended by the Finance Act 1999 s 122 Sch 19 para 12 and SI 2003/2868.
Page 43
4 Stamp Act 1891 s 117.
[273]-[280]
Commentary/I: INDEMNITIES/40 General requirements and definitions
I: INDEMNITIES
40 General requirements and definitions
[281]
Generally, an 'indemnity' denotes a contract by which a promisor undertakes, by an original and independent
obligation, to indemnify on request any loss or damage suffered by the promise. It has already been
indicated that a contract of indemnity, as opposed to a contract of guarantee, is a contract by which the
promisor undertakes a primary obligation, as distinct from a secondary obligation dependent on the default of
a third party
1
.
An indemnity in this sense, unlike a guarantee, does not need to be evidenced in writing
2
. An indemnity to a
promisee against loss arising out of a contract between the promisee and a third party may be enforceable
even though the contract between the promisee and the third party is void, whereas a guarantee of the
performance of such a contract would itself be void
3
.
An indemnity may even render the indemnifier liable for loss suffered by the promisee upon termination of a
contract with a third party even though the third party was entitled to terminate the contract. The indemnifier
owes a primary liability that is not dependent upon any liability or default of the third party.
Indemnities can be classified according to the manner in which they arise, the subject matter of the
indemnity, and whether they are personal undertakings or are secured by a mortgage or charge on
property
4
.
[282]
1 As to contracts of indemnity and guarantee generally see Paragraphs 2 [2]-4 [11] ante. 'Contract of indemnity' in its widest
sense includes most contracts of insurance (see Castellain v Preston (1883) 11 QBD 380 at 386, CA), but it is not used in that
sense in this title.
2 See Paragraph 12 [57] ante.
3 As to void obligations under a contract of guarantee see Paragraph 31 [221] ante.
4 A contract of indemnification can be specifically performed with the result that the indemnifier can be ordered to pay the
amount concerned directly to the person to whom the relevant liability is owed by the party enjoying the right of indemnity: Firma
C-Trade SA v Newcastle Protection and Indemnity Association, The Fanti [1991] 2 AC 1 at 28, [1990] 2 All ER 705 at 711-712,
HL. As to enforcement see Paragraph 43 [285] post.
Page 44
Commentary/I: INDEMNITIES/41 Creation and classification of indemnities
41 Creation and classification of indemnities
[283]
Rights of indemnity may arise from an express or implied contract, from the relationship of the parties
1
, or by
statute
2
. This title is only concerned with rights of indemnity arising out of an express contract between the
parties, the main purpose of which is the creation of the indemnity.
The subject matter to which an indemnity may relate is virtually unlimited
3
. Reference should also be made
to other titles covering the subject matter of an intended indemnity.
1 Eg a guarantor's right to be indemnified by the principal debtor; see Duncan, Fox & Co v North and South Wales Bank
(1880) 6 App Cas 1, HL.
2 An instance of a statutory right of indemnity is the power of the court, where a trustee commits a breach of trust at the
instigation or with the written consent of a beneficiary, to order the impounding of all or any part of the beneficiary's singular
interest in the trust estate by way of indemnity to the trustee or persons claiming through him. See generally the Trustee Act
1925 s 62 as amended by the Married Women (Restraint upon Anticipation) Act 1949 s 1(4), Sch 2.
3 For forms of indemnity see Forms 38 [861]-52 [917] post.
Commentary/I: INDEMNITIES/42 Capacity of parties and construction of contracts
42 Capacity of parties and construction of contracts
[284]
The same rules apply to the capacity of persons or companies to grant indemnities as apply to the capacity
to grant guarantees
1
. The requisites of a contract of indemnity are the same as the common law requisites of
a contract of guarantee
2
. The ordinary rules of construction of contracts apply to covenants for indemnity.
1 As to capacity to grant guarantees see Paragraphs 6 [32]-8 [35] ante.
2 Ie mutual consent of two or more parties, the competency to contract on the part of those entering into it (see Paragraphs
6 [32]-8 [35] ante), and, where the agreement is not executed as a deed, valuable consideration. Note, however, that an
indemnity is not affected by the requirement of writing laid down in the Statute of Frauds (1677): see Guild & Co v Conrad
[1894] 2 QB 885, CA.
Commentary/I: INDEMNITIES/43 Enforcement, costs and subrogation
43 Enforcement, costs and subrogation
[285]
Page 45
The circumstances in which an indemnity is enforceable depends on its terms
1
. At law, an action upon a
contract of indemnity normally did not lie until the promisee had paid the third party's claim
2
. In equity, the
promisee may obtain relief as soon as his liability to the third party has arisen, and before he has actually
suffered loss
3
. An indemnity against loss under a contract with a third party may be enforceable even though
that contract is void
4
.
The date when time begins to run against a person entitled to an indemnity depends upon the nature and
extent of the indemnity, and the nature of the relief claimed
5
.
The court may also grant relief even before any liability has actually arisen in exceptional cases where there
are real grounds for fearing that the rights of the party indemnified are being put in jeopardy
6
.
In all cases where there is a contract of indemnity, the costs of proceedings properly incurred by the person
indemnified are recoverable
7
.
Both guarantor and indemnifier are subrogated to the rights of the creditor against the persons whose
obligation has been discharged
8
.
Where a sum is payable pursuant to an indemnity, the benefit can be assigned
9
.
[286]
1 Liability on an indemnity ceases if the holder of the indemnity so acts that the consideration for which the indemnity was
granted is destroyed: see Guy-Pell v Foster [1930] 2 Ch 169, CA (the act of the indemnified party was held to be a breach of an
implied term that repudiated the contract of indemnity).
2 Collinge v Heywood (1839) 9 Ad & El 633.
3 See Re Richardson, ex p St Thomas's Hospital (Governors) [1911] 2 KB 705 at 709, CA, per Cozens-Hardy MR. The
position in equity has prevailed: see Firma C-Trade SA v Newcastle Protection and Indemnity Association, The Fanti [1991] 2
AC 1 at 28, [1990] 2 All ER 705 at 711-712, HL. Jurisdiction exists to compel the person giving the indemnity to pay the amount
due directly to the third person or, where the giver of the indemnity is under no liability to the third person, to the person entitled
to the indemnity: see Firma C-Trade SA v Newcastle Protection and Indemnity Association, The Fanti.
4 As to void obligations generally see Paragraph 31 [221] ante.
5 See Telfair Shipping Corpn v Inersea Carriers SA, The Caroline P [1985] 1 All ER 243, [1985] 1 WLR 553.
6 Re Anderson-Berry, Harris v Griffith [1928] Ch 290, CA. There must be good evidence that liability will fall upon the party
entitled to be indemnified, even though the liability has not yet been ascertained.
7 Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555, [1957] 1 All ER 125, HL.
8 As to rights of a guarantor against a creditor see also Paragraph 23 [161] ante.
9 See generally Re Perkins, Poyser v Beyfus [1898] 2 Ch 182, CA.
Commentary/I: INDEMNITIES/44 Illegal indemnities
44 Illegal indemnities
[287]
Page 46
An express indemnity may be unenforceable for illegality
1
. In general, there is no enforceable right of
indemnity in respect of the consequences of a transaction involving a breach of the criminal law if the party to
the transaction or performing the act in respect of which the indemnity is claimed knew
2
, or if he had not
been grossly negligent, would have known
3
, that it was illegal, or if, being ignorant of the illegality of the
transaction or act, he knew of circumstances that rendered it unlawful
4
.
A contract of indemnity between tortfeasors in respect of a wrongful act committed by both is in general
unenforceable where the party claiming under the indemnity knew or may be presumed to have known that
he was committing a wrongful act
5
.
An indemnity of a particular kind may be rendered void or unenforceable by statute
6
.
[288]
1 As to indemnities unenforceable for illegality see 49 Halsbury's Laws (5th Edn) para 1269.
2 Burrows v Rhodes [1899] 1 QB 816, DC.
3 Askey v Golden Wine Co Ltd [1948] 2 All ER 35.
4 Burrows v Rhodes [1899] 1 QB 816, DC.
A motor insurance policy covering third party liability is, however, enforceable even when the claim arises from manslaughter.
This is because the law intends such acts to be covered: Tinline v White Cross Insurance Association Ltd [1921] 3 KB 327;
James v British General Insurance Co Ltd [1927] 2 KB 311.
5 W H Smith & Son v Clinton and Harris (1908) 25 TLR 34, distinguished in Bradstreets British Ltd v Mitchell and
Carapanayoti & Co Ltd [1933] Ch 190.
Note also the Civil Liability (Contribution) Act 1978 s 2(1) which makes provision for the assessment of contribution in
proceedings brought under the Civil Liability (Contribution) Act 1978 s 1, and which states that the amount to be recovered is
such as is found to be just and equitable, having regard to the extent of the contributor's responsibility for the damage in
question. The Civil Liability (Contribution) Act 1978 s 7(3) further provides that nothing in that Act shall either affect any express
contractual right to indemnity which would be enforceable apart from the Act or render enforceable any agreement for indemnity
not enforceable apart from the Act.
6 For example, a provision by which a company indemnifies a director of the company against liability that would otherwise
attach to him in respect of any negligence, default, breach of duty or breach of trust in relation to the company is, except in
specified circumstances, rendered void by the Companies Act 2006 s 232.
[289]-[310]
Commentary/J: PERFORMANCE BONDS/45 General
J: PERFORMANCE BONDS
45 General
[311]
Some contracts for sale of goods or services require the seller or contractor to procure the provision of a
Page 47
performance bond in favour of the buyer or client
1
. The bond is usually provided by a bank and will often
provide for payment to be made upon mere demand. The obligations under the bond are not dependent on
the obligations in the principal contract, and so the bond is not a guarantee. The bank cannot refuse to pay
based on any argument that the seller has, in fact, performed his obligations, or that there is some dispute
between the seller and the buyer. Bonds commonly provide that the buyer's demand shall be conclusive
evidence of both the obligation of the bank to pay and the amount to be paid.
The obligation to pay on demand is subject only to an exception for fraud. In such circumstances the seller
can obtain an injunction to prevent the bank from paying under the bond (as the bank will almost always
have a back to back indemnity from the seller, it will be in the seller's interest to stop payment). However,
there must be clear evidence of fraud, and the fraud must be known to the bank, or so obvious that it is the
only inference that could be drawn by the bank
2
. It is not for the bank to investigate and verify mere
allegations.
1 See 49 Halsbury's Laws (5th Edn) paras 1271 et seq.
2 See Banque Saudi Fransi v Lear Siegler Services Inc [2005] EWHC 2395 (Comm), [2006] 1 Lloyd's Rep 273, affd [2006]
EWCA Civ 1130, [2007] 1 All ER (Comm) 67.
[312]-[330]
Commentary/K: FACTORING/46 General
K: FACTORING
46 General
[331]
The subject matter of factoring is not within the scope of this title, but guarantees and indemnities are
frequently given in connection with factoring agreements
1
. Essentially a factor purchases the trade debts of a
supplier as they arise in the ordinary course of business in order to provide finance to the supplier, and to
relieve him of the task of administering his sales ledger, as well as to give some measure of protection
against bad debts.
1 For examples of forms of guarantee and indemnity under factoring agreements see Forms 25 [671] and 26 [675] post.
Commentary/K: FACTORING/47 Types of factoring agreement
47 Types of factoring agreement
[332]
Page 48
The following are the most important types of distinguishing characteristics
1
. However, this list is not
exhaustive:
47.1 Whether provision is made for recourse; if the factor assumes the risk that debts purchased by
it may prove to be irrecoverable, the agreement is described as being 'non-recourse'. Where,
on the other hand, the factor reserves the right of full recourse against the supplier, if the debt
is unpaid for any reason, the factor can require the supplier to repurchase the debt.
Intermediate agreements are possible, where the factor agrees to 'non-recourse' in the case of
certain debts approved by it and within approved credit limits.
47.2 Whether payment is made by the factor to the supplier in advance of collection or upon either
actual collection or the estimated date of collection; in advance factoring, the advance payment
is usually only of a certain percentage of the debt purchased by the factor, the remainder being
held until actual collection of the debt by the factor.
47.3 Whether the debtor is notified of the assignment of the debt to the factor; the supplier is often
required to notify the debtor of the assignment and require the debtor to make payment direct
to the factor. However, that is not always the case, and under 'block' or 'invoice' discounting
agreements no such notification is given, and the supplier collects the debts as agent for the
factor.
47.4 Whether the factoring agreement provides for actual purchase by the factor of debts due or
becoming due to the supplier, or instead provides for the supplier to offer each debt to the
factor, who may accept or reject the offer, in which case no purchase occurs until the factor
accepts the offer.
1 See further vol 4(2) BUSINESSES (2007 Reissue) Paragraph 142 and for a form of factoring agreement see vol 4(1) (2008
Reissue) BANKING Form 22.
Commentary/K: FACTORING/48 Common provisions of factoring agreements
48 Common provisions of factoring agreements
[333]
Most factoring agreements provide for the vesting of the debts in the factor by means of the imposition of an
obligation on the supplier to offer the debts, with a corresponding right in the factor to accept or reject any
debt. As the factor enjoys in effect an option to purchase each debt, such arrangements are often described
as 'facultative'.
As the factor is invariably concerned to ensure that any debt he purchases vests in him, many provisions
designed to secure that position are usually inserted in standard factoring agreements, (for example,
warranties by the supplier as to the value and validity of the debt, as to the rights surrounding the debt, and
as to subsequent incumbrances), as well as various undertakings given by the supplier not to vary or cancel
any contract by virtue of which the debt arises.
In addition, there is often provision in a factoring agreement by which a supplier undertakes or declares that
any payment received by him from a debtor in respect of a debt otherwise vested in the factor will be held in
trust for the factor
1
.
The undertakings and warranties given by the supplier are frequently supported by a guarantee given by a
Page 49
third party for the supplier's performance of them
2
.
1 See generally International Factors Ltd v Rodriguez [1979] QB 351, [1979] 1 All ER 17, CA.
2 For examples of a guarantee and/or indemnity see Forms 25 [671] and 26 [675] post.
Commentary/K: FACTORING/49 Breach of warranty
49 Breach of warranty
[334]
Should the factor suffer a breach of any of the appropriate warranties or undertakings at the hand of the
supplier, he may be unable to recover any of the debts supplied to him, or at most can recover only some of
them, dependent upon the nature of the breach in question. In such cases, the factor seeks recourse against
the supplier or relies upon any guarantee and/or indemnity given on behalf of the supplier
1
.
1 For examples of a guarantee and/or indemnity see Forms 25 [671] and 26 [675] post.
[335]-[400]
Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms and
Precedents/A: CHECKLIST/1 Checklist of points to consider when drafting a guarantee or an indemnity
(C) FORMS AND PRECEDENTS
A: CHECKLIST
1
Checklist of points to consider when drafting a guarantee or an indemnity
[401]
1
Guarantee or indemnity?
1.1
It is important to ensure that the instrument is clearly drawn up as a guarantee or as an indemnity
as appropriate.
The mere employment of those terms does not of itself constitute the contract one or the other
1
.
1.2
A contract of indemnity may need to contain provisions analogous to those found in guarantees,
eg provisions under which the indemnifier's liability is maintained despite any variation of or
Page 50
release under the principal contract
2
.
1.3
Consideration in both cases should be given to whether if the creditor acts to the prejudice of the
guarantor or indemnifier, the guarantor or indemnifier is to be discharged, or whether their liability
is to be maintained
3
.
[402]
2
Capacity, written evidence, co-sureties and consideration
2.1
A guarantee should cater for the possibility of the principal contract being or becoming void
through illegality or incapacity, but much depends upon the nature of the illegality. Very clear
language is required to maintain the liability of the guarantor in circumstances where the liability of
the principal debtor is void by reason of a statute
4
.
2.2
All statutory formalities, not only those prescribed by the Statute of Frauds (1677)
5
, should be
complied with.
Particular attention is drawn to the provisions of the Consumer Credit Act 1974 Section 105
6
.
2.3
If there are to be joint guarantors, the drafting should reflect the requirement that all must be
signatories or the instrument will not be fully binding and effective
7
. Where the guarantors are to
be jointly and severally liable, it may be sensible to include a provision that those who sign are
bound irrespective of whether other intended guarantors also sign, to prevent arguments over
whether the signing of some was conditional on others signing. Sometimes the principal debtor
must sign in conjunction with the guarantor
8
.
2.4
Past consideration generally causes a guarantee to fail. Every effort should therefore be made to
avoid that result, eg by reference to future advances, debts or goods, as well as to avoid any
suggestion that the transaction or the consideration is illusory
9
.
[403]
3
The type of guarantee
It is necessary to ensure that the instrument clearly addresses itself to the following principal
matters:
3.1
whether the guarantee is to be continuing or non-continuing
10
;
3.2
whether the guarantee is to be retrospective or not
11
;
3.3
whether the guarantee is to be unlimited in amount or limited
12
;
3.4
whether the guarantee is to be in respect of the whole debt or only part of the debt
13
;
3.5
whether the guarantee is to have a limited duration (as is the case with many standard form bank
guarantees);
3.6
whether the guarantee clearly addresses itself to the principal transaction or transactions
guaranteed, including any contingent liability, and to how liability or indebtedness is to be
established, eg by use of a so-called 'conclusive evidence' clause
14
;
3.7
whether and how the guarantee requires the creditor to prove that the guarantor is liable
15
.
[404]
4
Avoidance, discharge and enforcement
4.1
When advising a creditor, consideration should be given to providing for protection against the
possibility of the discharge of the guarantor by:
Page 51
4.1.1
a material variation of the principal contract
16
;
4.1.2
the giving of time to the principal debtor
17
;
4.1.3
the release of any co-guarantor
18
;
4.1.4
the impairment to or release of any security held in support of the principal
obligation
19
;
4.1.5
a release of the principal by operation of law
20
;
4.1.6
a novation or assignment of the principal contract
21
.
4.2
Other matters that should be considered include:
4.2.1
providing for the continuing liability of the guarantor in the event that the creditor
accepts the principal debtor's repudiatory breach of contract
22
;
4.2.2
availability or non-availability to the guarantor of defences or cross-claims that would
be open to the principal debtor eg set-off or counterclaim;
4.2.3
provision for the guarantee to remain in force if any security or payment received by
the creditor is set aside as a preference or transaction at an undervalue under the
Insolvency Act 1986, notwithstanding that but for the preference or transaction being
set aside, the creditor would have been paid in full
23
;
4.2.4
appropriation of payments
24
;
4.2.5
where relevant, the question of whether provision should be made for the currency in
which monies payable under the guarantee are to be paid, and where such monies are
to be paid
25
;
4.2.6
where relevant, whether provision should be made concerning the effects of
taxation
26
;
4.2.7
providing for the continuance of the guarantee despite any changes in the constitution
of the parties
27
;
4.2.8
where relevant, whether express provision should be made relating to the governing
law of the guarantee and to jurisdiction
28
;
4.2.9
where there is more than one guarantor, the nature of their obligations
29
.
[405]
4.3
A guarantee may need to provide for the right to revoke, in which case consideration should be
given as to how to deal with the liability of the principal accruing before and after the date of
expiration and/or before and after notice of revocation
30
.
4.4
Provision should sometimes be made for bankruptcy or insolvency of any or all the parties, and
the following should be covered:
4.4.1
the effect of payments received from the guarantor prior to the bankruptcy of the
principal debtor and the right of the creditor nonetheless to prove for the full amount of
the debt;
4.4.2
the ability of the guarantor to prove in the principal's bankruptcy, eg whether this is
excluded until the creditor has been paid in full or whether the guarantor proves in the
bankruptcy, but as trustee for the creditor
31
.
4.5
The requirements for making a demand must be clearly stated and sometimes specific provision
about service should be considered
32
.
If there is to be a condition precedent to the guarantor's liability, this should be specified with care,
Page 52
often with reference to the statement of consideration and recitals
33
.
[406]
5
Rights of the guarantor
If in a position to do so, a guarantor should at least consider requiring that the following matters, to
which he might or might not otherwise be entitled, be embodied in the instrument:
5.1
the right to quia timet relief by injunction application
34
;
5.2
the right to contribution, particularly in cases in which a co-guarantor has effected the release of
the principal debtor
35
;
5.3
an entire claim to be subrogated to the creditor's rights on payment
36
;
5.4
a full indemnity against the principal debtor
37
;
5.5
a requirement for notice of default by the principal debtor to be given to the guarantor as a
condition precedent to his liability, there being no right to such notice in the absence of a contrary
term in the agreement
38
.
[407]
1 As to distinctions between guarantees and indemnities see Paragraph 4 [11] ante.2 As to
which see Paragraph 34 [249] ante.3 As to which see Paragraphs 34 [249] to 36 [253] ante.4
See Coutts & Co v Stock [2000] 2 All ER 56, [2000] 1 WLR 906. As to capacity see Paragraphs 6
[32]-8 [35] ante. For an example of a clause preserving liability despite illegality or incapacity see
Form 11 clause 3.3 [500] and also Form 13 clause 6 [512] post.5 Ie the Statute of Frauds
(1677) s 4 as amended. As to the formalities see Paragraph 10 [51] et seq ante.6 See vol
12(1)A (2007 Reissue) CONSUMER CREDIT Paragraph 90 [351] et seq and Form 48 [898] et
seq.7 See National Provincial Bank of England v Brackenbury (1906) 22 TLR 797; James
Graham & Co (Timber) Ltd v Southgate Sands [1986] QB 80, [1985] 2 All ER 344, CA.Note also
that any express or implied conditions precedent to a guarantor's liability must be fulfilled before
he can be made liable. See eg Associated Japanese Bank (International) Ltd v Crdit du Nord SA
[1988] 3 All ER 902, [1989] 1 WLR 255.
8 Eg where the principal is also a cross-guarantor; see for example Form 15 [530].
9 As to consideration see Paragraph 9 [39] ante.10 Eg a guarantee of all money that is now
or may from time to time hereafter be owing or remain unpaid, as opposed to eg the guarantee in
Morrell v Cowan (1877) 7 Ch D 151, CA, which stated the consideration as the creditor 'having at
my request agreed to supply and furnish goods' to a person. As to continuing and non-continuing
guarantees see Paragraph 19 [122] ante.11 But see Paragraph 9 [39] ante.12 As to limited
and unlimited guarantees see Paragraph 20 [124] ante.13 See Paragraph 20 [124]
ante.[408]14 Such clauses are generally valid: see Paragraph 26 [191] ante. See also eg
Bache & Co (London) Ltd v Banque Vernes et Commerciale de Paris [1973] 2 Lloyd's Rep 437,
CA; but see also Re Kitchin, ex p Young (1881) 17 Ch D 668, CA. For such a clause see Form 11
clause 3.4 [500] post.15 As to liability of the guarantor generally see Paragraph 26 [191] et seq
ante.16 As to variation see Paragraph 34 [249] ante.17 As to giving of time see Paragraph
35 [251] ante and Form 2 clause 4 [442] post. For an example of a clause making provision for the
giving of time see Form 13 clause 4.2 [510] post.18 See Forms 8 clause 5 [493] and 34 clause
9 [823] post.19 As to release of securities see Paragraph 36 [253] ante. See for example Form
14 clause 10.3.2 [520] post.20 As to release see Paragraph 33.2 [245] ante.21 As to
novation see Paragraph 33.2 [245] ante.22 Wording in a guarantee such as 'if the debtor is in
default of any payment I will immediately make the payment in default on behalf of the debtor'
does not necessarily render the guarantee ineffective on determination of the principal contract:
see eg Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 2 All ER 29, [1980] 1 WLR 1129,
HL, and generally Moschi v Lep Air Services Ltd [1973] AC 331, [1972] 2 All ER 393, HL.23
See eg the Insolvency Act 1986 ss 238-241 as amended by the Enterprise Act 2002 s 248 Sch 17
Page 53
for the case of liquidators. Invariably, standard bank guarantees stipulate that a bank can retain
the guarantee for longer than the appropriate period during which a preference or transfer at an
undervalue may be set aside.[409]24 See Form 7 clause 4 [455] post.25 See eg Form 15
clauses 18 [540] and 19 [541] post.26 See Form 15 clause 18 [540] post.27 See eg Form 15
clauses 14 [538] and 17 [539] post.28 See eg Form 14 clause 26 [527] post.29 See eg Form
13 clause 10 [513] post.30 As to revocation of continuing guarantees see Paragraph 21 [126]
ante. For an example of a clause providing for revocation see Form 11 clause 3.1 [500] post. See
also Form 14 clause 4 [517] post.31 For a form of clause prohibiting the guarantor from proving
in competition with the creditor see Form 13 clause 5 [510] post, and for a long form clause
dealing with proof by the guarantor (including the possibility of being directed by the creditor to
prove in the liquidation or bankruptcy of the principal debtor and to hold the dividends on trust for
the guarantor) see Form 14 clause 12 [521] post.32 As to demands see Paragraph 26 [191]
ante. For a form of clause providing for methods of service etc see Form 14 clause 24 [526]
post.33 As to conditions precedent see Paragraph 26 [191] ante.34 As to enforcement by
injunction see Paragraph 24 note 6 [166] ante.35 As to rights of guarantors inter se see
Paragraph 25 [168] ante.36 As to subrogation see Paragraph 23 [161] ante.37 As to rights
against the principal see Paragraph 24 [164] ante.38 For an example see Form 8 clause 2 [492]
post.[410]-[440]
Precedents/B: GUARANTEES RELATING TO THE SUPPLY OF GOODS/2 Continuing guarantee, limited in
amount, for the supply of goods to a trader
B: GUARANTEES RELATING TO THE SUPPLY OF GOODS
2
Continuing guarantee, limited in amount, for the supply of goods to a trader
[441]
To: (name of supplier)
of: (address of supplier)
GUARANTEE FOR SUPPLY OF GOODS
IN CONSIDERATION of your having at my request agreed to supply (name of principal debtor) ('the
Principal') of (address of principal debtor) with goods for his trade and business as a (details of trade or
business) ('Trade Goods') now carried on by him at (address where trade or business carried on)
NOW I (name of guarantor) of (address of guarantor) AGREE WITH YOU as follows:
1
I will GUARANTEE and be answerable and responsible to you for the due payment by the
Principal for all Trade Goods that you may from time to time at his request supply [and deliver] to
him:
1.1
notwithstanding that I may not have notice of any neglect or omission on his part to
pay for any Trade Goods supplied by you according to the terms agreed on between
you and him, but
Page 54
1.2
so that my liability under this Guarantee is not to exceed in aggregate the sum of ...
[442]
2
This Agreement is to be a continuing guarantee
1
to you (within the above limits) for the whole
debt that is contracted with you by the Principal in respect of Trade Goods to be supplied [and
delivered] to him and, for the avoidance of doubt, is to be treated as security for the whole debt
2
and not for so much of it as equals the limit of my liability as stated in clause 1.2 above.
3
All dividends compositions and payments received by you from the Principal or from his estate,
whether in bankruptcy or otherwise, are to be taken and applied by you as payments without you
making any deduction in respect of any claim arising under this Guarantee
3
; and my right to be
subrogated
4
to you in respect of such dividends or payments shall not arise until you have
received the full amount of all your claims against the Principal
5
.
4
You may at any time or times at your absolute discretion, and without giving any notice whatever
to me, refuse further credit or supplies to the Principal and grant to him, or to any drawers,
acceptors or endorsers of bills of exchange, promissory notes or other securities received by you
from him or on which he may be liable to you, any time or other indulgence and compound with
him or them respectively without discharging or impairing my liability under this Guarantee
6
.
[443]
5
This Guarantee may be enforced against me notwithstanding that any negotiable or other
securities referred to in this document, or to which this Guarantee extends or is applicable, are at
the time of proceedings being taken against me on this Guarantee outstanding or in circulation.
[6
(where the supplier is a partnership) No changes in the constitution of your firm shall impair or
discharge my liability under this Guarantee notwithstanding Section 18 of the Partnership Act
1890]
7
[7
In order to give effect to this Guarantee I declare that you shall be at liberty to act as though I
were a principal debtor and I now waive all and any of my rights as guarantor that may at any time
be inconsistent with any of the above provisions. In particular, and without prejudice to the
generality of the foregoing, no variation of your contract or contracts with the Principal falling
within clause 1 above, or of the mode of performance thereof, shall discharge me from liability
under this Guarantee even though I may not have consented to such variation.]
8
This Guarantee shall be revocable
8
at any time as to future transactions by (state period, eg 3
months') notice in writing given to you or your duly authorised agent by me or, in case of my
death, by my personal representatives, but shall not affect my liability (or my estate's liability) for
transactions entered into before notice of revocation was received.
Dated:
(signature of guarantor)
[444]
1 As to continuing guarantees see Paragraph 19 [122] ante.
Page 55
2 Where a guarantor gives a continuing guarantee limited in amount in respect of a debt not already ascertained, eg to
secure payment for goods to be supplied or advances to be made, the intention to make the guarantee operate as a security for
the whole debt should be clearly expressed: see Ellis v Emmanuel (1876) 1 Ex D 157, CA, applied in Forster Dry Cleaning Co
Ltd v Davidson (1963) 187 Estates Gazette 519. The question is important in relation to proof in bankruptcy.
3 Such dividends etc are sometimes described as payments 'in gross', although the term is drawn from a somewhat different
context, relating to money payable by a mortgagor of land (formerly said to be payable in gross), as distinct from rents drawn
from the land.
4 As to rights of subrogation see Paragraph 23 [161] ante.
5 There seems little point in adding a provision to the effect that a guarantee is to represent a security for the payment of any
'ultimate balance', as that phrase serves not only to confuse the rights the creditor already clearly possesses in this form of
guarantee, but also produces the risk of an argument by the guarantor that he is not answerable to the creditor at all unless and
until all other realisations have been got in for and on behalf of the creditor.
6 As to the effect of the giving of time or other indulgence to the principal in the absence of a clause of this type see
7 As to the effect of changes in the constitution of a partnership see Paragraph 37 [255] ante.
8 As to the need for an express power of revocation see Paragraph 21 [126] ante.
Precedents/B: GUARANTEES RELATING TO THE SUPPLY OF GOODS/3 Continuing guarantee for the
supply of goods to a trader--short form
3
Continuing guarantee for the supply of goods to a trader--short form
[445]
IN CONSIDERATION of your having agreed at my request to supply (name of trader) ('the Trader') of
(address of trader) with goods for his business ('Trade Goods')
NOW I (name of guarantor) of (address of guarantor) AGREE that:
1 I shall be responsible to you for the price of all Trade Goods that you may supply to the Trader
[up to a limit of ... being outstanding from the Trader to you at any given time]
1
2 Subject to the limit in 1 above my liability to you shall be in respect of the whole debt
2
but the
maximum aggregate recoverable from me under this Guarantee shall be the sum of ...
3
3 This Guarantee is a continuing
4
guarantee and security and my liability under it shall not be
affected by your giving time or any other indulgence to the Trader
I RESERVE the right for myself or my personal representatives by notice to revoke
5
this Guarantee at any
Page 56
time as to all future dealing by the Trader with you after the date of such notice
Dated:
[446]
1 The optional wording in the square brackets should be used if the guarantor wishes to prevent unlimited indebtedness as a
result of which the trader's capacity to pay the guaranteed debt might diminish.
2 As to the need to make clear that the guarantee covers the whole debt see Form 2 note 2 [444] ante.
3 This sum (the limit on the guarantor's liability) need not be the same figure as in clause 1 (which is by contrast the limit on
the outstanding indebtedness at any time of the debtor to the creditor).
4 As to continuing guarantees see Paragraph 19 [122], and as to agreements to give time see Paragraph 35 [251] ante.
Precedents/B: GUARANTEES RELATING TO THE SUPPLY OF GOODS/4 Continuing guarantee for the
supply of goods to a trader--co-guarantors with unequal liabilities
4
Continuing guarantee for the supply of goods to a trader--co-guarantors with unequal liabilities
[447]
IN CONSIDERATION of your having at our request agreed to supply (name of principal debtor) ('the
Principal') of (address of principal debtor) with goods ('Trade Goods') for his trade carried on at (address
where trade carried on)
NOW WE, the undersigned, AGREE WITH YOU as follows:
1 We GUARANTEE to you the payment by the Principal for all Trade Goods supplied by you to him
as mentioned above, but subject to the limit on our aggregate and individual liability set out in
clauses 3 and 4 below.
2 This Guarantee shall be a continuing guarantee
1
.
Page 57
3 Our aggregate liability under this Guarantee shall not exceed the sum of ... (insert total of the
individual liabilities).
4 The proportion and share of liability of each of us individually in respect of the sum stated in
clause 3 above shall not exceed in amount the sum placed opposite our respective signatures at
the foot of this document; PROVIDED that if one or more of us during the continuance of this
Guarantee becomes bankrupt or the subject of a voluntary arrangement or is unable to pay his
debts within the meaning of the Insolvency Act 1986 or is otherwise unable to discharge and
satisfy his individual liability under this Guarantee, any deficiency caused by that event shall be
made good by the remainder of us in proportion to our individual liability under this Guarantee
2
.
5 Should the common liability be less than the sum stated in clause 3 above, the share due from
each of us in respect of it shall be paid in proportion to his individual liability under this Guarantee
and not otherwise.
[448]
6 Within the limits of liability set out in clauses 2 to 5 above, this Guarantee shall extend to and be
applicable to the whole debt
3
due to you from the Principal in respect of goods supplied by you to
him as mentioned above and not merely to so much of the debt as equals the limit of our liability.
7 You may without discharging us or any of us from liability under this Guarantee:
7.1 grant time or other indulgence
4
to the Principal in respect of goods supplied by you as
mentioned above;
7.2 agree with the Principal (but without need for our consent) any variation to the terms of your
agreement with the Principal;
7.3 accept payment from him in cash or by means of negotiable instruments; and
7.4 treat him in all respects as though we were jointly liable with him as debtors to you instead
of being merely guarantors of the Principal.
8 This Guarantee shall at our option be revocable
5
at any time as to future transactions by (state
period, eg 3 months') notice in writing given to you or your agent by us jointly and, in case of our
death or the death of any one or more of us, by our respective personal representatives or the
survivors or survivor of us and the personal representatives of such as may be deceased.
[449]
Dated:
Names and signatures of guarantors Amount guaranteed
(name of first guarantor) (insert amount)
Signed
(name of second guarantor) (insert amount)
Signed
(continue as necessary for all guarantors)6
[450]
Page 58
2 Amongst the guarantors themselves, the contribution of each depends on the amount of his individual liability: Pendlebury
v Walker (1841) 4 Y & C Ex 424 at 441. However, in the case of the insolvency of any one of their number, liability is
proportionately increased: Lowe v Dixon (1885) 16 QBD 455 at 458.
3 Where a guarantor gives a continuing guarantee limited in amount in respect of a debt not already ascertained, eg to
secure payment for goods to be supplied or advances to be made, the intention to make the guarantee operate as a security for
the whole debt should be clearly expressed: see Ellis v Emmanuel (1876) 1 Ex D 157, CA, applied in Forster Dry Cleaning Co
Ltd v Davidson (1963) 187 Estates Gazette 519. The question is important in relation to proof in bankruptcy.
6 If the guarantors are to be joint obligors, all the guarantors must sign, because if not, none of them is bound: National
Provincial Bank of England v Brackenbury (1906) 22 TLR 797; James Graham & Co (Timber) Ltd v Southgate Sands [1986] QB
80, [1985] 2 All ER 344, CA. In any event, all should sign as otherwise there may be arguments as to whether liability was to be
conditional on all signing. If there is a risk that one or more contemplated guarantors may not sign, consideration should be
given to adding a clause that states that all those who sign are bound, notwithstanding that one or more of the contemplated
guarantors does not sign.
Precedents/B: GUARANTEES RELATING TO THE SUPPLY OF GOODS/5 Continuing guarantee in respect
of the supply of goods to a non-trader
5
Continuing guarantee in respect of the supply of goods to a non-trader
[451]
IN CONSIDERATION of your agreeing to supply (name of principal debtor) ('the Principal') of (address of
principal debtor) with goods on credit ('Credit Goods')
NOW I (name of guarantor) of (address of guarantor) AGREE WITH YOU as follows:
1 I shall be answerable and responsible to you for the due payment by the Principal for all Credit
Goods that you may from time to time supply to him but my liability under this Guarantee shall not
at any one time exceed the sum of ....
1
Page 59
2 This Agreement shall be a continuing
2
guarantee to you for all debts whatever and whenever
contracted by the Principal with you in respect of Credit Goods to be supplied to him subject
always to the above limitation.
3 You may, without notice to me at any time and without in any way discharging me from my
liability under this Guarantee:
3.1 grant time or other indulgence
3
to the Principal;
3.2 accept payment from him in cash or by means of negotiable instruments; and
3.3 treat me in all respects as though I were jointly and severally liable with him to you
instead of being merely guarantor for him.
Dated:
[452]
1 As to limited guarantees see Paragraph 20 [124] ante.
2 As to continuing and non-continuing guarantees see Paragraph 19 [122] ante.
Precedents/B: GUARANTEES RELATING TO THE SUPPLY OF GOODS/6 Guarantee in respect of goods
supplied to third person, limited to one transaction
6
Guarantee in respect of goods supplied to third person, limited to one transaction
[453]
NOW I (name of guarantor) of (address of guarantor) AGREE as follows:
1 I shall be answerable to you for the price of (amount and description of goods to be supplied) to
be delivered to (name of principal debtor) of (address of principal debtor) ('the Principal') on (date)
Page 60
payable in one month from the date of delivery.
2 This Guarantee is not a continuing guarantee
1
(being instead limited to the single transaction
referred to above) but my liability shall not be terminated or affected by my death [or by any
change in the constitution of your firm
2
] or by your giving time or other indulgence to the
Principal
3
.
Dated:
[454]
1 As to continuing and non-continuing guarantees see Paragraph 19 [122] ante.
2 The words in square brackets should be used if the supplier is a partnership.
3 As to the effect of changes in the parties see Paragraph 37 [255] ante, as to the effect of the giving of time or other
indulgence to the principal in the absence of a clause of this type see Paragraph 35 [251] ante.
Precedents/B: GUARANTEES RELATING TO THE SUPPLY OF GOODS/7 Guarantee in respect of goods,
limited to one transaction, with appropriation of payments
7
Guarantee in respect of goods, limited to one transaction, with appropriation of payments
[455]
IN CONSIDERATION of your agreeing to supply (name of principal debtor) ('the Principal') of (address of
principal debtor) with goods for his trade and business as a (details of trade or business) up to but not
exceeding the sum of ...
NOW I (name of guarantor) of (address of guarantor) AGREE that:
1 I guarantee to you the payment of the said sum of ...
2 This Guarantee is not a continuing guarantee or security
1
3 This Guarantee shall not extend or apply to any goods that shall be supplied by you, whether at
Page 61
one time or otherwise, to the Principal in excess of the sum of ...
2
4 All payments made by the Principal to you after the date of this Guarantee on account of goods
supplied to him by you must be appropriated
3
by you in reduction of any liability under this
Guarantee until the said sum of ... has been wholly paid or satisfied by the Principal and my
liability under this Guarantee has been by that or in some other way discharged.
Dated:
[456]
1 As to continuing and non-continuing securities see Paragraph 19 [122] ante.
3 Appropriation to the guaranteed debt of payments made by the debtor cannot be insisted upon by the guarantor in the
absence of express stipulation to that effect: see Re Sherry, London and County Banking Co v Terry (1884) 25 Ch D 692 at
704, 705, CA.
[457]-[490]
Precedents/C: GUARANTEES RELATING TO MONEY/8 Guarantee regarding money lent or advanced--for
use by an individual or for joint and several liability
C: GUARANTEES RELATING TO MONEY
8
Guarantee regarding money lent or advanced--for use by an individual or for joint and several liability
[491]
To: (name of lender)
of: (address of lender)
GUARANTEE FOR REPAYMENT OF MONEY LENT
[(guarantee for limited indebtedness)
IN CONSIDERATION of your having at [my (or) our] request agreed to advance to (name of principal debtor)
('the Principal') of (address) sums of money, not exceeding at any time [in the aggregate] the sum of ...,
Page 62
that he may require during the period of (number) years from (date).
NOW [I (name of guarantor) of (address) (or) WE (names) of (addresses)] AGREE WITH YOU as follows:
1
[I (or) We] guarantee to you the repayment by the Principal of all sums of money advanced by you
to him as set out above with interest at the rate of ......% a year.]
[(guarantee for unlimited indebtedness)
IN CONSIDERATION of your agreeing to provide facilities and other accommodation to (name of principal
debtor) ('the Principal') of (address)
NOW [I (name of guarantor) of (address) (or) WE (names) of (addresses)] AGREE WITH YOU as follows:
[492]
1
[I (or) We] as principal obligor[s], unconditionally and irrevocably guarantee to you the due
payment and discharge by the Principal of all his present and future indebtedness and other
liabilities to you, whether actual or contingent (or whether incurred solely or jointly) as well as
payment of all interest, commission, charges and expenses payable by him to you.]
(in both cases)
2
Notice in writing of any default on the part of the Principal is to be given by you
1
to [me (or) us]
and within ...... days from receipt of such notice, payment shall be made by [me (or) us] of all
sums then due from [me (or) us] under this Guarantee [PROVIDED that any certificate by your
authorised representative or officer of the amount payable shall be conclusive unless manifestly
incorrect].
3
This Guarantee shall be a continuing guarantee [within the limits set out above as to time and
amount].
[493]
[(where joint and several liability required)]
4
Subject to clause 7 below our liability under this guarantee is joint and several.]
2
5
[I (or) We] shall not be discharged by time or any other indulgence or concession given to the
Principal or any third party by you, or by anything you may do or omit to do or by any other
dealing, act or omission that but for this provision would discharge [me (or) us] as guarantor[s].
[(where liability is to be limited)
3
6
This Guarantee is a guarantee of the aggregate sums owing by the Principal to you [but our total
[joint and several] liability under this Guarantee shall under no circumstances exceed the sum of
...].]
7
[I (or) Any one of us] shall be at liberty at any time to withdraw from all liability under this
Guarantee on payment to you of the sum of ... or of so much of it as shall not already have been
satisfied by payment or otherwise and in the event of [my death (or) the death of any one of us]
[my (or) the deceased guarantor's] personal representatives shall be at liberty to exercise the like
Page 63
power of withdrawal and shall by doing so relieve [my (or) the deceased guarantor's] estate of
future liability under this Guarantee
4
.
Dated:
(signature(s) of guarantor or guarantors)
[494]
1 Without such a clause, the guarantor is not entitled to notice of the principal debtor's default or conduct. See Eshelby v
Federated European Bank Ltd [1932] 1 KB 423, CA.
2 Normally, the death of one guarantor does not determine the liability of the survivor where such liability is joint and several.
4 As the person to whom the guarantee is given may recover the total amount due under the guarantee from any one of the
guarantors jointly and severally liable, this clause will generally be of some benefit to a guarantor. It will not, however, relieve
him or his estate of liability to contribution in the event of the remaining guarantors having ultimately to pay more than their
share of the common liability owing to the insolvency of one or more of them. As to rights of guarantors between themselves
see Paragraph 25 [168] ante. On the other hand, where there is only one guarantor, a provision enabling him to withdraw from
the guarantee at any time on payment of a sum of money would certainly be of advantage to the guarantor, particularly in cases
where the guarantee is otherwise irrevocable.
Precedents/C: GUARANTEES RELATING TO MONEY/9 Guarantee regarding money lent or advanced with
charge as security for advance to third person
9
Guarantee regarding money lent or advanced with charge as security for advance to third person
1
[495]
To: (name of lender)
of: (address of lender)
GUARANTEE FOR MONEY LENT OR ADVANCED
IN CONSIDERATION of your advancing to (name of principal debtor) ('the Principal') of (address) at my
request the sum of ...... as a loan for the period of (number) years from the date of this Guarantee
NOW I (name of guarantor) of (address) AGREE WITH YOU as follows:
1 I will on demand make good and guarantee any default on the part of the Principal or his estate in
the payment of the loan and of all interest due on it.
2 I will deposit immediately in your hands the [security (or) securities] referred to in the Schedule to
Page 64
this Guarantee ('the [Security (or) Securities]') as collateral security for the loan until the
repayment or satisfaction of it with interest at the rate of ......% a year.
3 The [Security (or) Securities] are charged by me with the payment of the loan and interest and
shall not be sold or further charged or otherwise disposed of by me in any way without your
consent in writing first obtained so long as anything shall remain due to you in respect of the loan
or from me under this Guarantee.
[496]
4 I will whenever required by you to do so execute at my own expense [a proper transfer (or)
proper transfers] to you of [so much (or) so many] of the [Security (or) Securities] as [is (or) are]
capable of being transferred together with the power of sale and all other necessary powers for
securing and enforcing the repayment of the loan and interest (save that no such sale or other
enforcement shall be exercised unless I have failed to discharge in full the loan and interest within
(number) days following demand being made under clause 1 above).
5 Giving of time to the Principal or neglect or forbearance by you in requiring or enforcing payment
of the loan and interest or other indulgence shall not in any way prejudice or affect my liability
under this Guarantee
2
.
Dated:
SCHEDULE
The [Security (or) Securities]
(describe the deposited security or securities)
[497]
1 The terms of this guarantee represent an outline of the basic terms required. Where more detailed provisions are required,
the provisions of the bank guarantees set out in Forms 11 [499]-14 [516] post can be adopted and modified as appropriate.
Precedents/C: GUARANTEES RELATING TO MONEY/10 Guarantee of debt in consideration of
discontinuance of proceedings or promise not to sue
10
Page 65
Guarantee of debt in consideration of discontinuance of proceedings or promise not to sue
[498]
To: (name of creditor)
of: (address of creditor)
GUARANTEE OF DEBT
IN CONSIDERATION of your having at my request agreed to [forego (or) discontinue (or) your undertaking
not to sue or take] any legal proceedings that you are or may be entitled to maintain against (name of
principal debtor) ('the Principal') of (address) in respect of the sum of ... ('the Debt') that he owes you
NOW I (name of guarantor) of (address) AGREE WITH YOU as follows:
1 I guarantee the payment to you of:
1.1 the Debt or such part of the Debt as the Principal shall not have repaid to you within
(number) months from the date of this Guarantee, and
1.2 ... in respect of interest, and
1.3 all reasonable costs charges expenses up to but not exceeding ... that have already been
incurred by you for the purpose of recovering the Debt
by equal monthly instalments commencing on (date of first instalment)
2 Any and all payments made to you by the Principal are to be applied in the first place in or
towards payment or reduction of, first the sums mentioned in clause 1.3 above, then accrued
interest, and then the Debt.
Dated:
Precedents/C: GUARANTEES RELATING TO MONEY/11 Guarantee and indemnity with security--long form
(corporate guarantor)
11
Guarantee and indemnity with security--long form (corporate guarantor)
[499]
THIS GUARANTEE AND INDEMNITY is made the ...... day of ...... ......
BETWEEN:
Page 66
(1) (name of guarantor) Company Registration Number (number) the registered office of which is at
(address) [together with (name etc of any other guarantor)] ('the Guarantor[s]') and
(2) (name of bank) the registered office of which is at (address) ('the Bank')
NOW IT IS AGREED as follows:
1 Interpretation
In this Guarantee the following words and expressions have the following meanings:
1.1 'this Guarantee' means this guarantee and indemnity as amended or supplemented from time to
time;
1.2 'the Debenture' means the debenture in the form annexed to this Guarantee to be granted by the
Guarantor[s] in favour of the Bank;
1.3 'the Indebtedness' means all the Principal's present or future indebtedness to the Bank on any
account, whether current or otherwise, and all the Principal's other liabilities to the Bank
whatsoever and wheresoever including without limitation any and all liability arising under bills of
exchange, promissory notes, guarantees and indemnities, actual or contingent, whether or not
matured or accrued due and whether incurred solely, severally or jointly with any other person in
whatever currency, together with interest, commission, bank charges and any other costs,
charges and expenses (on a full indemnity basis) charged or incurred by the Bank in enforcing
this Guarantee and any other security held by the Bank from time to time;
1.4 'the Principal' means (name of principal debtor).
[500]
2 Guarantee
In consideration of the Bank making available or continuing to make available banking facilities for
so long as it thinks fit to the Principal the Guarantor[s] hereby [jointly and severally] guarantee[s]
to pay to the Bank on demand all money and discharge the Indebtedness as primary obligor and
not only as guarantor; and also agree[s] to indemnify the Bank on demand from and against any
loss it may incur as a result of or in connection with its having now or hereafter advanced any
money to the Principal [PROVIDED that the total principal amounts recoverable hereunder shall
not exceed ...] together with interest thereon and all other sums due under this Guarantee.
3 Continuing security
1
3.1 This Guarantee is a continuing security and shall secure the ultimate balance owing from time to
time to the Bank by the Principal notwithstanding the liquidation, administration or other
insolvency or other incapacity of or any change in the constitution of the Principal or of the
Guarantor[s] or any of them or in the name or style thereof or any settlement of account or any
matter whatsoever until 3 months after receipt by the Bank of notice
2
in writing to determine the
same signed by [all (or) any one or more of] the Guarantor[s] PROVIDED that such notice shall
not affect the liability of any of the Guarantor[s] for money, obligations or liabilities, present or
future, actual or contingent, due, owing or incurred prior to the expiration of such 3-month period
[and PROVIDED further that notwithstanding the determination as to one or more of the
Guarantor[s] this Guarantee shall remain as a continuing security as to the others].
3.2 This Guarantee is in addition to and shall not merge with or otherwise prejudice or affect any
Page 67
contractual right or remedy or any guarantee, indemnity, lien, pledge, bill, note, mortgage, charge
or other security now or hereafter held by the Bank.
3.3 This Guarantee shall not be discharged or affected by any failure of or defect or informality in any
security given by or on behalf of the Principal in respect of the Indebtedness or by any legal
limitation, disability, incapacity
3
or lack of any borrowing powers of the Principal or lack of
authority of any director or other person appearing to be acting for the Principal in any matter in
respect of the Indebtedness or any part of it.
3.4 A certificate signed on behalf of the Bank of the amount for the time being of the Indebtedness
and/or the amounts due to the Bank shall be conclusive evidence for all purposes against the
Guarantor[s] unless manifestly incorrect.
[501]
4 Security
As security for [its (or) their] obligations under this Guarantee, the Guarantor[s] undertake[s]:
4.1 to execute the Debenture and deliver it to the Bank and
4.2 to maintain the Debenture in full force and effect until all the [Guarantor's (or) Guarantors'] actual
or contingent liability to the Bank under this Guarantee has been paid or discharged in full
4
.
5 The Principal
Prior to enforcement of this Guarantee the Bank shall not be under any obligation to take any
steps to recover the Indebtedness or any part of it from the Principal
5
.
6 Protective clauses
The liability of the Guarantor[s] [or any of them] shall not be affected nor shall this Guarantee be
discharged or diminished by reason of:
6.1 any renewal, variation, determination or increase relating to any accommodation or credit given to
the Principal on the part of the Bank
6
;
6.2 any renewal, modification, release, or abstaining from the perfection or enforcement of any
security or guarantee on the part of the Bank with regard to any security or guarantee now or
hereafter held from the Principal or any other person, including any signatory to this Guarantee, in
respect of the Indebtedness
7
;
6.3 the granting of time
8
or of any indulgence to or the compounding with the Principal or any other
person or guarantor on the part of the Bank; and/or
6.4 the doing or the omitting to do anything on the part of the Bank that but for this provision might
operate to exonerate or discharge the Guarantor[s] [or any of them] from any of [its (or) their]
obligations under this Guarantee;
and this Guarantee shall not be discharged or affected by anything that would not have
discharged or affected [the (or) any] Guarantor's liability if [the (or) that] Guarantor had been a
principal debtor to the Bank instead of a guarantor.
[502]
7 Powers of the Bank
7.1 Any money received in connection with this Guarantee may be placed to the credit of a suspense
account for as long as the Bank thinks fit, without any obligation to apply any part towards
Page 68
reducing the Indebtedness.
7.2 If this Guarantee is determined or called in by the Bank, the Bank may in its discretion open a
new account or accounts with the Principal or any other person for whose liabilities this Guarantee
is available PROVIDED that if the Bank does not open a new account it shall be deemed to have
done so at the time of the determination or calling in.
8 Set-off
The Guarantor[s] [jointly and severally] agree[s] that the Bank may at any time without notice
after as well as before any demand and notwithstanding any settlement of account or other matter
combine or consolidate all or any then existing accounts including accounts in the name of the
Bank (of whatever type or description) of [any one or more of] the Guarantor[s] alone or jointly
with others wherever situated and set-off or transfer any sum standing to the credit of one or any
more such accounts in or towards satisfaction of the Indebtedness.
9 Warranties
9
9.1 The Guarantor[s] warrant[s] that [it (or) they] [does (or) do] not hold and will not without the
Bank's written consent take or hold any security from the Principal in relation to this Guarantee.
Any security so taken will be held on trust for the Bank and the Guarantor[s] undertake[s] to
deposit assign or otherwise transfer such security with or to the Bank as soon as possible, there
being no obligation on the Bank to make any demand with regard thereto.
9.2 The Guarantor[s] [and each of them] warrant[s] that [its (or) their] entry into this Guarantee
does not contravene any law or statute, and [the Guarantor (or) each Guarantor] warrants that it
has power to enter this Agreement [and has obtained all necessary approvals to do so].
[9.3 [The Guarantor (or) Each Guarantor] warrants that since the date of its last filed accounts (a copy
of which has been provided to the Bank) there has not been any material change (nor is any such
change expected) in the position or prospects of the Guarantor (in particular but without prejudice
to the generality of the foregoing the position regarding its assets and liabilities) as compared with
the position in those accounts.]
[503]
10 Guarantor
10.1 Until all amounts due or to become due from the Guarantor[s] have been paid and discharged in
full, the Guarantor[s] shall not:
10.1.1 be entitled to share in any security held or money received or receivable by the Bank
on account of that balance or to stand in the place of the Bank with regard to any
security or money;
10.1.2 take any steps to enforce any right or claim against the Principal in respect of any
money paid by the Guarantor[s] to the Bank under this Guarantee; or
10.1.3 exercise any rights as guarantor[s] in competition with or in priority to any claims of the
Bank.
10.2 In the event of the Bank applying any payment made by the Guarantor[s] [or any of them] to the
credit of a suspense account as provided for by clause 7.1 above, notwithstanding any payment in
any bankruptcy, liquidation, composition or arrangement of whatever sort affecting the Principal,
the Bank may prove for and agree to accept any dividend or composition in respect of the whole
or any part of the Indebtedness as if this Guarantee had not been given.
Page 69
11 Joint and several obligations
11.1 Where this Guarantee is executed by or on behalf of two or more parties the Guarantors'
obligation shall take effect as joint and several obligations.
11.2 This Guarantee shall not be revoked or impaired as to any of such parties by the death,
incapacity or insolvency of any of the others.
11.3 The Bank may release or discharge any one or more co-guarantors without releasing or
discharging the other(s) or otherwise prejudicing or affecting the Bank's rights and remedies
against the Principal
10
.
[504]
12 Notices
12.1 Any notice or demand for payment by the Bank under this Guarantee shall be in writing
addressed to the relevant party.
12.2 Without prejudice to any other effective mode of service, a notice or demand shall be deemed to
have been properly served on [the (or) any] Guarantor if served on any one of the directors or on
the secretary of [the (or) such] Guarantor or delivered or sent by first class letter post to [the (or)
such] Guarantor at its registered office or any of its principal places of business.
13 Miscellaneous
13.1 This Guarantee shall be binding on the Guarantor[s] and [its (or) their] successors and permitted
assigns and shall enure to the benefit of and be enforceable by the Bank and its successors and
assigns but so that the Guarantor[s] may not assign or transfer any of [its (or) their] rights or
obligations under this Guarantee.
13.2 This Guarantee shall be governed by and construed in accordance with English law and shall be
subject to the exclusive jurisdiction of the English courts.
AS WITNESS etc
(signatures of appointed persons on behalf of the parties)
(annex the form to be used for the debenture)
[505]
2 As to revocation of continuing guarantees see Paragraph 21 [126] ante. Consideration should be given to whether
individual guarantors can revoke or whether revocation is only to be possible by all the guarantors jointly.
3 As to capacity see Paragraphs 6 [32]-8 [35] ante.
4 Protection against the possible adverse effect of the Insolvency Act 1986 ss 238, 239 can be provided by a clause stating
that if any right or security held by or disposition or payment made to a creditor by a guarantor is void or ordered to be refunded
the creditor can nevertheless enforce the guarantee as if such release, discharge or settlement had not occurred and any such
security, disposition or payment had not been made. See Form 13 clause 3 [509] post for an example.
5 As to rights of a guarantor against the creditor see Paragraph 23 [161] ante.
Page 70
6 As to the possibility of discharge of the guarantor by variation of the principal agreement see Paragraph 34 [249] ante.
7 As to release or loss of securities see Paragraph 36 [253] ante.
8 As to giving of time see Paragraph 35 [251] ante.
9 A list of warranties can be lengthy. Refer to other titles for further warranty clauses.
10 Without such a provision, there is a risk that release of one guarantor would discharge the others. See Paragraph 37
[255] ante.
Precedents/C: GUARANTEES RELATING TO MONEY/12 Short guarantee to a bank covering a specific
transaction
12
Short guarantee to a bank covering a specific transaction
1
[506]
To: (name of bank)
of: (address of bank)
SHORT GUARANTEE: SPECIFIC TRANSACTION
IN CONSIDERATION of your entering into (details of the agreement under which the principal debtor's
obligations arise) ('the Agreement') with (name of principal debtor) ('the Principal') of (address)
NOW [I (or) WE] (name(s) of guarantor(s)) of (address(es)) AGREE WITH YOU as follows:
1 [I (or) We] unconditionally guarantee the due payment of all money payable under the Agreement
and agree that [I (or) we] will pay to you immediately on demand any money so payable.
2 [I (or) We] agree that this Guarantee shall not be affected by any time or other indulgence you
may see fit to grant to the Principal, and it shall also not be affected by you agreeing with the
Principal (but without needing our consent) any variation to the Agreement. If and insofar as the
Agreement is found to be void or voidable, all sums that would (had it been valid) have been
payable under the Agreement shall be recoverable from [me (or) us] on the basis of indemnity.
3 The paper on which this Guarantee is written shall remain at all times the property of the Bank
2
.
Dated:
(signature(s) or seals of guarantor(s))
[I (or) WE] ACKNOWLEDGE receipt of a copy of the above guarantee
3
.
(signature(s) of guarantor(s))
Page 71
[507]
1 This Form and Forms 13 [508] (extended guarantee) and 14 [516] (long guarantee) post perform the same basic function.
While there are certain differences in their drafting, based principally on the primary obligations to which they relate, the relative
length of the documents reflects a function common to most commercial legal documents, ie the limitation of risk.
Provisions in guarantees are generally designed to protect the bank against some risk that might result in its being unable to
recover under the guarantee. Decisions of the courts have led to the creation of a considerable number of situations in which a
guarantor is not, in the absence of contrary provision, held liable under his guarantee: see Paragraphs 29 [211] and following,
ante. The style of document to adopt must, therefore, reflect the user's decision as to the amount of risk that is acceptable;
reduction of risk in a long document must be balanced against the simplicity and greater intelligibility (especially to a lay person)
of a shorter document.
Most of the risks stem from the nature of a guarantee as a secondary obligation. There are many occasions when the desired
result can be better achieved by relying on primary obligations. This Form clearly gives to the bank the basic protection it wants,
but with the minimum degree of protection against ancillary risks; careful consideration must be given to the particular
circumstances before deciding that longer forms of wording are not necessary.
Guarantee documents are commonly much lengthier than straightforward contracts of indemnity, owing to the need to
incorporate language ensuring that the guarantor remains liable under his guarantee. Before using this Form, thought should
therefore be given to the possible use of an indemnity (see Forms 47 [888], 48 [898] post) or a stand-by letter of credit which,
although relatively short, would avoid the risks to the bank involved in taking a short guarantee that does not exclude certain
possible defences available to the guarantor.
2 This provision is included because, even after the guarantor's liability under the guarantee has ceased, it is the normal
practice of a bank to retain the discharged guarantee rather than hand it to the guarantor.
3 An acknowledgment that the guarantor has received a copy of the guarantee should be obtained as a matter of practice.
Precedents/C: GUARANTEES RELATING TO MONEY/13 Extended guarantee to a bank covering a specific
transaction
13
Extended guarantee to a bank covering a specific transaction
1
[508]
To: (name of bank)
EXTENDED GUARANTEE: SPECIFIC TRANSACTION
IN CONSIDERATION of your entering into (details of the agreement under which the principal debtor's
obligations arise) ('the Agreement') [a copy of which is annexed to this Guarantee] with (name of principal
debtor) ('the Principal') of (address)
NOW [I (or) We] (name(s) of guarantor(s)) of (address(es)) ('the Guarantor[s]') UNCONDITIONALLY
Page 72
GUARANTEE TO AND AGREE WITH YOU as follows:
[509]
1 Principal's failure to pay
If and whenever the Principal fails to pay on the due date any sum whatsoever payable under the
Agreement the Guarantor[s] will pay that sum to you immediately on demand by you.
2 Guarantee to remain in force until repayment in full
This Guarantee shall continue in effect until all sums whatsoever payable by the Principal under
the Agreement have been finally paid in full.
3 Proviso to settlement or discharge
Any settlement or discharge between you and the Guarantor[s] shall be subject to the condition
that no security given or payment made to you by the Principal or any other person shall be
avoided or reduced by virtue of any provisions or enactments relating to bankruptcy, liquidation or
insolvency for the time being in force, and if any such security or payment shall be so avoided or
reduced you shall be entitled to recover the value or amount of it from the Guarantor[s]
subsequently as if the settlement or discharge had not occurred.
[510]
4 Indulgence
4.1 The liability of the Guarantor[s] under this Guarantee shall not be affected by any arrangement
you may make with the Principal or any other person that might (but for this provision) operate to
diminish or discharge the liability of or otherwise provide a defence to a guarantor.
4.2 Without prejudice to the generality of clause 4.1 above you may at any time and without
reference to the Guarantor[s]:
4.2.1 give time for payment or grant any other indulgence;
4.2.2 give up, deal with, vary, exchange or abstain from perfecting or enforcing any other
securities or guarantees held by you at any time and discharge any party to them, and
realise such securities or guarantees or any of them, as you think fit; and
4.2.3 compound with, accept compositions from and make any other arrangements with the
Principal or any person or persons liable on bills, notes or other securities or
guarantees held or to be held by you
without affecting the [Guarantor's (or) Guarantors'] liability under this Guarantee
2
.
5 No proof in competition with bank
If any sum becomes payable by the Guarantor[s] under this Guarantee, the Guarantor[s] shall not
in the event of the bankruptcy, liquidation or insolvency of the Principal prove in competition with
you until all sums whatsoever payable by the Principal under the Agreement have been finally
paid in full, but will give you the benefit of such proof and all money to be received in respect of it.
[511]
6 Money not recoverable on footing of guarantee
Page 73
As a separate and independent stipulation it is agreed by the Guarantor[s] that any money
payable by the Principal under the Agreement that may not be recoverable from the Guarantor[s]
on the footing of a guarantee, whether by reason of any legal limitation on, disability or incapacity
of the Principal or by virtue of any statutory provision rendering the liability of the Principal void or
by reason of any other fact or circumstance, and whether known to you or the Guarantor[s] or not,
shall nevertheless be recoverable from the Guarantor[s] as sole or principal debtor[s] in respect of
it and shall be paid by the Guarantor[s] on demand.
7 Payment under Guarantee
7.1 Each payment to be made by the Guarantor[s] under this Guarantee shall be made to you in the
appropriate currency in accordance with the terms of this Guarantee, to the credit of your account
with any bank designated by you and located in the country of that currency.
7.2 All payments to be made by the Guarantor[s] under this Guarantee shall be made in full without
set-off or counterclaim [and free and clear of and without deduction of or withholding for or on
account of any tax of any nature now or subsequently imposed by any country or any subdivision
or taxing authority of or in any country or any federation or organisation of which any country is a
member]
3
.
[7.3 If any payment to be made by the Guarantor[s] under this Guarantee shall be subject to any tax
mentioned in clause 7.2 or if the Guarantor[s] shall be required to make any such deduction or
withholding, the Guarantor[s] must pay the tax, ensure that the payment, deduction or withholding
meets the legal liability for it and simultaneously pay to you such additional amount as may be
necessary to enable you to receive, after all payments, deductions and withholdings, a net amount
equal to the full amount payable under this Guarantee.
7.4 If the Guarantor[s] make[s] any such payment, deduction or withholding the Guarantor[s] must
within 30 days forward to you an official receipt or other official documentation evidencing the
payment, deduction or withholding.
7.5 As used in this clause the term 'tax' includes all levies, imposts, duties, charges, fees, deductions,
withholding, turnover tax, transaction tax, stamp tax and any restrictions or conditions resulting in
a charge]
4
.
[512]
[8 Indemnity
8.1 It is further agreed by the Guarantor[s] that if any judgment or order given or made for the
payment of any amount due under this Guarantee is expressed in a currency other than that in
which the amount is payable by the Guarantor[s] under this Guarantee, the Guarantor[s] must
indemnify you against any loss incurred by you as a result of any variation occurring in rates of
exchange between the date as at which that amount is converted into the other currency for the
purposes of the judgment or order and the date of actual payment of the amount.
8.2 This indemnity constitutes a separate and independent obligation of the Guarantor[s] and shall
apply irrespective of any indulgence granted to the Guarantor[s] from time to time and continue in
full force and effect notwithstanding any judgment or order as mentioned above.]
5
[9 Liability of signatories
If this Guarantee is signed by or on behalf of more than one person and any one or more of those
persons is not bound by the provisions of this Guarantee (whether by reason of his or their lack of
Page 74
capacity, or improper execution of this Guarantee or for any other reason whatever), the
remaining signatory or signatories shall continue to be bound by the provisions of this Guarantee
as if they had always been the only party or parties hereto. The fact that any intended signatory
shall not have signed the Guarantee shall not prejudice the application of the Guarantee to those
persons that have signed the Guarantee.]
6
[513]
[10 Joint and several liability
Where this Guarantee is signed as guarantor by more than one person or is signed by one person
for himself and on behalf of other persons (whether that person is signing on behalf of a
partnership or otherwise):
10.1 the expression 'the Guarantors' shall include all the persons signing as guarantor or on whose
behalf this Guarantee is signed as guarantor
10.2 the liability of the Guarantors under this Guarantee shall be the joint and several liability of all
those persons and any demand for payment made by you to any one or more of those persons
shall be deemed to be a demand made to all such persons, and
10.3 you may release or discharge any one or more of such persons from liability under this
Guarantee or compound with, accept compositions from, or make any other arrangement with any
of such persons without in consequence releasing or discharging any other party to this
Guarantee or otherwise prejudicing or affecting your rights and remedies against any such other
party.]
7
11 Interpretation
In this Guarantee, where the context permits, the singular includes the plural and vice versa, and
references to persons include references to companies.
[12 Governing law and jurisdiction
This Guarantee shall be governed by and construed in accordance with English law and all
disputes and questions arising from or relating to this Guarantee shall be subject to the exclusive
jurisdiction of the English courts (or as appropriate).]
[514]
13 Property in the Guarantee to belong to the bank
The paper on which this Guarantee is written shall remain at all times the property of the Bank
8
.
Dated:
[AS (or) IN] WITNESS etc
(signature(s) or common seal(s) of the guarantor(s))
[I (or) We] acknowledge receipt of a copy of the above Guarantee
9
.
(signature(s) of or on behalf of the guarantor(s))
(annex a copy of the Agreement if necessary)
Page 75
[515]
1 As to the considerations to be taken into account when deciding which of Forms 12 [506]-14 [516] should be used see
Form 12 note 1 [507] ante.
This extended guarantee has been drafted for use where a specific obligation of the borrower is being guaranteed, and certain
clauses appropriate in the case of a continuing guarantee are accordingly omitted, in particular, clauses limiting the amount of
the borrower's indebtedness that is guaranteed (see Form 14 clause 1 proviso [516] post), and providing for notice to terminate
by the guarantor (see Form 14 clause 4 [517] post).
Certain provisions in Form 14 [516] post that could also apply in the context of the specific guarantee contained in this Form
have been omitted from this Form on the ground that a bank may be willing to assume certain of the relatively remote risks
covered by Form 14 [516] post in the context of a specific guarantee relating only to specified obligations of the principal debtor.
However, any of the clauses contained in Form 14 [516] post (except those appropriate only to a continuing guarantee, as
mentioned above) may be adapted for use in this Form if in any particular circumstances it is considered desirable.
By adopting the relevant wording, this Form may be used for continuing obligations.
2 See Paragraphs 34 [249]-36 [253] ante.
3 Insert these words where the guarantor is situated outside the United Kingdom.
4 Use clauses 7.3 to 7.5 where the guarantor is situated outside the United Kingdom.
5 Insert clause 8 where foreign currency obligations are being guaranteed, or there is a real likelihood of recovery being
necessary outside the jurisdiction of the English courts.
6 This clause is intended to prevent a party who undertakes obligations jointly and severally with another from arguing that
he should not be bound by those obligations because the other party proves not to be bound as a result of eg some defect in
his execution of the document.
7 Without this provision, there is a risk that release of one guarantor would discharge the others. See Paragraph 37 [255]
ante.
8 Even after the guarantor's liability under the guarantee has ceased, it is normally the practice of a bank to retain the
discharged guarantee rather than hand it to the guarantor.
Precedents/C: GUARANTEES RELATING TO MONEY/14 Long guarantee to a bank covering continuing
obligations
14
Long guarantee to a bank covering continuing obligations
1
[516]
To: (name of bank)
Page 76
LONG GUARANTEE: CONTINUING OBLIGATIONS
IN CONSIDERATION of your from time to time making or continuing loans or advances to or coming under
liabilities or discounting bills for or otherwise giving credit or granting banking facilities or accommodation or
granting time to or on account of (name of principal debtor) of (address) ('the Principal')
NOW [I (or) WE] (name(s) of guarantor(s)) of: (address(es)) ('the Guarantor[s]') UNCONDITIONALLY
GUARANTEE TO AND AGREE WITH YOU as follows:
1 Guarantor to pay on demand
The Guarantor[s] must pay to you on demand:
1.1 all money:
1.1.1 that is now or shall at any time or times hereafter be due or owing to you from or
payable to you by the Principal under or in respect of any dealing, transaction or
engagement whatsoever, either solely or jointly with any other person, firm or company
and whether as principal or guarantor, and whether upon current account or other
banking account or accounts or otherwise or in respect of bills, drafts, notes or other
negotiable instruments made, drawn, accepted, advised, endorsed or paid by you or on
your account for the Principal, either solely or jointly as stated above, or
1.1.2 that you may from time to time become liable to pay in respect of any bills, drafts,
notes or letters of credit or any other dealing, transaction or engagement on account of
or for the benefit or accommodation of the Principal, either solely or jointly as stated
above ('the Indebtedness'); together with
1.2 all interest, costs, commissions and other banking charges and expenses that you may in the
course of your business as bankers charge against the Principal and all legal and other costs,
charges and expenses that you may incur in enforcing or obtaining payment of any such money
from the Principal, or attempting so to do;
[PROVIDED that the total amount recoverable from the Guarantor[s] under this Guarantee shall
not exceed ... [together with a further sum for all interest, costs, commissions and other costs,
charges and expenses as stated above as shall have accrued or shall accrue due to you at any
time before or at any time after the date of such demand as stated above] and PROVIDED that if
the amount in this Paragraph is not completed, this Guarantee shall be interpreted as unlimited.]
2
[517]
This Guarantee shall be a continuing security (subject only to such notice as is mentioned below)
and shall not be satisfied, discharged or affected by any intermediate payment or settlement of
account.
3 Effect of death of guarantor
This Guarantee shall not be determined or affected by the death of [the Guarantor (or) any one or
more of the persons constituting the Guarantors].
4 Notice to determine Guarantee
3
4.1 [The Guarantor or his personal representatives (or) Any one or more of the Guarantors or any
survivor or survivors of the Guarantors or the personal representatives of any deceased
Page 77
Guarantor] may at any time give you notice in writing to determine this Guarantee at a date not
less than 3 calendar months after the receipt by you of the notice.
4.2 This Guarantee shall cease with respect to transactions after the date set by any notice served
under clause 4.1 above PROVIDED that the Guarantor shall remain liable under this Guarantee:
4.2.1 in respect of all obligations of the Principal to you outstanding at that date, with interest
on such obligations until actual payment at the rate charged by you against the
Principal;
4.2.2 in respect of all money, interest, costs, commissions and other banking charges and
expenses that will or may become due to you from the Principal under or in respect of
any dealing, transaction or engagement effected or entered into either before that date
or on or after that date pursuant to any commitment, express or implied, assumed or
undertaken by you to the Principal before that date
4
; and
4.2.3 for all legal and other costs, charges and expenses you may incur in respect of any
matters mentioned in clauses 4.2.1 or 4.2.2 above.
[518]
5 Payment
The obligation of the Guarantor[s] under this Guarantee shall be to make payment to you [(where
obligations in currencies other than sterling are being guaranteed) in the currency in which the
applicable obligation ought to have been or ought to be discharged by the Principal] strictly in
accordance with the terms and provisions of any agreement or agreements, express or implied,
between you and the Principal applicable to each respective obligation of the Principal, regardless
of any law, regulation or decree, now or hereafter in effect, that affects or might in any manner
affect any of those terms or provisions or your rights as against the Principal.
6 New account
It shall be lawful for you at any time after notice to determine this Guarantee has been given or
after payment of the money guaranteed hereby has been demanded of the Guarantor[s] to
continue any existing account or accounts or to open any new account or accounts with the
Principal and no money subsequently paid into such account or accounts shall be appropriated in
discharge of any money guaranteed hereby unless it has been expressly directed by the person
paying the same at the time of the payment to be so appropriated.
[519]
7 Effect of Principal's insolvency
7.1 The bankruptcy, liquidation or insolvency of the Principal or the making of an application for an
administration order or the appointment of (or giving of notice to appoint) an administrator in
respect of the Principal in respect of the Principal or the making of any such order shall not affect
or determine the liability of the Guarantor[s] under this Guarantee.
7.2 All dividends, compositions and money received by you from the Principal or from any other
company, person or estate capable of being applied by you in reduction of the Indebtedness shall
be regarded for all purposes as payments in gross and you shall be entitled to prove in the
bankruptcy, liquidation or insolvency of the Principal in respect of the whole of the Indebtedness
Page 78
and without any right of the Guarantor[s] to be subrogated to you in respect of any such proof to
the intent that this Guarantee shall apply to and secure the whole of any ultimate balance that
shall remain due to you.
Any settlement or discharge between you and the Guarantor[s] shall be subject to the condition
that no security or payment to you by the Principal or any other person shall be avoided or
reduced by virtue of any provisions or enactments relating to administration, bankruptcy,
liquidation or insolvency for the time being in force and if any such security or payment shall be so
avoided or reduced you shall be entitled to recover the value or amount of it from the Guarantor[s]
subsequently just as if such settlement or discharge had not occurred.
9 Effect of other guarantees etc
This Guarantee and your rights under it shall be in addition to and shall not be in any way
prejudiced or affected by any one or more other securities or guarantees for the Principal that you
may now or subsequently hold whether from [the Guarantor (or) any of the Guarantors] or from
any other person.
[520]
10 Indulgence
10.1 You may at any time and without reference to the Guarantor[s] refuse further credit to the
Principal.
10.2 The liability of the Guarantor[s] under this Guarantee shall be unaffected by any arrangement you
may make with the Principal or with any other person that might (but for this provision) operate to
diminish or discharge the liability of or otherwise provide a defence to a guarantor.
10.3 Without prejudice to the generality of the above you may at any time and without reference to the
Guarantor[s]:
10.3.1 give time for payment or grant any other indulgence
5
;
securities or guarantees held by you at any time and discharge any party to them or
any of them, and realise such securities or guarantees or any of them, as you think fit
6
;
and
10.3.3 compound with, accept compositions from and make any other arrangements with the
Principal
7
(including the varying of the Principal's obligations under any dealing,
transaction or engagement falling within clause 1.1 of this Guarantee) or any person or
persons liable on bills, notes or other securities or guarantees held or to be held by you
without affecting the [Guarantor's (or) Guarantors'] liability under this Guarantee.
11 Resorting to other means of payment
You are to be at liberty but not bound to resort for your own benefit to any other means of
payment at any time and in any order you think fit without in consequence diminishing the liability
of the Guarantor[s] and you may enforce this Guarantee either for the payment of the ultimate
balance after resorting to other means of payment or for the balance due at any time
notwithstanding that other means of payment have not been resorted to and in the latter case
without entitling the Guarantor[s] to any benefit from such other means of payment so long as any
money remains due or owing or payable (whether actually or contingently) from or by the Principal
Page 79
to you.
[521]
12.1 This Guarantee shall take effect as a guarantee of the whole and every part of the Indebtedness
and accordingly the Guarantor[s] shall not be entitled as against you:
12.1.1 to any right of proof in the bankruptcy, liquidation or insolvency of the Principal or any
other guarantor; or
12.1.2 to any other right of a guarantor (including any right of contribution from any other
guarantor) discharging, in whole or in part, his liability in respect of the Indebtedness;
or
12.1.3 to share in any security held or money received by you on account of the obligations of
the Principal or any other guarantor; or
12.1.4 to have or exercise any rights as guarantor (including any right of contribution from any
other guarantor) in competition with you
unless and until the whole of the Indebtedness shall have first been completely discharged and
satisfied.
12.2 Until the Indebtedness shall have been discharged and satisfied in full, the Guarantor[s] shall not,
if any money shall have become payable or shall have been paid by [him (or) them] under this
Guarantee, take any step to enforce repayment or to exercise any other rights, claims or remedies
of any kind that may accrue howsoever to [him (or) them] (including any right of contribution from
any other guarantor) in respect:
12.2.1 of the amount so payable or so paid; or
12.2.2 of any other money for the time being due to the Guarantor[s] from the Principal or any
other guarantor
PROVIDED that in the event of the bankruptcy, liquidation or insolvency of the Principal or any
other guarantor the Guarantor[s] shall, if so directed by you but not otherwise, prove for the whole
or any part of the money due to the Guarantor[s] from the Principal or any other guarantor
mentioned in clauses 12.2.1 and 12.2.2 above on terms that the benefit of such proof and of all
money to be received by the Guarantor[s] in respect thereof shall be held in trust for you and
applied in discharging the obligations of the Guarantor[s] to you under this Guarantee.
12.3 To enable you to sue the Principal or any other guarantor or prove in the bankruptcy, liquidation
or insolvency of the Principal or any other guarantor for the whole of the money mentioned in
clause 12.1 above, or to preserve intact the liability of any other party, you may at any time place
and keep, for such time as you may think prudent, any money received, or realised under this
Guarantee or under any other guarantee or security to the credit of the Guarantor[s] or any other
person or transaction (if any) as you shall think fit, without any immediate obligation on your part
to apply the same or any part of it in or towards the discharge of the Indebtedness, or any
immediate right on the part of the Guarantor[s] to sue the Principal or any other guarantor or to
prove in the bankruptcy, liquidation or insolvency of the Principal or any other guarantor in
competition with or so as to diminish any dividend or other advantage that would or might come to
you, or to treat the liability of the Principal or any other guarantor as diminished.
12.4 As used in this clause and clause 15 below, the expression 'any other guarantor' includes [any
Page 80
person constituting the Guarantors and] any party or person referred to in clause 10.3.3 above.
[522]
13 Evidence of amount due
For all purposes including any legal proceedings a copy of any account of the Principal in your
books signed by any of your officers shall be accepted by the Guarantor[s] as conclusive
evidence of the state of such account.
14 Change in constitution of Principal or Guarantor[s]
If the Principal or [the Guarantor (or) any of the Guarantors] is a partnership or a company, this
Guarantee shall remain in full force and effect notwithstanding any change in the constitution of
the Principal or [the Guarantor (or) any of the Guarantors]
8
.
15 No security received by Guarantor[s]
15.1 The Guarantor[s] declare[s] that no security has been received by [him (or) them] from the
Principal or any other guarantor for the giving of this Guarantee.
15.2 The Guarantor[s] agree[s] that [he (or) they] will not, so long as this Guarantee remains in force,
take any security in respect of [his (or) their] liability under this Guarantee without first obtaining
your written consent.
As a separate and independent stipulation it is agreed by the Guarantor[s] that any money
mentioned in clause 1 above that may not be recoverable on the footing of a guarantee, whether
by reason of any legal limitation, disability or incapacity on or of the Principal or any other fact or
circumstance, and whether known to you or the Guarantor[s] or not, shall nevertheless be
recoverable from the Guarantor[s] as sole or principal debtor in respect of it and shall be paid by
the Guarantor[s] on demand.
[523]
17 Change in bank's constitution or its amalgamation etc
This Guarantee shall continue to bind the Guarantor[s] notwithstanding:
17.1 any amalgamation or merger that may be effected by you with any other company or companies
and/or
17.2 any reconstruction by you involving the formation of and transfer of the whole or any part of your
undertaking and assets to a new company and/or
17.3 the sale or transfer of the whole or any part of your undertaking and assets to another company,
17.4 whether the company or companies with which you amalgamate or merge or the company or
companies to which you transfer the whole or any part of your undertaking and assets (either on a
reconstruction or sale or transfer as stated above) shall or shall not differ from you in their or its
objects, character or constitution,
it being the intent of the Guarantor[s] (a) that this Guarantee shall remain valid and effectual in all
respects in favour of and (b) that the benefit of this Guarantee and all rights conferred upon you
by this Guarantee may be assigned to and enforced by, any such company or companies and
proceeded on in the same manner to all intents and purposes as if such company or companies
had been named in this Guarantee instead of and/or in addition to you.
Page 81
[18 Other currencies
If at the time any demand is made under this Guarantee, any amount shall be due or owing or
payable to you from the Principal in any currency or currencies other than that in which any limit
contained in the proviso to clause 1 above is expressed, then:
18.1 the obligation of the Guarantor[s] shall be to make payment in the currency or currencies in which
the amount is due or owing or payable but you shall be entitled, at your discretion, to require
payment either in that currency or those currencies or in the currency of such limit, or partly in one
way and partly in the other, and
18.2 such limit shall be treated as a limit expressed in such other currency or (if more than one such
other currency is involved) as a limit in the aggregate expressed in such other currencies and for
this purpose such limit shall be deemed to have been expressed in such other currency or
currencies converted at the rate of respective rates of exchange to be determined in good faith by
you to be effective at the date of payment (or each respective payment) by the Guarantor[s]
9
.]
[524]
19 Payments by Guarantor[s]
19.1 Each payment to be made by the Guarantor[s] under this Guarantee shall be made to you in the
appropriate currency in accordance with the terms of this Guarantee, to the credit of such account
with such bank (located in the country of such currency), as shall be designated by you.
19.2 All such payments shall be made in full without set-off or counterclaim [and free and clear of and
without deduction of or withholding for or on account of any tax of any nature now or subsequently
imposed by any country or any subdivision or taxing authority of or in any country or any
federation or organisation of which any country is a member]
10
.
[19.3 If any such payment shall be subject to any such tax or if the Guarantor[s] shall be required to
make any such deduction or withholding, the Guarantor[s] must pay such tax, ensure that such
payment, deduction or withholding meets the legal liability for it and simultaneously pay to you
such additional amount as may be necessary to enable you to receive, after all such payments,
deductions and withholdings, a net amount equal to the full amount payable under this Guarantee.
19.4 If the Guarantor shall make any such payment, deduction or withholding the Guarantor shall
within 30 days forward to you an official receipt or other official documentation evidencing such
payment or the payment of such deduction or withholding.
withholdings, turnover tax, transaction tax, stamp tax and any restrictions or conditions resulting in
a charge.]
11
[525]
[20 Indemnity
12
20.1 The Guarantor[s] agree that if any judgment or order is given or made for the payment of any
amount due under this Guarantee expressed in a currency other than that in which such amount
is payable by the Guarantor[s] under this Guarantee, the Guarantor[s] will indemnify you against
any loss incurred by you as a result of any variation having occurred in rates of exchange
between the date as at which the amount is converted into such other currency for the purpose of
Page 82
the judgment or order and the date of actual payment pursuant to it.
20.2 This indemnity shall:
20.2.1 constitute a separate and independent obligation of the Guarantor[s];
20.2.2 apply irrespective of any indulgence granted to the Guarantor[s] from time to time; and
20.2.3 continue in full force and effect notwithstanding any such judgment or order as
mentioned above.]
21 No waiver of rights under Guarantee
21.1 No delay or omission on your part in exercising any right, power, privilege or remedy in respect of
this Guarantee shall impair such right, power, privilege or remedy or be construed as a waiver of it
nor shall any single or partial exercise of any such right, power, privilege or remedy preclude any
further exercise of it or the exercise of any other right, power, privilege or remedy.
21.2 The rights, powers, privileges and remedies provided in this Guarantee are cumulative and not
exclusive of any rights, powers, privileges or remedies provided by law.
[526]
[22 Joint and several liability
Where this Guarantee is signed as guarantor by more than one person or is signed by one person
for himself and on behalf of other persons (whether that person is signing on behalf of a
partnership or otherwise):
22.1 the expression 'the Guarantors' shall include all such persons,
22.2 the liability of the Guarantors under this Guarantee shall be the joint and several liability of such
persons and any demand for payment made by you to any one or more of the persons so jointly
and severally liable shall be deemed to be a demand made to all such persons, and
22.3 you are to be at liberty to release or discharge any one or more of such persons from liability
under this Guarantee or to compound with accept compositions from or make any other
arrangements with any of such persons without in consequence releasing or discharging any
other party to this Guarantee or otherwise prejudicing or affecting your rights and remedies
against any such other party.]
13
[23 Liability of signatories
If this Guarantee is signed by or on behalf of more than one person and any one or more of those
persons is not bound by the provisions of this Guarantee (whether by reason of his or their lack of
capacity, or improper execution of this Guarantee or for any other reason whatever), the
remaining signatory or signatories shall continue to be bound by the provisions of this Guarantee
as if they had always been the only party or parties hereto. The fact that any intended signatory
shall not have signed the Guarantee shall not prejudice the application of the Guarantee to those
persons that have signed the Guarantee.]
14
24 Demands
24.1 Any demand under this Guarantee shall be given by first class prepaid post, or fax addressed to
the Guarantor or to the person to or upon whom the demand is to be made at the registered or
principal office or last known place of abode of the Guarantor or of such person, as the case may
be.
24.2 A demand shall be deemed to have been duly made:
24.2.1 if left at the registered or principal office or last known place of abode, on the day it
Page 83
was so left, or
24.2.2 if sent by first class prepaid post, 2 working days after the time when the demand was
put in the post (and in proving delivery it shall be sufficient to prove that the same was
properly addressed and put in the post), or
24.2.3 if sent by fax, at the time of dispatch.
[527]
25 Interpretation
In this Guarantee, where the context permits, the singular includes the plural and vice versa, and
26 Governing law and jurisdiction
This Guarantee shall be governed by and construed in accordance with English law and any
disputes arising from or relating to this Guarantee shall be subject to the exclusive jurisdiction of
the English courts (or as appropriate).
27 Property in the Guarantee to belong to the bank
15
.
Dated:
[AS (or) IN] WITNESS etc
(signature(s) or common seal(s) of the guarantor(s))
[I (or) WE] ACKNOWLEDGE receipt of a copy of the above Guarantee
16
.
(signature(s) of the guarantor(s))
[528]
1 As to the considerations to be taken into account when deciding which of Forms 12 [506]-14 [516] should be used see
Form 12 note 1 [507] ante.
This Form is drafted as a continuing guarantee; it therefore applies to all indebtedness of the principal debtor, present or future
(subject only to any limit in amount agreed with the guarantor (see clause 1 proviso) and to the provision for termination by
notice (see clause 4) banks customarily include in their standard form continuing guarantees). These types of guarantees are
often known as 'all monies' guarantees'.
A continuing guarantee is normally appropriate as security for an overdraft facility, since the overdraft fluctuates in amount and
often continues for an indefinite period. As to continuing guarantees see Paragraph 19 [122] ante. If a long guarantee is needed
for a specific rather than a continuing obligation, the relevant wording in Form 13 [508] ante should be adopted.
2 This provision is for use where the guarantee is to be limited. The last proviso deals with the possibility of the provision
being included but the amount being left blank.
4 This provision is designed:
(a) to ensure that the guarantor remains liable for indebtedness to the bank incurred by the principal debtor
during the period after notice to determine has been served, eg cheques drawn before service of the notice,
but honoured after it; and
Page 84
(b) so that the guarantee continues to apply to advances made by the bank after termination pursuant to a
commitment entered into before termination.
5 As to the giving of time see Paragraph 35 [251] ante.
6 As to release or loss of securities see Paragraph 36 [253] ante.
[529]
7 As to the possibility of discharge of the guarantor by variation of the principal agreement see Paragraph 34 [249] ante.
8 As to change of parties and constitution see Paragraph 37 [255] ante.
9 This clause is for use where obligations in currencies other than sterling are being guaranteed.
10 The words in square brackets may be used where the guarantor is situated outside the United Kingdom.
11 Clauses 19.3-19.5 are intended for use where the guarantor is situated outside the United Kingdom.
12 This indemnity may be advisable where obligations in currencies other than sterling are being guaranteed, and there is a
real possibility of the guarantee being sued on in a foreign court.
13 Without this provision, there would be risk that the release of one guarantor would discharge the others: see Paragraph
37 [255] ante.
14 This clause is intended to prevent a party who undertakes obligations jointly and severally with another from arguing that
he should not be bound by those obligations because that other party proves not to be bound as a result of eg some defect in
his execution of the document, and also to prevent any argument that a signatory is not bound because another person with
whom he was to have been jointly and severally liable does not in fact execute the guarantee.
Precedents/C: GUARANTEES RELATING TO MONEY/15 Long form cross guarantee by companies in a
group
15
Long form cross guarantee by companies in a group
1
[530]
THIS DEED OF GUARANTEE is made the ...... day of ...... ......
Page 85
BETWEEN:
(1) The several companies the names and registered offices of which are specified in the Schedule below
(together called 'the Companies' which expression shall include each or any one or more of them severally)
and
(2) (name of bank) of (address of bank) ('the Bank' which expression shall include its successors and
assigns).
1 Interpretation
In this Deed:
1.1 'the Guarantors' means the Companies in so far as they covenant by this deed to pay money at
any time due or owing or payable to the Bank from or by any other of the Companies and have
not been discharged or released by the Bank from their respective guarantees contained in this
Deed; and
1.2 'the Principals' means the Companies in so far only as money may at any time be due or owing or
payable from or by them to the Bank as mentioned below otherwise than as the Guarantors under
this Deed.
[531]
2 Joint and several guarantee
Each of the Companies unconditionally guarantees to and undertakes with the Bank, both
severally and also jointly with each of the other Companies except, in each case, the Company
whose indebtedness is so guaranteed, that it will pay to the Bank on demand all money:
2.1 that now is or shall at any time or times hereafter be due or owing or payable to the Bank from or
by any of the other companies under or in respect of any dealing, transaction or engagement
whatsoever, either solely or jointly with any other person, firm or company, and whether as
principal or guarantor (other than as Guarantor under this Deed), and whether upon current
account or other banking account or accounts or otherwise or in respect of bills, drafts, notes or
other negotiable instruments made, drawn, accepted, advised, endorsed or paid by or on account
of the Bank for any other of the Companies, either solely or jointly as stated above, or
2.2 that the Bank may from time to time become liable to pay in respect of any bills, drafts, notes,
letters of credit or any other dealing, transaction or engagement on account of or for the benefit or
accommodation of any other of the Companies, either solely or jointly as stated above,
together with all interest, costs, commissions and other banking charges and expenses that the
Bank may in the course of its business as bankers charge against any other of the Companies
and all legal and other costs, charges and expenses that the Bank may incur in enforcing or
obtaining payment of the sums of money due to it from any other of the Companies, either solely
or jointly as stated above, or attempting to do so
2
.
3
The guarantee on the part of each of the Guarantors contained in this Deed shall be a continuing
security (subject only to such notice as is mentioned below) and shall not be satisfied, discharged
or affected by any intermediate payment or settlement of account by, with or in relation to the
liabilities of all or any of the Principals.
Page 86
[532]
4 Notice to determine guarantee
4
Any of the Guarantors may at any time give the Bank notice in writing to determine the guarantee
on its part contained in this Deed at a date ('the Cessation Date') not less than 3 calendar months
after the receipt by the Bank of such notice and such guarantee shall cease with respect to all
future transactions after the Cessation Date PROVIDED that such Guarantor shall remain liable
under this Deed:
4.1 in respect of all obligations of each of the Principals to the Bank outstanding at the Cessation
Date, with interest on such obligations until actual payment at the rate charged by the Bank
against such Principal, and
4.2 in respect of all money, interest, costs, commissions and other banking charges and expenses
that will or may become due to the Bank from any of the Principals under or in respect of any
dealing, transaction or engagement effected or entered into either prior to the Cessation Date or
on or after the Cessation Date pursuant to any commitment, express or implied, assumed or
undertaken by the Bank to such Principal prior to the Cessation Date
5
, and
4.3 for all legal and other costs, charges and expenses that the Bank may incur as stated above.
[533]
5 Payment to the bank
The obligations of each of the Guarantors under this Deed shall be to make payment to the Bank
[(where currencies other than sterling are being guaranteed) in the currency in which the
applicable obligation ought to have been or ought to be discharged by the Principal concerned,]
strictly in accordance with the terms and provisions of any agreement or agreements, express or
implied, between the Bank and the Principal concerned applicable to each respective obligation of
such Principal, regardless of any law, regulation or decree, now or hereafter in effect, that affects
or might in any manner affect any of such terms or provisions or the rights of the Bank as against
such Principal.
6 New account
It shall be lawful for the Bank at any time after notice to determine any guarantee contained in this
Deed has been given or after payment of the money guaranteed by this Deed has been
demanded of any of the Guarantors to continue any existing account or to open any new account
or accounts with the Principals or any of them and no money subsequently paid into such account
or accounts shall be appropriated in discharge of any money guaranteed by this Deed unless it is
expressly directed by the person paying the same at the time of such payment to be so
appropriated.
[534]
7 Effect of Principals' insolvency
7.1 The bankruptcy, liquidation or insolvency of any of the Principals, or the making of an application
for an administration order in respect of any of the Principals, or the making of such an order, or
the appointment of (or giving of notice to appoint) an administrator of any of the Principals, shall
Page 87
not affect or determine the liability of the Guarantors under this guarantee.
7.2 All dividends, compositions and money received by the Bank from any of the Principals or from
any other company, person or estate capable of being applied by the Bank in reduction of the
indebtedness of any of the Principals shall (unless the Bank otherwise expressly elects in writing)
not be treated as having been so applied, such that the Bank shall be entitled to prove in the
bankruptcy, liquidation or insolvency of any of the Principals in respect of the whole of such
Principal's indebtedness to the Bank and without any right on the part of any of the Guarantors to
be subrogated to the Bank in respect of any such proof to the intent that each of the guarantees
contained in this Deed shall apply to and secure the whole of any ultimate balance that shall
remain due to the Bank from each of the Principals.
Any settlement or discharge between the Bank and any of the Guarantors shall be subject to the
condition that no security or payment to the Bank by any of the Principals or any other person
shall be avoided or reduced by virtue of any provisions or enactments relating to bankruptcy,
liquidation or insolvency for the time being in force and if any such security or payment shall be so
avoided or reduced the Bank shall be entitled to recover the value or amount of it from such
Guarantor subsequently just as if such discharge had not occurred.
9 Effect of other guarantees etc
This guarantee and the rights of the Bank under it shall be in addition to and shall not be in any
way prejudiced or affected by any one or more other securities or guarantees for any of the
Principals that the Bank may now or subsequently hold whether from any of the Guarantors or
from any other person.
[535]
10 Indulgence
10.1 The Bank may at any time and without reference to any of the Guarantors refuse further credit to
the Principals or any of them.
10.2 The guarantee on the part of each of the Guarantors contained in this Deed and the rights of the
Bank under it shall be unaffected by any arrangement the Bank may make with any of the
Principals
6
(including any variation of any contractual arrangements between the Bank and any of
the Principals) or any of the other Guarantors or with any other person that (but for this provision)
might operate to diminish or discharge the liability of or otherwise provide a defence to a
guarantor.
10.3 Without prejudice to the generality of the above the Bank may at any time and without reference
to any of the Guarantors:
10.3.1 give time for payment or grant any other indulgence
7
;
securities or guarantees held by the Bank at any time (including the guarantees on the
part of each of the other Guarantors contained in this Deed) and discharge any party
thereto, and realise such securities or guarantees or any of them, as the Bank shall
think fit
8
; and
10.3.3 compound with, accept compositions from and make any other arrangements with any
of the Principals or any of the other Guarantors or any person or persons liable on bills,
Page 88
notes or other securities or guarantees held or to be held by the Bank without affecting
the liability of any of the Guarantors under this Deed.
11 Resorting to other means of payment
The Bank shall be at liberty (but not obliged) to resort for its own benefit to any other means of
payment at any time and in any order it thinks fit without in consequence diminishing the liability of
any of the Guarantors and the Bank may enforce any of the guarantees contained in this Deed
either for the payment of the ultimate balance or balances after resorting to other means of
payment (including any of such other guarantees) or for the balance or balances due at any time
notwithstanding that any such other means of payment have not been resorted to and in each
case without entitling any of the Guarantors to any benefit from such other means of payment so
long as any money remains due or owing or payable (whether actually or contingently) from or by
any of the Principals to the Bank.
[536]
12.1 Each of the guarantees contained in this Deed shall take effect as a guarantee of the whole and
every part of the money due or owing or payable and to become due or owing or payable from or
by each of the Principals as stated above and accordingly none of the Guarantors shall be entitled
as against the Bank to any right of proof in the bankruptcy, liquidation or insolvency of any of the
Principals or any other guarantor or other right of a guarantor (including any right of contribution
from any other guarantor) discharging, in whole or in part, its liability in respect of the principal
debt or to share in any security held or money received by the Bank on account of the obligations
of such Principal or any other guarantor or to have or exercise any rights as guarantor (including
any such right of contribution as stated above) in competition with the Bank unless and until the
whole of such money shall have first been completely discharged and satisfied.
12.2 Furthermore, until such money shall have been discharged and satisfied in full none of the
Guarantors shall, if any money shall have become payable or shall have been paid by any of the
Guarantors under any of the guarantees contained in this Deed, take any step to enforce
repayment or to exercise any other rights, claims or remedies of any kind that may accrue
howsoever to any such Guarantor in respect either of the amount so payable or so paid (including
any such right of contribution from any other Guarantor) or of any other money for the time being
due to any such Guarantor from the Principal concerned or any other guarantor PROVIDED that
in the event of the bankruptcy, liquidation or insolvency of any of the Principals or any other
guarantor each of the Guarantors shall, if so directed by the Bank but not otherwise, prove for the
whole or any part of the money due to that Guarantor from such Principal or any other guarantor
as stated above on terms that the benefit of such proof and of all money to be received by the
Guarantor in respect of it shall be held in trust for the Bank and applied in discharging the
obligations of the Guarantor to the Bank under this Deed.
[537]
12.3 To enable the Bank to sue any of the Principals or any other guarantor or to prove in the
bankruptcy, liquidation or insolvency of any of the Principals or any other guarantor for the whole
Page 89
of such money as stated above, or to preserve intact the liability of any other party, the Bank may
at any time place and keep, for such time as it may think prudent, any sums received, or realised
on account of the obligations of such Principal or under any other guarantee or security to the
credit, either of such Guarantor, or such other person or transaction (if any) as the Bank may think
fit, without any immediate obligation on the part of the Bank to apply the same or any part of it in
or towards the discharge of the money as stated above, or any immediate right on the part of such
Guarantor to sue such Principal or any other guarantor or to prove in the bankruptcy, liquidation or
insolvency of such Principal or any other guarantor in competition with or so as to diminish any
dividend or other advantage that would or might come to the Bank, or to treat the liability of such
Principal or any other guarantor as diminished.
12.4 As used in this clause and clause 15 below, the expression 'any other guarantor' includes [any
person constituting the Guarantors and] any party or person referred to in clause 10.3.3 above.
[538]
13 Evidence of amount due
For all purposes including any legal proceedings a copy of any account of any of the Principals in
the Bank's books signed by any of the Bank's officers shall be accepted by each of the
Guarantors as conclusive evidence of the state of such account.
14 Change in constitution of Principals or Guarantors
Each of the guarantees contained in this deed shall remain in full force and effect notwithstanding
any change in the constitution of any of the Principals or any of the Guarantors
9
.
15 No security received by Guarantors
It is declared by each of the Guarantors that no security has been received by it from any of the
Principals or any other guarantor for the giving of the guarantee on its part contained in this Deed
and each of the Guarantors agrees that it will not, so long as such guarantee remains in force,
take any security in respect of its liability under this Deed without first obtaining the written
consent of the Bank.
As a separate and independent stipulation each of the Guarantors agrees, both severally and also
jointly with every other Guarantor, that any money mentioned in clause 2 above that may not be
recoverable on the footing of a guarantee, whether by reason of any legal limitation, disability or
incapacity on or of any of the Principals or any other fact or circumstance, and whether known to
the Bank or any of the Guarantors or not, shall nevertheless be recoverable from the Guarantors
as though the same had been incurred by the Guarantors and the Guarantors were jointly and
severally liable as sole or principal debtors in respect of it, and shall be paid by the Guarantors on
demand.
[539]
17 Change in bank's constitution or amalgamation etc
This guarantee shall continue to bind the Guarantors notwithstanding:
17.1 any amalgamation or merger that may be effected by the Bank with any other company or
companies and/or
Page 90
17.2 any reconstruction by the Bank involving the formation of and transfer of the whole or any part of
its undertaking and assets to a new company and/or
17.3 the sale or transfer of the whole or any part of the undertaking and assets of the Bank to another
company,
17.4 whether the company or companies with which the Bank may amalgamate or merge or the
company to which the Bank may transfer the whole or any part of its undertaking and assets
(either on a reconstruction or sale or transfer as stated above) shall or shall not differ from the
Bank in their or its objects, character or constitution,
it being the intent of each of the Guarantors (a) that the guarantee on its part contained in this
Deed shall remain valid and effectual in all respects in favour of and (b) that the benefit of the
guarantee and all rights conferred upon the Bank by this Deed may be assigned to and enforced
by, any such company or companies and proceeded on in the same manner to all intents and
purposes as if such company or companies had been named in this Deed instead of and/or in
addition to the Bank.
[540]
18 Payments by guarantors
18.1 Each payment to be made by any of the Guarantors under this deed shall be made to the Bank,
in the appropriate currency in accordance with the terms of this Deed, to the credit of such
account with such bank (located in the country of such currency), as shall be designated by the
Bank.
18.2 All such payments shall be made in full without set-off or counterclaim [and free and clear of and
without deduction of or withholding for or on account of any tax of any nature now or subsequently
imposed by any country or any subdivision or taxing authority of or in such country or any
federation or organisation of which such country is a member]
10
.
[18.3 If any such payment shall be subject to any such tax or if any of the Guarantors shall be required
to make any such deduction or withholding, such Guarantor must pay the tax, ensure that such
payment, deduction or withholding meets the legal liability for it, and simultaneously pay to the
Bank such additional amount as may be necessary to enable the Bank to receive, after all such
payments, deductions and withholdings, a net amount equal to the full amount payable under this
Deed.
18.4 If any of the Guarantors shall make any such payment, deduction or withholding such Guarantor
shall within 30 days forward to the Bank an official receipt or other official documentation
evidencing such payment or the payment of such deduction or withholding.
withholdings, turnover tax, transaction tax, stamp tax and any restrictions or conditions resulting in
a charge.]
11
[541]
[19 Indemnity
12
19.1 It is further agreed by each of the Guarantors, both severally and also jointly with every other
Guarantor, that if any judgment or order is given or made for the payment of any amount due
Page 91
under this Deed and is expressed in a currency other than that in which such amount is payable
by the Guarantors under this Deed the Guarantors will indemnify the Bank against any loss
incurred as a result of any variation having occurred in rates of exchange between the date as at
which such amount is converted into such other currency for the purposes of such judgment or
order and the date of actual payment pursuant to such judgment or order.
19.2 This indemnity shall constitute a separate and independent obligation of the Guarantors and shall
apply irrespective of any indulgence granted to any of the Guarantors from time to time and shall
continue in full force and effect notwithstanding any such judgment or order as stated above.]
20 No waiver of rights under guarantee
20.1 Each of the Guarantors declares that no delay or omission on the part of the Bank in exercising
any right, power, privilege or remedy in respect of any of the guarantees contained in this Deed
shall impair such right, power, privilege or remedy or be construed as a waiver of it nor shall any
single or partial exercise of any such right, power, privilege or remedy preclude any further
exercise of it or the exercise of any other right, power, privilege or remedy.
20.2 The rights, powers, privileges and remedies provided in this Deed are cumulative and not
[542]
21 Demands
21.1 Any demand made by the Bank under this Deed shall be addressed to the Guarantor upon whom
the demand is to be made and left at, or sent by first class prepaid post, or fax to, the registered or
principal office of such Guarantor.
21.2 A demand so made shall be deemed to have been duly made, if left at such address, on the day
it was so left or, if sent by first class prepaid post, 2 working days after the time when the demand
was put in the post and in proving delivery it shall be sufficient to prove that the same was
properly addressed and put in the post.
21.3 Any such demand sent by fax shall be deemed to have been duly made at the time of dispatch.
22 Interpretation
In this Deed, where the context permits, the singular includes the plural and vice versa, and
[543]
[23 Governing law and jurisdiction
This Deed shall be governed by and construed in accordance with English law and all disputes
arising from or relating to this Deed shall be subject to the exclusive jurisdiction of the English
courts (or as appropriate)]
24 Property in the Guarantee to belong to the Bank
13
.
IN WITNESS etc
SCHEDULE
Page 92
Names of Companies and re-
gistered numbers
Addresses of registered offices Date of board resolutions au-
thorising execution
(full and correct name and re-
gistered number of each com-
pany)
(address of registered office of
each company)
(date)
(signatures for (or common seals of) the Companies)
WE ACKNOWLEDGE receipt of a copy of the above guarantee
14
.
(signatures of authorised signatories on behalf of the Companies)
[544]
1 This Form has been drafted as a continuing guarantee since it is in the context of overdraft facilities that such a guarantee
is most commonly used in practice. However, the Form can be adapted for a guarantee of specific obligations.
2 The provision for a limit upon the amounts guaranteed contained in Form 14 clause 1 proviso [516] ante is omitted from
this Form since it is often inappropriate in the context of an intra-group cross guarantee.
5 This provision is designed:
(a) to ensure that the guarantor remains liable for indebtedness to the bank incurred by the principal debtor
during the period after notice to determine has been served, eg cheques drawn before service of notice by the
guarantor but honoured after it, and
(b) so that the guarantee continues to apply to advances made by the bank after termination pursuant to a
commitment entered into before termination.
[545]
6 As to the possibility of discharge by variation of the principal agreement see Paragraph 34 [249] ante.
8 As to release of securities see Paragraph 36 [253] ante.
9 As to changes in parties and their constitution see Paragraph 37 [255] ante.
10 The words in square brackets are for use where the guarantor is situated outside the United Kingdom.
11 Clauses 18.3-18.5 ante are intended for use where the guarantor is situated outside the United Kingdom.
12 This indemnity may be advisable where foreign currency obligations are to be guaranteed and there is a real possibility of
the guarantee being sued on in a foreign court.
Page 93
Precedents/C: GUARANTEES RELATING TO MONEY/16 Minutes of board meeting authorising guarantee
etc
16
Minutes of board meeting authorising guarantee etc
1
[546]
MINUTES of a Meeting of the Board of Directors of the Company held at (address where meeting held) on
(date of meeting) at (time of meeting)
PRESENT: (names of persons present)
IN ATTENDANCE: (names of persons in attendance)
Reports to the Company
It was reported that it would be in the interests of the Company to be able to guarantee the
liabilities, undertakings and obligations of its [parent company (name of parent company) of
(address of registered office), and of its fellow subsidiaries (or) subsidiary (name of subsidiary) of
(address of registered office) and of its other subsidiaries] because of the reliance by the
Company on the financial support of [the other companies in the group (or) its parent company].
[(if the company does not already have power to give the guarantee so that the Memorandum of
Association must be altered--)
To this end it was proposed that the Memorandum of Association of the Company with respect to
the objects of the Company be altered by the insertion of a new clause empowering the Company
to guarantee the obligations of its associated companies.
It was further reported that such action necessitated the passing by the Company in an
Extraordinary General Meeting of an appropriate Special Resolution
2
and accordingly there was
tabled a Notice convening an Extraordinary General Meeting with Consent to Short Notice
attached for that purpose.
[547]
Resolutions
The Notice convening the Extraordinary General Meeting was considered and it was resolved:
1 That the Directors recommend to the Shareholders the proposed alteration of the Memorandum
of Association of the Company, and
Page 94
2 That the Notice and Consent to Short Notice convening the Meeting be and is hereby approved,
that the Secretary be and is authorised and directed to issue the same to all persons entitled to
receive it and that subject to the necessary Consents to the Meeting being held at Short Notice
such Meeting be held immediately.
Adjournment of Meeting
The Meeting was then adjourned until after the Extraordinary General Meeting had been held.
Passing of Special Resolution
Upon the Meeting being reconvened it was reported that the Special Resolution set out in the
Notice of Meeting referred to above had been duly passed at the Extraordinary General Meeting.
[548]
Filing of documents
The Secretary of the Company was instructed to arrange for the filing of the following documents
with the appropriate Registrar of Companies:
1 A signed copy of the Special Resolution passed at the Extraordinary General Meeting of the
Company held today.
2 A printed copy of the Memorandum of Association of the Company as altered.]
(in all cases)
Issue of [Guarantee (or) other instrument]
There was produced a draft of (specify instrument into which parent or subsidiary company is to
enter) proposed to be entered into by the Company's [parent (or) subsidiary] company in
connection with [the Guarantee (or) (as appropriate)]. The matter having been considered, the
Board was of the opinion that it was to the advantage and for the benefit of the Company to
secure (specify relevant obligations) of the [parent (or) subsidiary] company by giving the
proposed [Guarantee (or) (as appropriate)] having regard to the financial interdependence and
mutual reliance between the Company and its [parent (or) subsidiary] company and in particular
because of (specify advantages to the Company).
Production of final draft document
There was produced to the meeting a final draft of the [Guarantee (or) (as appropriate)] it was
proposed that the Company should enter into.
Resolution
It was resolved that the [Guarantee (or) (as appropriate)] be approved and that [(name of director)
be and is authorised to sign the same on behalf of the Company (or) the Common Seal of the
Company be affixed to the [Guarantee (or) (as appropriate)]].
Closing of Meeting
There being no further business the Meeting was then closed.
[549]
1 A problem may arise where the directors of a company are to approve the execution by the
company of a guarantee of the obligations of a third party where the commercial benefit to the
company giving the guarantee is not immediately apparent. This situation arises frequently when
a company guarantees the obligations of another member or members of the same group of
Page 95
companies, or where the companies concerned have common shareholders. If the company's
memorandum of association does not confer power upon the company to give such a guarantee,
a member of the company may bring proceedings to restrain it: Companies Act 1985 s 35(2) as
substituted by the Companies Act 1989 s 108(1). However, no such proceedings may be brought
in respect of an act to be done in fulfilment of an existing legal obligation: Companies Act 1985 s
35(2) as substituted (see above) and, in any event, once the guarantee has been executed, the
bank will be protected if it dealt with the company in good faith: Companies Act 1985 s 35A(1) as
inserted by the Companies Act 1989 s 108(1). The Companies Act 1985 s 35 and s 35A are
repealed as from 1 October 2009, but the position will be the same under the Companies Act
2006 s 39 and s 40, which will be brought into force on the same date. Companies incorporated
under the Companies Act 2006 (when Part 2 of that Act is brought into force on 1 October 2009)
will have unlimited objects unless their Articles provide otherwise, and so this issue will be less
likely to arise: see the Companies Act 2006 s 31 (also in force as from 1 October 2009). As
regards existing companies, provisions of the memorandum will be deemed to be provisions of
the articles from that time: see note 2 below.Where there is no general power to give guarantees,
and particularly when using the inter-company cross guarantee (for which see Form 15 [530]
ante), a bank may, for its absolute protection, wish to satisfy itself that the memorandum of
association of each guaranteeing company contains words clearly establishing that that company
possesses the necessary power to give such guarantees: for this purpose, words such as 'to give
such guarantees as may be expedient' are not entirely satisfactory, and the more specific
language set out in the Resolution (for which see Form 17 [550] post) is preferred.If the
company's memorandum of association already contains adequate language, the parts of this
Form dealing with the holding of an extraordinary general meeting to amend the memorandum are
not required. The bank should insist upon being furnished with a certified copy of the board
resolution. The passing of such a resolution will concentrate the minds of the directors of the
relevant company upon the question of whether the proposed guarantee is in the best interests of
that company. As a general rule, there should be no difficulty in the directors reaching a
conclusion that the guarantee is in the company's best interests where the company is part of a
normal financially stable group of companies that can truly be said to be mutually reliant and
financially interdependent. However, there may be factors that may alter the position; for example,
if in the particular circumstances there is a high probability that the guarantee will be called.
Further, the bank should follow up any indication from the text of the resolution itself that the
commercial justification for the giving of the guarantee is somewhat flimsy. If it fails to do so, it
may subsequently be held to have had notice of an abuse of power by the directors.2 See the
Companies Act 1985 s 4 as substituted by the Companies Act 1989 s 110(2). For the form of
special resolution see Form 17 [550] post. The Companies Act 1985 s 4 will be repealed as from 1
October 2009. Under the Companies Act 2006 s 31 (in force from 1 October 2009), the objects of
a company incorporated under that Act will be unrestricted unless restrictions are contained in the
articles. Provisions of an existing company's memorandum will be treated as provisions of the
company's articles from that time (see the Companies Act 2006 s 28, in force as from 1 October
2009). Amendment of a company's articles will require a special resolution (see the Companies
Act 2006 s 21, in force as from 1 October 2009).
Page 96
Precedents/C: GUARANTEES RELATING TO MONEY/17 Special resolution of company authorising
guarantee etc
17
Special resolution of company authorising guarantee etc
[550]
SPECIAL RESOLUTION
THAT the Memorandum of Association of the Company with respect to the objects of the Company be
altered by the addition of the following paragraph to be numbered ... after paragraph ... of clause ... and
re-lettering the succeeding paragraphs ... to ... seriatim:
0 'To enter into any guarantee, contract of indemnity or suretyship and in particular (without
prejudice to the generality of the above) to guarantee, support or secure, with or without
consideration, whether by personal obligation or by mortgaging or charging all or any part of the
undertaking, property and assets (present and future) and uncalled capital of the Company or by
both such methods or in any other manner, the performance of any obligations or commitments
of, and the repayment or payment of the principal amounts of and any premiums interest
dividends and other money payable on or in respect of any securities or liabilities of, any person,
including (without prejudice to the generality of the above) any company which is for the time
being a subsidiary or a holding company of the Company or another subsidiary of a holding
company of the Company or otherwise associated with the Company'.
Dated:
BY ORDER OF THE BOARD
(signature of secretary)
SECRETARY
Registered Office:
[551]-[580]
Precedents/D: GUARANTEES RELATING TO PAYMENTS BY COMPANIES/18 Guarantee of debentures
contained in a trust deed for the benefit of debenture holders
D: GUARANTEES RELATING TO PAYMENTS BY COMPANIES
Page 97
18
Guarantee of debentures contained in a trust deed for the benefit of debenture holders
1
[581]
0
Guarantee of debentures
In consideration of the sum of ... paid to them by the Company on or before the execution of this
Deed, receipt of which is acknowledged, the Guarantors covenant with the Trustees and agree as
follows:
0.1
If the Company makes default for more than ...... days in the payment of any principal money or
interest due under or secured by the debentures or any of them the Guarantors will pay the
amount due to the Trustees or to the person or persons respectively entitled to it not later than
...... days after a written demand for it has been made to the Guarantors by or on behalf of the
Trustees.
0.2
All money received by the Trustees from the Guarantors must be applied by them for the benefit
of the debenture holders in satisfaction and discharge of the money due to them as such.
0.3
Any default by the Company in respect of what is due to one or more of the debenture holders
shall without further proof entitle the Trustees to sue upon this covenant for the benefit of all the
debenture holders and to recover from the Guarantors the sums secured by this guarantee.
0.4
The Trustees shall be at liberty without the consent or knowledge of the Guarantors and without
discharging them:
0.4.1
to give time or other indulgence to the Company
2
;
0.4.2
to exercise the discretions devolving upon them as Trustees; and
0.4.3
to assent to any compromises compositions or arrangements with the Company
altering the terms of the debentures and postponing or accelerating the periods of
payment and increasing or diminishing the amounts due and secured
3
.
[582]
0.5
The Trustees shall be at liberty to enter into compromises with the Guarantors in respect of the
claims against them under this covenant and guarantee and to bind the debenture holders by
such compromises.
0.6
This covenant and guarantee shall be a continuing
4
security and it shall remain in operation until
the redemption of the debentures unless previously determined and revoked with the consent of
all parties to this guarantee.
0.7
This covenant and guarantee is made for the benefit of the debenture holders, to each of whom
due notice of it must be given by the Company and the Trustees.
0.8
On the fulfilment and discharge by the Guarantors of their liabilities as such the Trustees shall (if
so required by the Guarantors) exercise for the benefit of the latter all trusts and powers contained
in this guarantee as if the Guarantors were themselves the holders of the debentures and as if this
Deed had been entered into and executed for their exclusive benefit
5
.
Page 98
[583]
1 This Form is designed to form a clause in a trust deed, therefore the expressions 'the
Guarantors', 'the Company', 'the Trustees', etc should be altered as necessary to match the
defined terms being used in the trust deed.2 As to the effect of the giving of time or other
indulgence to the principal debtor in the absence of such a clause see Paragraph 35 [251]
ante.3 This clause is intended to avoid the possibility of discharging the guarantors by virtue of
variations in the principal agreement, as to which see Paragraph 34 [249] ante.4 As to
continuing guarantees see Paragraph 19 [122] ante.5 As to rights of subrogation see
Precedents/D: GUARANTEES RELATING TO PAYMENTS BY COMPANIES/19 Guarantee of payment of
dividends on shares
19
Guarantee of payment of dividends on shares
1
[584]
To: (name of shareholder)
of: (address of shareholder)
GUARANTEE OF PAYMENT OF DIVIDENDS
IN CONSIDERATION of your having at my request applied for and having been allotted (number)
[preference] shares Nos ...... to ...... (both inclusive) in (name of company) ('the Company') and having paid
the full nominal amount for them in cash
NOW I, (name of guarantor) of (address), AGREE WITH YOU as follows:
1 I undertake that in the event of the company paying in any one year no dividend on the shares or
a dividend at a rate less than ......% a year I will within [21] days after the annual general meeting
of the Company pay to you a dividend at the rate of ......% a year or so much of it as the Company
shall not pay
2 This Guarantee is to continue in force for [5] years and no longer and in the event of the
Company being wound up or going into liquidation within [5] years from the date of this Guarantee
I undertake to pay to you during the remainder of the period of [5] years a sum equal to ......% a
year upon the nominal amount of the shares less any sums you may have received in the winding
up or liquidation in respect of dividends on the shares the payment to be made by me on (date) in
each year
Dated:
Page 99
[585]
1 The only right the guarantor has in respect of sums paid under the terms of this guarantee is a right to be subrogated to
the preference shareholders. He does not have a claim as a creditor of the company: see Re Walters' Deed of Guarantee,
Walters' 'Palm' Toffee Ltd v Walters [1933] Ch 321.
Such a guarantee may in certain circumstances (and depending on the identity of the guarantor) fall within the ambit of the
Companies Act 1985 s 151 which makes it unlawful for a company to give financial assistance in the acquisition of its shares, or
shares in its holding company. The Companies Act 1985 s 151 is repealed as from 1 October 2009, following which the
provisions of the Companies Act 2006 Part 18 Chapter 2 (s 677 et seq) will need to be considered.
Precedents/D: GUARANTEES RELATING TO PAYMENTS BY COMPANIES/20 Guarantee by bank for the
benefit of creditors of a company which is reducing its share capital
20
Guarantee by bank for the benefit of creditors of a company which is reducing its share capital
[586]
THIS AGREEMENT is made the ...... day of ...... ......
BETWEEN:
(1) (name of bank) the registered office of which is at (address) ('the Bank') and
(2) (name of company) the registered office of which is at (address) and the company registration number of
which is (number) ('the Company').
WHEREAS
(1) The Company has presented a petition to the High Court of Justice Chancery Division
Companies Court for the confirmation of a reduction of the Company's share capital set out in the
resolution passed on (date) and scheduled to this Agreement.
(2) With a view to obtaining a direction of the Court pursuant to the Companies Act 1985 Section
136(6)
1
that the provisions of that section shall not apply as regards the creditors of the Company
at the date of this Agreement, the Bank has agreed at the request of the Company to give the
guarantee in respect of the Company's liabilities set out below.
[587]
Page 100
1 In consideration of the payment to the Bank by the Company of the sum of ... (receipt of which
the Bank acknowledges) the Bank undertakes that if the Company fails to pay or satisfy any debt
or claim outstanding at the date of this Agreement that would, if that same date were the
commencement of the winding up of the company, be admissible in proof against the Company,
the Bank will pay or satisfy such debt or claim.
2 If pursuant to the provisions of clause 1 above the Bank pays or satisfies any debt or claim of the
Company, the resulting debt or claim of the Bank against the Company shall be postponed to
every other debt or claim against the Company of the nature mentioned in clause 1 above, and
accordingly the Bank shall not be entitled to any right of proof on a winding up of the Company in
respect of any debt or claim paid or satisfied by the Bank under this Agreement until all other
debts or claims as aforesaid have been fully paid or satisfied.
3 The provisions of clauses 1 and 2 above shall enure for the benefit of every person who is a
creditor of the Company in respect of any such debt or claim as is mentioned in clause 1 and shall
be enforceable against the Bank by any such creditor as mentioned above2.
4 The Bank as a creditor or contingent creditor of the Company now consents to the reduction of
the Company's share capital referred to in the said Petition.
5 The liability of the Bank under this Agreement shall be limited to the sum of ...
AS WITNESS etc
[588]
SCHEDULE
3
Resolutions of the Company
1 That the capital of the Company be reduced from [60,000] divided into [60,000] ordinary shares
of [1] each (all of which have been issued and are fully paid up), to [6,000] divided into [60,000]
ordinary shares of [10p] each and that such reduction be effected by returning to the holders of
the said shares paid up capital to the extent of [90p] per share and by reducing the nominal
amount of each of the said shares from [1] to [10p].
2 That immediately and contingently upon such reduction of capital taking effect:
2.1 the [60,000] fully paid ordinary shares of [10p] each resulting from such resolution be
consolidated in such manner that every [10] of the said shares shall constitute one fully
paid ordinary share of [1];
2.2 the capital of the Company be increased to its former amount of [60,000] by the
creation of [54,000] ordinary shares of [1] each;
2.3 the sum of [24,000] being part of the amount standing to the credit of the general
reserve of the Company be capitalised and accordingly that such sum be set free for
distribution amongst the members of the Company who would have been entitled to it if
distributed by way of dividend and in the same proportions on condition that the same
be not paid in cash but be applied in paying up in full [24,000] of the unissued
Page 101
ordinary shares of [1] each in the capital of the company to be allotted and distributed
credited as fully paid up to and amongst such members in the proportions aforesaid.
(signatures on behalf of the Bank and the Company)
[589]
1 The Companies Act 1985 s 136 is repealed as from 1 October 2009, but the equivalent application will then be possible
under the Companies Act 2006 s 645, which comes into force on the same date.
2 Accordingly, any such creditor will be able to bring proceedings against the bank to enforce the guarantee, notwithstanding
that it is not privy to the contract, by virtue of the Contracts (Rights of Third Parties) Act 1999 s 1.
3 This Schedule provides for a reduction in capital by repayment of cash, but may be adapted for use on a reduction of
capital by substitution of loan capital for preference shares.
[590]-[620]
Precedents/E: GUARANTEES RELATING TO BUILDING SOCIETIES/21 Deposit of money or security by
borrower with building society by way of collateral security
E: GUARANTEES RELATING TO BUILDING SOCIETIES
21
Deposit of money or security by borrower with building society by way of collateral security
1
[621]
THIS AGREEMENT is made the ... day of ...... ......
BETWEEN:
(1) (name of borrower) of (address) ('the Borrower') and
(2) (name of building society) the principal office of which is at (address) ('the Society')
WHEREAS
(1)
The Society has advanced to the Borrower the principal sum of ... ('the Advance') repayable
with interest in ...... years by ...... instalments of ... upon the security of a mortgage ('the
Mortgage') of [freehold (or) leasehold] property of the Borrower known as (address or description
of property) ('the Property').
Page 102
(2)
Part of the arrangement with the Borrower for the Advance was that the Borrower should give a
charge upon money deposited by the Borrower with the Society as set out below.
[622]
1
On the signing of this Agreement the Borrower must deposit with the Society the sum of ... ('the
Deposit') upon which the Society must allow not less than the current rate of interest from time to
time payable on deposits with the Society in accordance with its practice subject as provided
below.
2
The Deposit shall remain on deposit with and not be repayable by the Society until the happening
of the event described in the Schedule to this Agreement ('the Relevant Event') after which,
subject to the rules of the Society, the Deposit shall upon request in writing be repayable to the
Borrower PROVIDED that the Society shall not be bound to repay the Deposit until the expiration
of one month after the delivery of the written request.
3
If the Society's power of sale shall become exercisable prior to the happening of the Relevant
Event, payment of interest to the Borrower shall cease and the Deposit may be transferred by the
Society to the credit of the repayment account relating to the Mortgage.
[623]
4
The Borrower agrees that the Society may make to any person who may be an assignee of the
Property but subject to the mortgage an advance of the whole or part of such sum as may be
necessary to enable payment to be made of a single premium in respect of a policy of life
assurance for such person.
5
The consent of the Borrower shall not at any time be required in respect of nor shall his liability be
avoided by the exercise by the Society of any rights or powers contained in the Mortgage or the
rules of the Society and the Society may release or make any arrangements regarding any other
security held by the Society from the Borrower.
6
Upon all questions of accounts the books of the Society shall without question be accepted as
final and conclusive saving manifest errors only.
7
If, by virtue of any document to which the Borrower and the Society shall be parties, the Deposit
or any part of it may be liable to be transferred by the Society, then notwithstanding clause 1 of
this Agreement the Deposit shall only be repayable to the Borrower subject to the provisions of
that other document.
8
The Society's powers set out in this document or in any other document shall have priority to the
interest of the Borrower or any person claiming through him.
[624]
9
The Borrower waives all right to participate in the proceeds of the Property, or any security
acquired by the Society for the Advance or any part of it after the date of this Agreement, or in any
other money that may be received by the Society whether from the Borrower or from any other
source in or towards satisfaction of the Advance unless and until all principal money interest fines
Page 103
and costs payable under the Mortgage have been received by the Society in full.
10
No assignment or transfer by the Borrower of the Property subject to the Mortgage shall be
deemed without express reference to transfer the Deposit, nor shall any such assignment or
transfer (notwithstanding that the Society may have expressed its consent to the transfer or
assignment) release or modify the agreements on the part of the Borrower or the provisions
contained in this Agreement.
11
The expression 'the Borrower' as to the Property and also as to the Deposit includes the personal
representatives and assigns of the Borrower and any other person who has succeeded to any of
his rights or liabilities.
[625]
AS WITNESS etc
SCHEDULE
The Relevant Event
(describe the event upon which the Deposit is repayable: eg, the reduction of the principal sum to 2/3 of the
purchase price to defray which the advance was made, or as may be required by the building society)
(signature of the borrower)
(signature of duly authorised officer of the building society)
By order of the Board of Directors
1 A guarantee may also be required. For a Form see Form 24 [632] post.
Precedents/E: GUARANTEES RELATING TO BUILDING SOCIETIES/22 Guarantee to accompany deposit
of money or securities with building society by a third party
22
Guarantee to accompany deposit of money or securities with building society by a third party
[626]
THIS AGREEMENT is made the ...... day of ...... ...... BETWEEN:
(1) (name of guarantor) of (address) ('the Guarantor')
(2) (name of borrower) of (address) ('the Borrower') and
Page 104
WHEREAS
(1) The Society has advanced to the Borrower the principal sum of ... ('the Advance') repayable
with interest in ...... years by ...... instalments of ... upon the security of a mortgage ('the
Mortgage') (with the terms of which the Guarantor is familiar) of [freehold (or) leasehold] property
of the Borrower known as (address or description of property) ('the Property')
(2) Part of the arrangement for the Advance was that the Guarantor should with the written consent
of the Borrower deposit money with the Society as set out below
[627]
1 On the signing of this Agreement the Guarantor shall deposit with the Society ... ('the Deposit')
upon which the Society shall allow not less than the current rate of interest from time to time
payable on deposits with the Society in accordance with its practice subject as provided below.
2 The Deposit shall remain on deposit with and not be repayable by the Society until the happening
of the event mentioned in the Schedule to this Agreement ('the Relevant Event') after which,
subject to the rules of the Society, the Deposit shall upon written request be repayable to the
Guarantor, PROVIDED that the Society shall not be bound to repay the Deposit until the
expiration of one month from the date of the request.
3 If the Society's power of sale shall become exercisable prior to the happening of the Relevant
Event then:
3.1 payment of interest to the Guarantor shall cease;
3.2 the Deposit may be transferred by the Society to the credit of the repayment account
relating to the Mortgage; and
3.3 the Guarantor shall, if required, at the option of the Society either
3.3.1 purchase the Property at a price equal to the aggregate amount of the
principal, interest, fines, costs and other charges due to the Society at the
date of the completion of the sale or at the best price that can reasonably be
obtained whichever is the greater; or
3.3.2 accept a transfer of the Mortgage, paying to the Society a sum equal to the
aggregate amount of the principal, interest, fines, costs and other charges
due to the Society at the date of the transfer.
[628]
4 The Guarantor agrees that the Society, with or at any time after the Advance, may make by way
of addition to it a further advance of the whole or part of such sum as may be necessary to enable
payment to be made of a single premium payable in respect of a policy of life assurance to be
effected for such person.
5 Nothing contained in this Agreement shall prevent or is intended to prevent the Borrower from
transferring the mortgaged property in such manner as he may desire or the Society from
expressing its consent to and concurrence in any such transfer, and the consent of the Guarantor
Page 105
shall not be required to nor shall his liability be avoided by any such transfer or by the exercise by
the Society of any rights or powers contained in this Agreement or in the Mortgage or the rules of
the Society and the Society may as and if it thinks fit release or make any arrangements regarding
any other security held by the Society from the Borrower.
6 Upon all questions of accounts the books of the Society shall without question be accepted as
final and conclusive saving manifest errors only.
7 If, by virtue of any other document to which the Guarantor and the Society shall be parties, the
Deposit or any part of it may be liable to be transferred by the Society then, notwithstanding
clause 1 of this Agreement, the Deposit shall only be repayable to the Guarantor subject to the
provisions of that other document.
[629]
8 The Society's powers stated in this Agreement or in any other document shall have priority to the
interest of the Guarantor or any person claiming through him.
9 The Guarantor waives all right to participate in the proceeds of the mortgaged property or any
security to be acquired by the Society after the date of this Agreement for the Advance or any part
of it or in any other money that may be received by the Society whether from the Borrower or from
any other source in or towards satisfaction of the Advance unless and until all principal money
interest fines and costs payable under the Mortgage have been received by the Society in full.
10 The Guarantor shall not be discharged by the Society giving time or other indulgence to the
Borrower, and the Guarantor shall also not be discharged by the Society agreeing with the
Borrower (without the Guarantor's consent) to vary any terms relating to the Advance or the
Mortgage.
11 References in this Agreement to the Guarantor or the Borrower include their respective personal
representatives and assigns and a person who has succeeded to any of the rights or liabilities of
the Guarantor or the Borrower respectively.
AS WITNESS etc
[630]
SCHEDULE
The Relevant Event
(describe the event upon which the Deposit is repayable: eg, the reduction of the principal sum to 2/3 of the
purchase price to defray which the advance was made, or as may be required by the building society)
(signature of duly authorised officer on behalf of building society)
Page 106
Precedents/E: GUARANTEES RELATING TO BUILDING SOCIETIES/23 Guarantee of the first year's
repayments under a building society mortgage
23
Guarantee of the first year's repayments under a building society mortgage
[631]
BETWEEN:
(1) (name of guarantor) of (address) ('the Guarantor') and
WHEREAS the Society has at the request of the Guarantor agreed to lend to (name of borrower) ('the
Borrower') the sum of ... upon the security of a mortgage of even date with this Agreement, made between
(1) the Borrower and (2) the Society upon the [freehold (or) leasehold] premises known as (address or
description of property), which provides that the principal sum and the interest on it shall be repaid to the
Society by equal [monthly] instalments of ... each.
NOW THE GUARANTOR AGREES with the Society that if any part of the first [12] of such [monthly]
instalments is in arrear and unpaid for the space of [14] days the Guarantor will upon the request of the
Society immediately pay the amount due.
(signatures of all parties)
Precedents/E: GUARANTEES RELATING TO BUILDING SOCIETIES/24 Guarantee of a mortgage debt
supported by collateral deposit
24
Guarantee of a mortgage debt supported by collateral deposit
1
[632]
BETWEEN:
(1) (names of guarantors) of (addresses) ('the Guarantors')
(2) (name of building society) the principal office of which is at (address) ('the Society') and
Page 107
(3) (depositor) of (address) ('the Depositor')
WHEREAS
(1) The Society at the request of the Guarantors agreed to lend to (names of borrowers) of
(addresses) ('the Borrowers') the sum of ... ('the Advance') upon the security of a mortgage ('the
Mortgage') of the same date as this Agreement, made between (1) the Borrowers and (2) the
Society upon premises known as (address or description of property) ('the Property'), by which it
was provided that the Advance and the interest on it should be repaid to the Society by equal
monthly payments of ....
(2) The Guarantors have agreed to enter into the covenants contained in this Agreement and the
Depositor has agreed to deposit with the Society the sum of ... ('the Deposit') by way of further
additional security for the Advance to the intent that the same shall stand charged to and be held
by the Society in pledge as a collateral security for the payment of the monthly instalments
payable under the Mortgage.
[633]
1 The Depositor will deposit the Deposit with the Society in connection with the Mortgage and the
Deposit shall, subject to clause 4 below, stand charged with the payment to the Society of all
sums that are now or shall become payable by the Borrowers or under the covenants on the part
of the Guarantors contained in this Agreement.
2 The Society shall pay to the Depositor interest on all money deposited as set out above or on so
much of it as shall from time to time be standing to the credit of the Depositor at the rate of ......%
per year or at the current rate of interest allowed by the Society to individual depositors from time
to time, whichever shall be the [higher (or) lower], subject in each case to the deduction of the
applicable rate of tax, such payments of interest to be made [half yearly (or) as appropriate].
3 If and whenever default is made by the Borrowers or their personal representatives or successors
in title in payment to the Society of any part of the monthly payments due under the Mortgage that
have been in arrear for [14] days, the Society shall be entitled and is empowered to deduct from
the Deposit so much as shall be required to satisfy any part of the monthly payments, fines, costs
and other money secured by the Mortgage.
[634]
4 Once the amount of the Advance and other outstanding money secured by the Mortgage has
been reduced to ..., the Deposit shall be repayable by the Society upon the written request of
the Depositor provided that the Society shall not be bound to repay the Deposit until one month
after the date of receiving the written request.
5 The Guarantors jointly and severally covenant with the Society:
5.1 that they will pay to the Society on demand any instalments or other sums of money
remaining unpaid;
Page 108
5.2 that if the Society shall become entitled to exercise its power of sale before the
Deposit shall have been repaid by the Society then they will, if required by the Society,
at the option of the Society either
5.2.1 pay to the Society all principal, interest, fines, costs and other money then
due from the Borrowers or their personal representatives or successors in
title under or by virtue of the Mortgage, or
5.2.2 pay the monthly instalments of ... secured by the Mortgage, or
5.2.3 purchase the Property at a sum sufficient to repay the Society the amount
due for principal, interest, fines, costs and other expenses or at the best
price that can reasonably be obtained whichever is the greater; and
5.3 that in case the Property shall at any time be sold by the Society under its powers for
that purpose and the proceeds of sale be insufficient to cover all principal, interest,
fines, costs and other money then due from the Borrowers or their personal
representatives or successors in title under or by virtue of the Mortgage then the
deficiency shall immediately on demand be paid by the Guarantors to the Society.
[635]
6 The Deposit shall not be released from the payment of the money secured by this Agreement or
any part of it, and the Guarantors shall not be released from their obligations under this
Agreement, by any of the following, namely:
6.1 any giving of time for payment of the principal money or interest or any other money
payable under the Mortgage or the rules for the time being of the Society; or
6.2 the substitution of any new covenant to pay; or
6.3 consolidation of the Mortgage or any security given for a further advance; or
6.4 any mortgage or sale or other dealing with the equity of redemption; or
6.5 any other arrangements between the Society and the Borrowers or the persons
deriving title under them respectively in reference to the Property; or
6.6 any omission on the part of the Society or the persons deriving title under it to enforce
any covenant or stipulation contained in the Mortgage or in the rules for the time being
of the Society and on the part of the Borrowers to be observed and performed; or
6.7 any other act or thing or omission or means by which the liability of the Guarantors
would not have been discharged if they had been principal debtors; or
6.8 any other dealing between the Society and the Borrowers or their successors in title
2
.
7 The Guarantors shall be released from all liability whatsoever under the covenants contained in
this agreement when and so soon as the total amount secured by the Mortgage shall have been
reduced to ... (same figure as in clause 4) PROVIDED that all the covenants and conditions to
be observed and performed on the part of the Borrowers in the Mortgage and on the part of the
Guarantors in this Agreement have been duly observed and performed up to that date.
[636]
IN WITNESS etc
Page 109
(signatures of the Guarantors and the Depositor)
(signatures of witnesses)
(signature of duly authorised officer on behalf of building society)
[637]
1 For a form of deposit by way of collateral security see Form 21 [621] ante. A guarantee is often also required. This Form is
drafted on the basis that the guarantor and depositor are different persons, but can be adapted for use where the person giving
the guarantee also makes the deposit.
2 As to the effect on the liability of the guarantors of the giving of time or other indulgence, or the variation of the terms of the
agreement with the principal debtor in the absence of a clause of this type see Paragraph 35 [251] ante.
[638]-[670]
Precedents/F: GUARANTEES RELATING TO FACTORING/25 Guarantee and indemnity relating to a
factoring agreement--long form
F: GUARANTEES RELATING TO FACTORING
25
Guarantee and indemnity relating to a factoring agreement--long form
1
[671]
To: (name of factor)
GUARANTEE AND INDEMNITY
IN CONSIDERATION of your agreeing to conclude an agreement with (name of supplier) of (address) ('the
Supplier'), in the terms or substantially in the terms of the document annexed hereto ('the Agreement'), for
the purchase by you of debts owed or to become owing to the Supplier
NOW [I (or) WE] (name(s) of indemnifier(s)) of (address(es)) ('the Indemnifier[s]') AGREE:
1
[I (or) We] will at all times fully and effectually indemnify, and keep indemnified, you and your
successors in title and assigns and all persons claiming through or under you or them against all
actions, proceedings, losses, costs, claims, demands or expenses whatsoever that may be taken
Page 110
or made against or become payable by you or them by reason of any breach on the part of the
Supplier of any of the warranties obligations or undertakings on his part contained in the
Agreement.
[672]
2
A certificate in writing by the auditors for the time being of you or your successors in title or
assigns, or any person claiming through or under you or them, of the cost of any actions or
proceedings and of the amount of any losses, costs, claims, demands or expenses suffered or
incurred by you or them shall be conclusive evidence of that cost or amount in any legal
proceedings against [me (or) us] (save for manifest error).
3
[I (or) We] guarantee the due and punctual performance by the Supplier of all the undertakings
and obligations contained in the Agreement on his part and the due and punctual payment to you
of all sums that are now or shall at any time be payable to you by the Supplier under the
Agreement subject to the following:
3.1
notice in writing of any default on the part of the Supplier is to be given by you to us
and within (number) days from its receipt payment shall be made by [me (or) us] under
this Guarantee;
3.2
the giving of time to the Supplier or the neglect or forbearance by you in requiring or
enforcing payment of the above-mentioned sums or any other indulgence shall not in
any way prejudice or affect [my (or) our] liability under this Guarantee
2
;
3.3
[I (or) we] will be liable as principal in respect of all payments that are not recoverable
from the Supplier by reason of any legal limitation disability or incapacity on or of the
Supplier or for any other reason;
3.4
a certificate by any of your officers, or any of the officers of your successors in title or
assigns, as to the money and liabilities covered by the terms of this guarantee shall be
conclusive and binding against [me (or) us] (save for manifest error);
3.5
[I (or) we] may not seek to rely on any set-off or counterclaim so as to extinguish or
reduce [my (or) our] liability under this Guarantee.
4
This Guarantee shall be a continuing
3
one and shall remain in force until due payment is made by
the Supplier of all sums payable by him under the Agreement.
[673]
5
Any notice under this Guarantee shall be deemed to have been sufficiently given if sent by first
class prepaid post to [my (or) our] [registered office (or) last known address].
6
In proving that any notice has been delivered it shall be sufficient to prove that the envelope
containing the same was duly addressed, stamped and posted.
7
Any notice shall be deemed to be delivered at the expiration of 48 hours from the time of posting.
8
This Guarantee and Indemnity and [my (or) our] obligations under it shall be construed according
to English law.
9
In the event of there being more than one signatory to this Guarantee and Indemnity, our
obligations and liabilities shall be construed and have effect as joint and several obligations and
liabilities4.
10
The Guarantee and Indemnity shall be binding upon [my (or) our] executors or administrators and
Page 111
upon any committee receiver or other person lawfully acting on [my (or) our] behalf, and shall
enure for the benefit of and be enforceable by your successors in title and assigns.
Dated:
(signatures of indemnifiers)
(annex form of Agreement for purchase of debts)
[674]
1 As to factoring generally see Paragraph 46 [331] et seq ante.
4 As to a guarantor's rights against his co-guarantors see Paragraph 25 [168] ante.
Precedents/F: GUARANTEES RELATING TO FACTORING/26 Indemnity against breach of warranties and
undertakings under a factoring agreement
26
Indemnity against breach of warranties and undertakings under a factoring agreement
1
[675]
To: (name of factor)
INDEMNITY
Re: (name of company) ('the Company')
IN CONSIDERATION of your entering into a disclosed invoice discounting agreement with the Company or
approving any invoice offered for sale to you
NOW [I (or) We], (name(s) of indemnifier(s)) of (addresses) AGREE WITH YOU as follows:
1 [I (or) We jointly and severally] indemnify you against all costs, losses, damages, claims and
interest that you may suffer or incur by reason of any breach of any warranties, covenants and
undertakings contained in clauses (numbers) of the Declaration of Trust contained in clause
(number) of the Standard Terms and Conditions.
2 This Indemnity may be terminated by [me (or) us] on [6 months'] written notice to you but this
Page 112
shall not affect any liability on our part arising directly or indirectly out of transactions effected or
obligations entered into prior to the date of such determination.
(signatures of indemnifiers)
1 As to factoring generally see Paragraph 46 [331] et seq ante.
[676]-[700]
Precedents/G: GUARANTEES RELATING TO PERFORMANCE OF CONTRACTS/27 Guarantee for the
performance of a contract--general form
G: GUARANTEES RELATING TO PERFORMANCE OF CONTRACTS
27
Guarantee for the performance of a contract--general form
1
[701]
THIS AGREEMENT is made the ...... day of ...... ...... BETWEEN:
(2) (name of person in whose favour guarantee is given) of (address) ('the Employer')
WHEREAS
(1)
This Agreement is supplemental to a contract ('the Contract'), dated (date) and made between (1)
(name of contractors) ('the Contractors') and (2) the Employer, by which the Contractors agreed
and undertook to (describe nature of works or other obligation undertaken) for the sum of ...
(2)
The Guarantor has agreed to guarantee the due performance of the Contract
[702]
1
If the Contractors (unless relieved from the performance by any clause of the Contract or by
statute or by the decision of a tribunal of competent jurisdiction) in any respect fail to execute the
Contract or commit any breach of their obligations under it, the Guarantor will indemnify the
Employer and his personal representatives against all losses, damages, costs and expenses that
may be incurred by him by reason of any default on the part of the Contractors in performing and
Page 113
observing the agreements and provisions on their part contained in the Contract.
[2
If any question or dispute arises as to the amount of any such losses, damages, costs and
expenses then:
2.1
the amount in question shall be determined by (details of an architect, engineer or
trade expert or as the case may be according to the nature of the contract) whose
decision shall be final; and
2.2
the fees of the [architect (or) engineer (or) trade expert (or as the case may be)] (who
shall be deemed to be acting as an expert and not as an arbitrator) shall be [shared
equally between the Employer and the Guarantor (or) borne by the Guarantor (or as
the case may be)]
2
]
[703]
3
The Guarantor shall not be discharged or released from this Guarantee by any arrangement
made between the Contractors and the Employer without the assent of the Guarantor or by an
alteration in the obligations undertaken by the Contractors or by any forbearance whether as to
payment time performance or otherwise
3
.
AS WITNESS etc
(signatures of both parties)
[704]
1 Guarantees are usually required for the performance of a building contract and this Form, although of a general character,
is suited to that purpose, but may be adapted for any description of contract.
2 If disputes are to be determined by arbitration, insert an arbitration clause: see generally vol 3(1) (1999 Reissue)
ARBITRATION AND ALTERNATIVE DISPUTE RESOLUTION.
3 As to the effect of the variation of the terms of the agreement, or the giving of time or other indulgence to the principal in
the absence of a clause of this type see Paragraph 35 [251] ante. Note that this clause may not protect the employer where the
employer and the contractor enter into a new contract, replacing the contract which is being guaranteed, as opposed to merely
varying or amending it: Triodos Bank NV v Dobbs [2005] EWCA Civ 630, (2005) Times, 30 May, CA.
Precedents/G: GUARANTEES RELATING TO PERFORMANCE OF CONTRACTS/28 Guarantee for the
performance by a new partner of covenants contained in a partnership deed
28
Guarantee for the performance by a new partner of covenants contained in a partnership deed
1
[705]
Page 114
THIS DEED OF GUARANTEE is made the ...... day of ...... ......
BETWEEN
(2) (names of existing partners) of (addresses) ('the Existing Partners')
WHEREAS:
(1) By a deed ('the Partnership Deed') dated (date of partnership deed) and made between (1)
(name of new partner) of (address) ('the New Partner') and (2) the Existing Partners, the New
Partner and the Existing Partners agreed:
(a) to become partners in the trade or business of (details of trade or business) from (date
new partner joins) for the term of ...... years determinable as provided, the business to
be carried on as mentioned in the Partnership Deed at (address of business premises)
under the partnership name of (partnership name) ('the Partnership'); and
(b) that each of them should contribute in certain prescribed proportions towards
maintaining the working capital of the partnership at a stated sum; and
(c) that the partnership business should in all respects be managed and carried on under
the terms of the Partnership Deed.
(2) Prior to the execution of the Partnership Deed the Guarantor agreed with the Existing Partners to
enter into and execute this guarantee.
[706]
NOW IT IS AGREED that the Guarantor is bound to the Existing Partners and to each of them as follows:
1 The Guarantor or his personal representatives shall at all times keep the Existing Partners and
each of them and their personal representatives indemnified against all losses, costs, charges and
expenses any of them may be put to or sustain by reason of the failure of the New Partner to
perform and observe the terms of the Partnership Deed, so that the sum paid by the Guarantor in
fulfilment of this condition shall at least equal the amount that he would have been liable to pay if
his own name appeared throughout the Partnership Deed in the place of that of the New Partner
and the Guarantor had failed to perform and observe the terms required by the Partnership Deed
to be observed and performed by the New Partner.
2 This guarantee shall not be discharged by any variation of the obligations of the New Partner
under the terms of the Partnership Deed, and it shall also not be discharged by the giving of time
or any other indulgence to the New Partner.
3 This guarantee shall not be revoked by any change in the constitution of the Partnership
2
.
4 The maximum aggregate sum recoverable from the Guarantor shall be ..., but subject to that
maximum this guarantee shall extend to the whole debt and liability of the New Partner.
5 The Guarantor may determine this guarantee by giving (number) days' notice to the Partnership
(as constituted under the Deed of Partnership or as it may from time to time be constituted
following any changes in its constitution), provided that (a) such notice may not expire prior to
(date) and (b) the Guarantor shall remain liable for all losses, costs, charges and expenses that
Page 115
any of the Existing Partners may be put to or sustain by reason of any failure of the New Partner
to perform and observe the terms of the Partnership Deed that has occurred prior to the expiry of
the notice.
IN WITNESS etc
(signature (or common seal) of guarantor)
[707]
1 As no consideration is contemplated, this guarantee should be executed as a deed.
2 See Paragraph 37 [255] ante. Although this provision provides that the guarantee shall not be discharged by any change in
the constitution of the firm, the liability of the guarantor will continue to be to the named Existing Partners only, and will not
extend in favour of those joining after the New Partner.
Precedents/G: GUARANTEES RELATING TO PERFORMANCE OF CONTRACTS/29 Guarantee for
payment of rent and observance of terms of tenancy agreement by a tenant
29
Guarantee for payment of rent and observance of terms of tenancy agreement by a tenant
[708]
To: (name of landlord)
of: (address)
GUARANTEE
IN CONSIDERATION of your having agreed at my request to accept (name of tenant) ('the Tenant') as the
tenant of your house (address of property) upon the terms of an agreement dated (date of tenancy
agreement) ('the Tenancy Agreement') at the rent of ... a year ('the Rent') payable by quarterly payments
on the usual quarter days,
NOW I, (name of guarantor) of (address), GUARANTEE the payment by the tenant to you of the Rent and
the performance and observance by him of the terms of the Tenancy Agreement upon the following
conditions:
1 If the Tenant defaults in the payment of the Rent for the space of one month, I will upon a written
Page 116
request by you pay you the quarter's rent that is in arrear
1
.
2 If the Tenant defaults in the performance or observance of any of the provisions on his part
contained in the Tenancy Agreement, I will pay to you all losses, damages, expenses and costs
that you shall be entitled to recover by reason of his default, to the extent to which you are unable
to recover them from the Tenant.
[709]
3 This Guarantee shall continue only for ...... years from the date hereof and extend to the acts and
defaults of the Tenant during that period, but during that period it shall not be revocable or
discharged by my death or by the death or bankruptcy of the Tenant.
4 Without prejudice to clause 3 above this Guarantee shall not be discharged by your giving the
Tenant time in which to meet his rent or other indulgence in respect of his obligations under the
Tenancy Agreement
2
.
5 If the Tenancy Agreement is assigned with your consent or is terminated by agreement or by
re-entry or disclaimer or otherwise, all future liability on my part shall cease
3
.
Dated:
[710]
1 As to conditions precedent to liability of the guarantor see Paragraph 26 [191] ante.
3 The guarantor will otherwise not be discharged if, upon the bankruptcy of the tenant, the trustee disclaims the lease:
Hindcastle Ltd v Barbara Attenborough Associates Ltd [1997] AC 70, [1996] 1 All ER 737, HL.
[711]-[740]
Precedents/H: GUARANTEES RELATING TO LEASING OF CHATTELS/30 Guarantee and indemnity
relating to lease of an aircraft
H: GUARANTEES RELATING TO LEASING OF CHATTELS
30
Guarantee and indemnity relating to lease of an aircraft
Page 117
[741]
THIS GUARANTEE AND INDEMNITY is made the ...... day of ...... ......
BETWEEN:
(1) (name of guarantor) of (address), a Company incorporated under the laws of (state country of
incorporation), ('the Guarantor') and
(2) (name of owner) of (address), a Company incorporated under the laws of (state country of incorporation),
('the Owner')
WHEREAS
(1)
By an agreement in writing dated (date of agreement for sale) and made between (1) the Owner
and (2) (name of hirer) ('the Hirer') the Hirer sold the entire legal and beneficial ownership of an
aircraft model number ...... with manufacturer's serial number ...... and registration mark number
...... ('the Aircraft').
(2)
By an agreement in writing dated (date of lease) ('the Lease'), the Owner let the Aircraft to the
Hirer for a period of (period) from (date of commencement of hire).
(3)
The Hirer being a wholly owned subsidiary of the Guarantor, the Guarantor has agreed to
guarantee to the Owner the due performance by the Hirer of all the Hirer's obligations under the
Lease.
[742]
1
The Guarantor warrants that:
[1.1
it does not hold and will not without the Owner's written consent take or hold any
security from the Principal in relation to this Guarantee. Any security so taken will be
held on trust for the Owner and the Guarantor undertakes to deposit assign or
otherwise transfer such security with or to the Owner as soon as possible, there being
no obligation on the Owner to make any demand with regard thereto.
1.2
its entry into this Guarantee does not contravene any law or statute, and that it has
power to enter this Agreement [and has obtained all necessary approvals to do so].
1.3
since the date of its last filed accounts (a copy of which has been provided to the
Owner) there has not been any material change (nor is any such change expected) in
the position or prospects of the Guarantor (in particular but without prejudice to the
generality of the foregoing the position regarding its assets and liabilities) as compared
with the position in those accounts.]
1
2
In consideration of the Owner agreeing to enter into the Lease, the Guarantor irrevocably and
unconditionally undertakes with the Owner that:
2.1
the Hirer shall duly and promptly pay, free of any deductions or withholdings or set-offs
of whatever kind, all amounts from time to time payable by the Hirer under the Lease;
2.2
the Hirer shall duly perform, observe and honour all the provisions, obligations,
warranties and undertakings on its part contained in the Lease; and
Page 118
2.3
in case of default by the Hirer in making any such payment or in the performance,
observance or honouring of any such provisions, obligations, warranties and
undertakings, the Guarantor will pay and make good to the Owner on demand being
made in writing all such payments and all losses, costs, damages and expenses arising
or incurred by the Owner as a result of such default.
[743]
3
The Guarantor irrevocably and unconditionally indemnifies and agrees to indemnify and hold
harmless the Owner against any loss the Owner may suffer in consequence of any order that may
be made under the Insolvency Act 1986 in respect of the said purchase of the Aircraft by the
Owner from the Hirer in whatever manner occurring.
4
In addition to its obligations under clauses 2 and 3 above, the Guarantor undertakes to pay to the
Owner, free from any deductions or withholdings or set-offs of whatever kind, any and all interest
before or after judgment on the amount or any part of it for the time being unpaid and due to the
Owner under this Guarantee and Indemnity at the rate of ......% a year, together with all legal and
other costs, charges and expenses (on a full indemnity basis) incurred by the Owner in enforcing
the payment of any money due under this Guarantee and Indemnity.
5
Should any amounts or obligations referred to in clause 2 above not be recoverable from or
enforceable against the Hirer on account of:
5.1
any legal disability or incapacity of the Hirer, or
5.2
any irregularity or defect in respect of the incurring of the liability to pay such amounts,
or
5.3
the invalidity of any assurance, security or payment for any reason whatsoever, or
5.4
any other legal limitation, disability, incapacity or any defect or circumstance, including
(without prejudice to the generality of the foregoing) the fact that any liability of the
Hirer is rendered void by virtue of any statute,
then such money, liability or liabilities together with any further sums due and owing under clauses
3 and 4 above shall remain recoverable from the Guarantor as an indemnity against the loss
suffered by the Owner in consequence thereof and as though the Guarantor was a principal
obligor and the same shall be paid by the Guarantor forthwith on demand.
[744]
6
This Guarantee and Indemnity shall be a continuing security irrespective of any change in name,
constitution, or construction or otherwise of the Hirer and shall remain binding upon the Guarantor
until all the obligations of the Hirer have been satisfied or enforced.
7
The liability of the Guarantor shall not be affected nor shall this Guarantee and Indemnity be
discharged or diminished by reason of:
7.1
any renewal, variation or determination of the lease
2
;
7.2
any renewal, modification, release, or abstention from the perfection or enforcement of
any security or guarantee on the part of the Owner with regard to any security or
guarantee now or hereafter held from the Hirer or any other person, including the
Guarantor, in respect of the Lease
3
;
7.3
the granting of time or of any indulgence to or the compounding with the Hirer or any
Page 119
other person or guarantor on the part of the Owner
4
; and/or
7.4
the doing or the omitting to do anything on the part of the Owner that but for this
provision might operate to exonerate or discharge the Guarantor from any of its
obligations under this Guarantee and Indemnity,
and this guarantee and indemnity shall not be discharged or affected by anything that would not
have discharged or affected the Guarantor's liability if the Guarantor had been a principal debtor
to the Owner instead of a guarantor.
[745]
8
Any money received in connection with this Guarantee and Indemnity may be placed to the credit
of a suspense account for as long as the Owner thinks fit, without any obligation to apply any part
towards reducing the amount for the time being unpaid and due to the Owner.
9
The Owner may retain any security held in respect of the Guarantor's liability under this
Guarantee and Indemnity for a period (being one month plus any statutory period during which
any allowance or security or payment or other arrangement involving the Guarantor or the Hirer
may be avoided) after payment of all sums that are or may become due to the Owner from the
Hirer notwithstanding any release, settlement, discharge or arrangement given or made by the
Owner.
10
Until all money and liabilities due or incurred by the Hirer to the Owner shall have been paid or
discharged in full, irrespective of any part payment of all sums due under this Guarantee and
Indemnity and of any purported release or cancellation of this Guarantee and Indemnity, the
Guarantor is not entitled to claim or rely upon any set-off or counterclaim as against the Hirer in
respect of any liability on the part of the Guarantor to the Hirer nor is the Guarantor entitled to
prove in the insolvency of the Hirer in competition with the Owner whether in respect of any
payment by the Guarantor under this Guarantee and Indemnity or otherwise.
11
This Guarantee and Indemnity is in addition to and is not to prejudice or be prejudiced by any
other guarantee or security for the obligations of the Hirer that is or may be held by the Owner.
[746]
12
All payments by the Guarantor under this Guarantee and Indemnity shall be made in the currency
applicable to the Hirer's obligations without set-off or counterclaim and without deduction for any
tax, duties, charges, fees, deductions or withholdings or restrictions whatever and if the Guarantor
is obliged by law to make any such deduction or deductions, the amount due from the Guarantor
shall be increased to the extent necessary to ensure that after the making of such deduction or
deductions, the Owner receives a net amount equal to the amount it would have received had no
such deduction been required to be made.
13
This Guarantee and Indemnity shall be binding on the Guarantor and its successors and shall
enure to the benefit of and be enforceable by the Owner and its successors and assigns but the
Guarantor may not assign or transfer any of its rights or obligations under this Guarantee and
Indemnity.
14
The Guarantor covenants with the Owner that, so long as it remains under any liability under this
Guarantee and Indemnity, it will continue to own beneficially and exercise voting control over the
Hirer and ensure that the Hirer retains sufficient working capital to enable it to pay promptly when
Page 120
due all its present and future indebtedness under the Lease.
15
Any notice or demand for payment by the Owner under this Guarantee and Indemnity shall be
made in writing addressed to the relevant party, and without prejudice to any other effective mode
of service the same shall be deemed to have been properly served on the Guarantor if served on
any one of the directors or on the secretary of the Guarantor or delivered or sent by first class
letter post to the Guarantor at its registered office or any of its principal places of business.
16
This Guarantee and Indemnity shall be governed by and construed in accordance with English
law.
AS WITNESS etc
(signatures (or common seals) of the parties)
[747]
1 The warranties given in clauses 1.1-1.3 are examples and should be adapted as appropriate.
2 This provision is necessary to prevent discharge of the guarantor by reason of any variation in the principal contract (ie the
lease). See Paragraph 34 [249] ante.
3 As to release of securities see Paragraph 36 [253] ante.
[748]-[780]
Precedents/I: NOTICES UNDER GUARANTEES/31 Notice of revocation of a guarantee where no power of
revocation is reserved
I: NOTICES UNDER GUARANTEES
31
Notice of revocation of a guarantee where no power of revocation is reserved
1
[781]
To: (name(s) of person(s) to whom guarantee is given)
of: (address(es))
NOTICE OF REVOCATION
Page 121
TAKE NOTICE that I, (name of guarantor) of (address), the undersigned now revoke and determine from and
after the date of this notice the [agreement (or) guarantee (or) bond] dated (date of agreement or guarantee
or bond) under which I became guarantor for (name of principal debtor) of (address)
AND I DECLARE that all liability whatever on my part under that [agreement (or) guarantee (or) bond] shall
now wholly cease and determine [except as to any liability existing at the time of the receipt by you of this
notice]
2
.
Dated:
[782]
1 If no power to determine the guarantee is expressly reserved, the nature of the consideration for the guarantee determines
in each case whether it is revocable by notice. If the consideration is entire, as where the guarantee is for the performance of
covenants in a lease, it is irrevocable: Lloyd's v Harper (1880) 16 Ch D 290 at 319, CA. Where, on the other hand, it is
fragmentary, ie supplied from time to time, as in the case of a guarantee given to secure the balance of a running account for
goods supplied, it is revocable, unless the contrary is provided: Bastow v Bennett (1812) 3 Camp 220. Though formerly a
different view prevailed (see Hassell v Long (1814) 2 M & S 363 at 369), it seems now to be clear that even when a guarantee
is executed as a deed, it is capable of being revoked by notice: Burgess v Eve (1872) LR 13 Eq 450; Lloyd's v Harper (1880) 16
Ch D 290, unless it is from its very nature irrevocable.
Subject to the terms of the guarantee, the revocation of a joint and several guarantee by one guarantor will probably not
discharge the rest, by analogy with Beckett v Addyman (1882) 9 QBD 783, CA.
As to revocation see Paragraphs 21 [126] and 38 [257] ante.
2 The words in square brackets can be included for the protection of the person guaranteed. In any event, the revocation will
only prevent further liability accruing in the future (after expiry of the notice), and will not prevent liability for any sums incurred
by the principal debtor up to the expiry of the notice period: Coulthart v Clementson (1879) 5 QBD 42 and National Westminster
Bank plc v Hardman [1988] FLR 302, CA.
Precedents/I: NOTICES UNDER GUARANTEES/32 Notice of revocation of a guarantee where a power of
revocation is reserved
32
Notice of revocation of a guarantee where a power of revocation is reserved
1
[783]
To: (name(s) of person(s) to whom guarantee is given)
of: (address(es))
NOTICE OF REVOCATION
WHEREAS by a written agreement of guarantee dated (date of guarantee) I, (name of guarantor) of
Page 122
(address), the undersigned, became guarantor to you for (name of principal debtor) of (address).
NOW I GIVE YOU NOTICE THAT in pursuance of a power for that purpose reserved and contained in that
Agreement I revoke and determine the Agreement from (date revocation to take effect) next ensuing and
declare that my liability under it shall from and after that date wholly cease and be determined.
Dated:
[784]
1 Where power to revoke a guarantee is expressly reserved, the notice of revocation should conform to the terms of the
power in all material respects, and especially with regard to the length of time prescribed for the notice. As to revocation see
Paragraphs 21 [126] and 38 [257] ante.
Precedents/I: NOTICES UNDER GUARANTEES/33 Notice to guarantor that principal debtor has made
default and requiring payment
33
Notice to guarantor that principal debtor has made default and requiring payment
1
[785]
To: (name of guarantor)
of: (address)
NOTICE OF DEFAULT
TAKE NOTICE THAT (name of principal debtor) of (address), for whom you became and are guarantor to
[me (or) us] (name(s) of creditor(s)) under an agreement of guarantee ('the Agreement') in writing dated
(date of guarantee), has made default in payment of the sum of ... due to [me (or) us] in respect of [goods
supplied (or) advances made] to him and secured by the Agreement and that the sum is still unpaid and due
and owing to [me (or) us].
AND TAKE NOTICE THAT [I (or) WE] REQUIRE YOU [immediately (or) as provided by the Agreement] to
pay or cause to be paid to us that sum [together with interest thereon as provided for by the Agreement]
2
on
or before (date) and by payment (in such manner as shall result in cleared funds being received on or before
that date) to the following account (set out account details) otherwise legal proceedings to enforce and
recover payment will be taken against you at the expiration of [one week (or insert the period if any fixed by
the Agreement)] from the date of this notice.
Dated:
Page 123
(signature(s) of creditor(s))
[786]
1 Strictly speaking, the guarantor is not entitled to notice of the principal debtor's default: see generally Paragraph 26 [191]
ante.
2 The words in square brackets should be used where the guarantee provides for interest on sums due.
[787]-[820]
Precedents/J: AGREEMENTS BETWEEN OR RELATING TO GUARANTORS/34 Agreement settling
contribution rights between co-guarantors
J: AGREEMENTS BETWEEN OR RELATING TO GUARANTORS
34
Agreement settling contribution rights between co-guarantors
1
[821]
BETWEEN:
(1) (name of first guarantor) of (address) ('the First Guarantor');
(2) (name of second guarantor) of (address) ('the Second Guarantor'); and
(3) (name of third guarantor) of (address) ('the Third Guarantor').
WHEREAS the First Second and Third Guarantors ('the Guarantors') are jointly and severally liable as
guarantors (but in unequal shares and proportions) under a guarantee in writing dated (date of guarantee)
('the Guarantee') for the payment by (name of principal debtor) of (address) ('the Principal Debtor') to (names
and addresses of creditors) ('the Creditors') of all sums that shall from time to time be advanced by the
Creditors to the Principal Debtor but subject to a limitation of ultimate aggregate liability under the Guarantee
on the part of the Guarantors to the sum of ... ('the Common Suretyship Liability')
[822]
Page 124
1
Each of the Guarantors enters into this Agreement with the object and intention of regulating and
determining the respective and mutual suretyship rights and liabilities under and arising out of the
Guarantee.
2
Each of the Guarantors agrees with each of the others that he will, to the full extent of his
prescribed individual liability under the Guarantee but no further save in the events provided for by
clause 4 below, pay and make contribution in respect of any sum paid or payable by and
recoverable from any one or more of them under the Guarantee, and will claim contribution for
any amount exceeding his prescribed share of the Common Suretyship Liability.
3
The proportion payable by each of the Guarantors by way of contribution towards the Common
Suretyship Liability shall in all cases be regulated and determined by the amount of his individual
liability under the Guarantee.
4
In the event of any one or more of the Guarantors becoming insolvent or otherwise unable to
satisfy in full his or their share of the Common Suretyship Liability, the amount of contribution
payable by the others shall be regulated by the number of solvent Guarantors and shall be in strict
proportion to the amount of each Guarantor's individual liability PROVIDED that except in the
circumstances mentioned in this clause, no Guarantor shall be liable to contribute more than his
individual liability under the Guarantee.
[823]
5
The sums payable under this Agreement by way of contribution shall be paid to the Guarantor or
Guarantors entitled to them on their giving satisfactory proof that they have discharged by
payment the Common Suretyship Liability.
6
Should contribution be demanded before actual payment is made to the Creditors of the sums
claimed by them, the Guarantor called upon to contribute may pay the sum due from him either to
the co-guarantor calling on him to contribute or to the Creditors
2
.
7
If any one or more of the Guarantors shall take and receive from the Creditors or from the
Principal Debtor or from any other person or persons whomsoever any security or securities for
money whether satisfied or not
3
or any sum or sums of money by way of full or partial discharge
or indemnity from or on account of liability under the Guarantee, he or they shall hold the security
or securities or sum or sums of money as trustee or trustees for such one or more of the
Guarantors as shall by law be entitled to it or them or to the benefit of it or them.
8
Nothing contained in this Agreement shall operate to deprive any one or more of the Guarantors
of any right or rights that he or they or any of them shall by law possess or be entitled to against
one another as co-guarantors under the Guarantee
4
save in so far as any such right or rights are
expressly or impliedly excluded by the terms of this Agreement.
9
This Agreement shall not be affected or impaired in any way by the express or implied discharge
from liability under the Guarantee of any one or more of the Guarantors.
10
Save where the context renders it absurd or impossible each and every reference to the
Guarantors or any one or more of them made in this Agreement shall be deemed to comprise
their or his personal representatives, by and against whom this Agreement shall be enforceable
as if they had been originally named as parties.
AS WITNESS etc
Page 125
(signatures of guarantors)
[824]
1 As to the rights of co-guarantors see Paragraph 25 [168] ante.
The right of contribution amongst guarantors is not founded in contract, but is the result of a general equity on the ground of
equality of burden and benefit. It exists whether the guarantors are bound jointly, or jointly and severally, and is quite
irrespective of their knowledge of the existence of co-guarantors for the same debt or liability. Where guarantors are liable in
unequal shares for a common debt, their contributions between themselves are unequal, and are determined by the prescribed
individual liability of each under his guarantee: Pendlebury v Walker (1841) 4 Y & C Ex 424 at 441. See also Ellesmere Brewery
Co v Cooper [1896] 1 QB 75 but see Commercial Union Assurance Co Ltd v Hayden [1977] QB 804, [1977] 1 All ER 441, CA.
Property charged by one guarantor is not equitably charged to a co-guarantor to cover any money the latter may be required to
pay under the guarantee: Pratt's Trustee in Bankruptcy v Pratt [1936] 3 All ER 901.
2 Although the right of contribution is usually exercised after payment has actually been made by one guarantor in excess of
his share of the common liability, it is sometimes invoked before payment: Wolmershausen v Gullick [1893] 2 Ch 514 at 520.
3 The right of a guarantor under the Mercantile Law Amendment Act 1856 s 5 who has satisfied a judgment obtained by the
creditor against the principal debtor or his guarantors, to stand in the place of the judgment creditor is not affected by the
circumstance that such guarantor has not obtained actual assignment of the judgment: Re M'Myn, Lightbown v M'Myn (1886)
33 Ch D 575.
4 As to the rights of co-guarantors against each other see Paragraph 25 [168] ante.
Precedents/J: AGREEMENTS BETWEEN OR RELATING TO GUARANTORS/35 Agreement converting one
joint obligor into a guarantor for the other
35
Agreement converting one joint obligor into a guarantor for the other
1
[825]
BETWEEN:
(1) (name of first joint obligor of a bond) of (address) ('the First Obligor'); and
(2) (name of second joint obligor of the bond) of (address) ('the Second Obligor').
WHEREAS
(1) By a bond ('the Bond') dated (date) and given by the First and Second Obligors ('the Obligors')
the Obligors became jointly bound to (name of obligee) ('the Obligee') in a penal sum, but subject
to a condition making the obligation void on payment by them to the Obligee of the sum of ...
with interest thereon at the rate of ......% per year on (date sum to be paid)
Page 126
(2) The Obligors for various reasons wish and intend to establish between themselves the relation of
principal and guarantor under the Bond by converting the Second Obligor into a guarantor for the
First Obligor
[826]
1 In consideration of the sum of ... paid by the First Obligor to the Second Obligor, receipt of
which is now acknowledged, the First Obligor agrees to become the principal debtor under the
Bond to the Obligee and to remain and become primarily liable to him in respect of all sums
secured by the Bond.
2 The First Obligor now agrees with the Second Obligor:
2.1 to make punctual payment to the Obligee of all sums secured by the Bond;
2.2 to fulfil in all respects the conditions of the Bond; and
2.3 to keep the Second Obligor indemnified against all actions suits claims and demands
whatsoever that shall be brought or made respectively by or on behalf of the Obligee
as obligee of the Bond or by his personal representatives or assigns.
3 The First Obligor also undertakes and agrees that he will within one week from the date of this
agreement give to the Obligee written notice of this Agreement and of its true meaning and effect.
AS WITNESS etc
[827]
1 An agreement between co-guarantors that one is to be primarily liable has been held not to create an equitable charge in
favour of the guarantor secondarily liable on property of the guarantor previously liable which was charged to the creditor:
Pratt's Trustee in Bankruptcy v Pratt [1936] 3 All ER 901.
As to co-guarantors see Paragraph 25 [168] ante.
Precedents/J: AGREEMENTS BETWEEN OR RELATING TO GUARANTORS/36 Deed of release of
guarantor from past, present and future liability under his guarantee
36
Deed of release of guarantor from past, present and future liability under his guarantee
Page 127
[828]
THIS RELEASE is made the ...... day of ...... ......
BY:
(name(s) and address(es) of creditor(s))
WHEREAS
(1) (name of guarantor) of (address of guarantor) ('the Guarantor') by a guarantee in writing ('the
Guarantee'), dated (date) and signed by him, became guarantor to [me (or) us] for the due
payment by (name of principal debtor) of (address) ('the Principal') for all goods to be supplied by
[me (or) us] to the Principal in the way of his trade or business as a (details of trade or business)
during a period of ...... years from (date guarantee commenced) but with a limitation of the liability
of the Guarantor under the Guarantee to the sum of ....
(2) Relying on and in pursuance of the Guarantee, [I (or) we] have from time to time since (date
guarantee commenced) at the request of the Principal supplied him with goods on credit for his
trade or business and he is now indebted to [me (or) us] in respect and on account of them in the
sum of ... (amount of debt), which the Principal professes to be unable to pay and has not paid.
(3) At the request of the Guarantor [I (or) we] have agreed:
(a) to release and discharge him from all past present and future liability under his
guarantee in consideration of his having paid to [me (or) us] previous to the execution
of this release the sum of ... (amount paid by guarantor), and
(b) to cancel in his presence the Guarantee and then to surrender and deliver it up to him.
[829]
NOW THIS DEED WITNESSES that:
1 In pursuance of the above and in consideration of the sum of ... (amount paid by guarantor),
receipt of which [I (or) we] acknowledge, [I (or) we jointly and severally] release and discharge the
Guarantor his personal representatives and his and their estates and effects from all past present
and future liability to [me (or) us] under the Guarantee and also from all actions, suits, accounts,
claims and demands whatsoever for upon account or in respect of the Guarantee.
2 [I (or) We] undertake and agree at the Guarantor's request to cancel the Guarantee in his
presence and then to surrender and deliver up the same to him
1
.
[3 [I (or) We] hereby reserve all our rights under the Guarantee against the other guarantors
thereunder.]
2
IN WITNESS etc
(signature(s) or common seal(s) of creditor(s))
Page 128
[830]
1 Where the guarantee provides that the right of the guarantor to prove in the bankruptcy, insolvency or liquidation of the
principal debtor is postponed until such time as the creditor is paid in full, this advantage may be preserved by a suitable clause,
but in this event, the creditor should not surrender the guarantee, which should be retained attached to the creditor's copy of the
release.
2 Where there is more than one guarantor and it is desired to release only one, it is advisable expressly to reserve the
creditor's rights against the other guarantors to ensure that those guarantors are not discharged: see Paragraph 37 [255] ante.
Precedents/J: AGREEMENTS BETWEEN OR RELATING TO GUARANTORS/37 Agreement for substitution
of guarantor
37
Agreement for substitution of guarantor
1
[831]
BETWEEN:
(1) (name of debtor) of (address) ('the Debtor')
(2) (name of retiring guarantor) of (address) ('the Retiring Guarantor')
(3) (name of new guarantor) of (address) ('the New Guarantor') and
(4) (name of creditor) of (address) ('the Creditor')
WHEREAS
(1) The Debtor is indebted to the Creditor in the sum of ....
(2) By an agreement dated (date of guarantee) ('the Agreement'), and made between (1) the Debtor
(2) the Retiring Guarantor and (3) the Creditor, the payment of the sum of ... (amount
guaranteed) was guaranteed to the Creditor by the Retiring Guarantor.
(3) The Retiring Guarantor desires to be released and discharged from his liability under the
Agreement and the Creditor has at the request of the Debtor, the Retiring Guarantor and the New
Guarantor agreed to release and discharge the Retiring Guarantor upon the New Guarantor
guaranteeing the payment to the Creditor of the sum of ... (amount guaranteed) in the place of
the Retiring Guarantor.
[832]
Page 129
1 The New Guarantor guarantees the payment of the sum of ... to the Creditor upon the same
terms and conditions as are contained in the Agreement as if the New Guarantor were a party to
the Agreement and his name were inserted in it in place of the name of the Retiring Guarantor.
2 The creditor accepts the liability and guarantee of the New Guarantor and releases and
discharges the Retiring Guarantor from all claims and demands whatsoever in respect of the
Agreement and the liability and guarantee of the Retiring Guarantor.
AS WITNESS etc
[833]
1 In the case of a guarantee to a bank, it is likely that, instead of an agreement in this form being executed, a new guarantee
would be taken from the substituted guarantor and a letter of discharge written to the retiring guarantor, with the return of the old
guarantee, as to which see Form 36 [828] ante.
[834]-[860]
Precedents/K: INDEMNITIES/38 Indemnity by seller of house to buyer in respect of lost or missing title
deeds
K: INDEMNITIES
38
Indemnity by seller of house to buyer in respect of lost or missing title deeds
1
[861]
THIS DEED OF INDEMNITY is made the ...... day of ...... ......
BETWEEN:
(1) (name of seller) of (address) ('the Seller') and
(2) (name of buyer) of (address) ('the Buyer')
Page 130
WHEREAS
(1)
The Seller agreed to sell to the Buyer the dwellinghouse known as (address of property) and by a
conveyance of even date with, but executed before, this deed and made between (1) the Seller
and (2) the Buyer, the Seller conveyed that dwellinghouse to the Buyer in fee simple
(2)
The Seller delivered an abstract of title to the Buyer but was unable to produce or cause to be
produced to the Buyer certain of the abstracted deeds ('the Missing Deeds'), particulars of which
are contained in the Schedule below
(3)
The Buyer agreed to complete the purchase upon the Seller undertaking to enter into the
covenant set out below
[862]
NOW THIS DEED WITNESSES that:
1
The Seller covenants with the Buyer and his successors in title, in pursuance of the above
agreement, that the Seller and his personal representatives will at all times keep the Buyer and
his successors in title and all persons claiming through or under him or them fully indemnified
against all losses costs charges and expenses that he they or any of them may suffer by reason
of the fact that he or they have not the custody of the Missing Deeds or any of them or the benefit
of any covenant or acknowledgment for their production.
2
The Seller covenants with the Buyer and his successors in title to notify the Buyer or the relevant
successor in title of any and every change in [his or her] address from time to time within 14 days
of such change occurring.
3
In the event of the Missing Deeds coming into the Seller's possession:
3.1
the Seller acknowledges the right of the Buyer to production of them and to delivery of
copies of them;
3.2
the Seller undertakes for the safe custody of them; and
3.3
the Seller undertakes immediately to inform the Buyer that they are in his possession.
IN WITNESS etc
SCHEDULE
The Missing Deeds
(particulars)
(signature (or common seal) of Seller)
[863]
1 The reference to lost or missing deeds indicates that the land is unregistered. In that case, the conveyance or transfer on
completion of the sale will trigger first registration. However, if there are lost or missing title deeds, it could be difficult to obtain
registration with absolute title. Much will depend on what evidence is available as to the circumstances of the loss and as to the
contents of the missing deeds.
Page 131
On the one hand, if the missing deeds were clearly lost as the result of a particular event where the deeds were not known to be
held by way of security (eg loss in a fire at the office of the solicitor for the estate owner who can say the deeds were only held
for safe keeping), and examined copies are available so as to prove the contents of the deeds, then the difficulties may be
minimal. On the other hand, if there is only a vague statement (eg by executors of a deceased person who is claimed to have
been the estate owner) that deeds were believed to have been held at some time, but cannot now be found, and there is no
available evidence as to what the deeds (if any) may have contained, then it is unlikely that, if any registered title can be
granted, it will be absolute title.
For this reason a prudent intending buyer will normally wish to have the seller apply for first registration of the title voluntarily in
circumstances where deeds are missing, either before a binding contract is entered into or under the terms of a contract that is
conditional upon a satisfactory registered title being obtained. The buyer can then make a final decision about the purchase in
the light of whether a registered title is granted and, if so, whether the title is less than absolute or is the subject of protective
entries. If an absolute title without protective entries is granted, then the purchase can be completed without the need for any
indemnity. However, if, say, a possessory title is granted, or an absolute title is granted subject to a protective entry referring to
such restrictive covenants and/or easements as may affect the land (likely where the title is basically sound but the missing
deeds might have disclosed burdens of this kind) then the indemnity can be tailored to the circumstances and/or a defective title
indemnity policy considered, the burden of paying the premium being a matter of bargain between the parties.
[864]
The advantage of a defective title indemnity policy issued by a reputable insurer is that the buyer can be reasonably sure of
having someone to deal with should the indemnity need to be called upon later. If there is an underlying difficulty behind the
lack of particular title deeds, it could be many years before the problem surfaces, by which time the seller may be difficult to
trace and/or may have died and his or her estate long since wound up, so that the seller's indemnity becomes illusory in
practice. A covenant on the part of the seller to keep the buyer advised of any address changes may go some way towards
making the whereabouts of the seller more traceable. However, the effectiveness of such a covenant depends in practice upon
the seller remembering to comply with it whenever there is a change of address, the likelihood of which may diminish over time.
From the seller's point of view, if voluntary registration does not precede the sale, the seller needs to consider whether he
should give the usual covenants for title implied by selling with full or limited title guarantee and if so, whether these should be
modified so as to exclude liability in connection with his inability to produce the missing deed. In particular, the Law of Property
(Miscellaneous Provisions) Act 1994 s 2(2)(b) provides for the seller to give 'all reasonable assistance fully to establish to the
satisfaction of the Chief Land Registrar the right of the person to whom the disposition is made to registration as proprietor'.
Although this does not specify registration with absolute title, the seller should consider a suitable modification if there is any
risk that no title will be granted.
As to indemnities see Paragraphs 40 [281]-44 [287] ante; and as to the distinction between guarantees and indemnities see
Paragraphs 1 [1] and 4 [11] ante.
For a deed of assignment of such an indemnity see Form 39 [865] post.
For a form of counter-indemnity in respect of lost or destroyed documents see Form 50 [910] post.
Precedents/K: INDEMNITIES/39 Assignment of an indemnity against lost deeds
39
Assignment of an indemnity against lost deeds
1
[865]
THIS DEED OF ASSIGNMENT is made the ...... day of ...... ......
BETWEEN:
(1) (name of assignor) of (address) ('the Assignor') and
Page 132
(2) (name of assignee) of (address) ('the Transferee')
WHEREAS
(1) On the purchase of the property described in Schedule 1 below ('the Property') (name of seller)
('the Seller'), the then seller of the Property, by a deed of indemnity ('the Deed of Indemnity')
dated (date) made between (1) the Seller and (2) the Assignor, covenanted that he and his
personal representatives would at all times keep the Assignor and his successors in title and all
persons claiming through or under him or them fully indemnified against all losses, costs, charges
or expenses he or they or any of them might suffer by reason of the fact that he or they have not
the custody of the missing deeds set out in Schedule 2 below ('the Missing Deeds') or any of them
or the benefit of any acknowledgment for their production
(2) By a conveyance of even date with this deed the Assignor has conveyed the Property to the
Transferee
(3) It was a term of the contract of sale of the Property that the Assignor would assign to the
Transferee all the benefit of the Deed of Indemnity
[866]
NOW THIS DEED WITNESSES that in consideration of the Transferee completing the sale the Assignor
[with [full (or) limited] title guarantee] assigns to the Transferee all the benefit and interest of the Assignor in
or under the Deed of Indemnity, together with the right so far as may be necessary to demand performance
of, sue for and enforce the same in the name of the Assignor, to hold the same unto the Transferee
absolutely.
IN WITNESS etc
SCHEDULE 1
The Property
(description of property)
SCHEDULE 2
The Missing Deeds
(particulars of missing deeds)
(signature (or common seal) of assignor)
[867]
Page 133
1 See Form 38 note 1 [863] ante.
This assignment can, if convenient, be endorsed on the deed of indemnity (for which see Form 38 [861] ante), in which case the
recitals will not be necessary. Alternatively, it can be included in the conveyance. Notice in writing of the assignment should be
given to the person liable on the indemnity: see the Law of Property Act 1925 s 136 as amended.
Precedents/K: INDEMNITIES/40 Indemnity to trustees of a marriage settlement in respect of an unauthorised
investment with charge on the interests of the beneficiaries
40
Indemnity to trustees of a marriage settlement in respect of an unauthorised investment with charge
on the interests of the beneficiaries
1
[868]
BETWEEN
2
:
(1) (name of tenant for life) of (address) ('the Husband')
(2) (name of reversionary tenant for life) of (address) ('the Wife') and
(3) (names and addresses of trustees) ('the Trustees')
(and the Husband and the Wife are together called 'the Spouses')
WHEREAS
(1) Under a settlement ('the Settlement'), dated (date) and made between (parties to settlement),
certain trust funds were directed to be held by the Trustees in trust:
(a) to pay the income to the Husband during his life, and
(b) on his death to pay the income to the Wife (if surviving) during the remainder of her
life, and
(c) subject to these trusts, for the children of the Spouses and otherwise as declared and
expressed in the Settlement.
(2) The Spouses have requested the Trustees to invest the sum of ... forming part of the said trust
funds in the purchase of (details) ('the Investment'), which is not authorised by the Settlement
3
.
(3) The Trustees have agreed to make the Investment upon the terms that the Spouses should
indemnify them as provided below.
[869]
NOW THIS DEED WITNESSES as follows:
Page 134
1 The Spouses jointly and severally covenant with the Trustees and each of them that they or one
of them or their or his or her personal representatives will at all times indemnify the Trustees and
each of them and each of their personal representatives against all actions, proceedings, claims,
demands, costs and expenses whatsoever in respect of the investment of the sum of ... in the
purchase of the Investment.
2 The Spouses charge their respective interests (whether in possession or reversion) under the
Settlement with the payment of all money they or either of them or their respective personal
representatives may be or become liable to pay under the covenant contained in clause 1 above.
IN WITNESS etc
(signatures of Husband and Wife)
[870]
1 The manner in which a trustee can invest trust money is primarily determined by the instrument creating the trust, and the
statutory powers of investment (contained principally in the Trustee Act 2000), which are exercisable only in so far as a contrary
intention is not expressed in the trust instrument or by any enactment. The Trustee Act 2000 introduced wide powers of
investment and so the need for indemnities of this type will diminish.
2 The agreement as to investment contained in this Form is not binding on beneficiaries under the settlement other than the
husband and the wife: any other beneficiaries who are sui juris should be made parties.
3 As to the power of the court to make a beneficiary indemnify trustees for a breach of trust that he has requested see
Paragraph 41 note 2 [283] ante.
Precedents/K: INDEMNITIES/41 Indemnity to executors in respect of the retention of unauthorised
investments
41
Indemnity to executors in respect of the retention of unauthorised investments
1
[871]
BETWEEN:
(1) (name of tenant for life) of (address) ('the Tenant for Life')
Page 135
(2) (names and addresses of remaindermen) ('the Remaindermen') and
(3) (names and addresses of executors) ('the Executors', which expression includes their successors in title).
WHEREAS
(1) By his will dated (date) (name of testator) late of (address) ('the Testator') appointed the
Executors to be the executors of his will and gave all his real and personal property to them upon
trust [for sale and conversion into money] with power [at their discretion to sell all or any part or
parts of such property when they think fit (or) to postpone the sale and conversion
2
] and, after
payment of his funeral and testamentary expenses and debts and certain pecuniary legacies, to
hold the remainder and income thereof ('the Trust Fund') upon trust to invest the Trust Fund in or
upon any of the investments authorised by his will and to pay the income from such investments
to the Tenant for Life during his life and from and after his death to hold the trust fund in trust for
the Remaindermen as tenants in common in equal shares.
(2) The Testator died on (date) and his will was proved by the Executors on (date) in the [Principal
(or) (name) District] Probate Registry of the Family Division of the High Court.
(3) Part of the Testator's personal estate consists of the investments specified in the Schedule below
('the Investments') which are not of a nature authorised by the will, but the Tenant for Life and
Remaindermen desire that the Investments shall be retained and the income from them be paid to
the Tenant for Life and that the rule in Howe v Earl of Dartmouth shall not be applied to them
3
.
[872]
1 The Tenant for Life and Remaindermen jointly and severally covenant with the Executors and
each of them that subject to clauses 2 and 3 below they will at all times indemnify and keep
indemnified the Executors and each of them and their respective personal representatives and
estates and effects from and against all actions, proceedings, claims, demands, costs and
expenses whatsoever in respect of the postponement of the sale and conversion into money
and/or re-investment of the Investments or any of the Investments and the payment of the whole
income from them to the Tenant for Life, so that the rule in Howe v Earl of Dartmouth is not
applied to the Investments, as long as the Executors and each of them in their absolute discretion
may deem fit.
2 It shall be a condition of the validity of the foregoing indemnity that the Executors shall not less
than once in every ...... months consult a member of the London Stock Exchange concerning the
investments held in the Testator's personal estate at that time.
3 The Tenant for Life or any of the Remaindermen may as regards himself or herself determine this
indemnity as to the future by giving the Executors [3 months'] notice in writing to determine [but
such determination shall not affect any part of the income from the Investments received after
such determination in respect of a period wholly or in part preceding such determination].
IN WITNESS etc
SCHEDULE
Page 136
The Investments
(describe the unauthorised investments)
(signatures of tenant for life and remaindermen)
[873]
1 The general rule is that a year from the date of death is a reasonable time within which a personal representative should
realise investments which it is not proper to retain: Hiddingh (Heirs) v De Villiers Denyssen, Hiddingh v Denyssen, Denyssen v
Hiddingh (1887) 12 App Cas 624 at 631, PC. Where executors are given an absolute discretion under the will as to the retention
or the postponement of conversion of the testator's existing securities, they are not bound to convert the property within the
year and are not liable, in the absence of mala fides, for loss arising from the non-conversion: see Re Norrington, Brindley v
Partridge (1879) 13 Ch D 654, CA; Re Schneider, Kirby v Schneider (1906) 22 TLR 223.
In view of the wide range of investments now authorised by the Trustee Act 2000, an indemnity in respect of the retention of an
unauthorised investment is not likely to be required so frequently as was formerly the case.
2 The second alternative should be used where an express trust for sale was created.
3 The rule in Howe v Earl of Dartmouth (1802) 7 Ves 137 by virtue of which, in the case of unconverted unauthorised
securities, the tenant for life of residuary personal estate is entitled only to fixed interest, normally at 4%, upon their ascertained
value and the remainder of the income is capitalised, is not rendered inapplicable by the fact that the will contains a power to
postpone conversion: Re Berry deceased, Lloyd's Bank Ltd v Berry [1962] Ch 97, [1961] 1 All ER 529.
Precedents/K: INDEMNITIES/42 Indemnity supported by a charge where property has been purchased in
breach of trust
42
Indemnity supported by a charge where property has been purchased in breach of trust
1
[874]
BETWEEN:
(1) (names and addresses of beneficiaries of full age) ('the Beneficiaries') and
(2) (names and addresses of trustees) ('the Trustees')
[WHEREAS
Page 137
(1) [By a settlement ('the Settlement') dated (date) and made between (parties) a certain fund ('the
Fund') was settled upon the trusts declared in that deed but the Settlement [provided that the
Trustees should have no power to invest in land (or) contained no power for the Trustees to invest
in land]
2
(or)
By his will ('the Will') dated (date) and duly proved by the executors named in it on (date) in the
[Principal (or) (name) District] Probate Registry of the Family Division of the High Court (name of
testator) late of (address) settled a certain fund ('the Fund') upon the trusts declared by the Will
but the Will [provided that the Trustees should not invest in land (or) contained no power for the
Trustees to invest in land]]
(2) The Trustees are the present trustees of the [Settlement (or) Will]
(3) By a [conveyance ('the Conveyance') (or) transfer ('the Transfer')] dated (date) made between (1)
(seller) and (2) the Trustees the land described in the [Conveyance (or) Transfer] ('the Land') was
conveyed to the Trustees in fee simple
(4) The consideration for the [Conveyance (or) Transfer] was provided out of funds subject to the
[Settlement (or) Will]
(5) By a declaration of trust ('the Declaration of Trust') dated (date) the Trustees declared that they
held the Land upon the trusts declared by the [Settlement (or) Will] and applicable to the Fund so
far as the same were still subsisting and capable of taking effect
(6) The Beneficiaries have agreed to give to the Trustees the indemnity contained in this deed in
respect of the breach of trust committed by the Trustees in purchasing the Land and in respect of
the transaction effected by the [Conveyance (or) Transfer] and Declaration of Trust]
3
[875]
NOW THIS DEED WITNESSES that the Beneficiaries and each of them being sui juris jointly and severally
covenant with the Trustees and each of them as follows:
1 If the land or funds that now are or shall become subject to the trusts of the [Settlement (or) Will]
shall suffer loss or be diminished in consequence of the execution of the [Conveyance (or)
Transfer] and the Declaration of Trust or either of them then neither the Beneficiaries nor any of
them nor their respective personal representatives or assigns will require the Trustees to make
good such loss or diminution.
2 The Beneficiaries and each of them or the personal representatives of them and each of them will
indemnify the Trustees against all such loss or diminution as mentioned above and against any
claim made by any person requiring the Trustees or one of them or their or his personal
representatives to make good any such loss or diminution as aforesaid or consequent upon any
action brought in order to enforce any claim based upon any such loss or diminution.
3 The interests and shares of the Beneficiaries and the interest and share of each of them in the
lands and funds that now are or may become subject to the trusts of the [Settlement (or) Will] and
the income from those lands and funds respectively shall if and whenever any such claim shall be
made stand charged and be a security to the Trustees and each of them to the intent that they or
he or their or his personal representatives and their or his estates and effects may have the
benefit of the charge made by way of security for the covenants contained in this deed.
Page 138
IN WITNESS etc
(signatures of the beneficiaries)
[876]
1 The purpose of this Form is to deal with those cases in which eg the trustees of a settled fund have at the instance of the
adult beneficiaries purchased land, although there was no power for the trustees to invest in land. Such circumstances will be
increasingly rare as the Trustee Act 2000 confers a general power to invest in land, subject to any restrictions contained in the
trust instrument or in any enactment.
2 Subject to any restrictions or exclusions imposed by the instrument creating the trust or by a relevant statutory provision,
the trustees will have power to invest in land by virtue of the Trustee Act 2000 ss 8, 9, whenever the trust was created (s 10(2)).
The Trustee Act 2000 ss 8-10 do not apply to trustees of a settlement under the Settled Land Act 1925, but it has not been
possible to create any new settlement under the Settled Land Act 1925 since the coming into force on 1 January 1997 of the
Trusts of Land and Appointment of Trustees Act 1996: see the Trusts of Land and Appointment of Trustees Act 1996 s 2(1).
3 Instead of reciting the stages to the transaction, this deed may be made supplemental to the conveyance or transfer to the
trustees, and to the declaration of trust executed by them in relation to the land.
Precedents/K: INDEMNITIES/43 Agreement to give time and indemnity where debt owed to a testator's
estate
43
Agreement to give time and indemnity where debt owed to a testator's estate
1
[877]
BETWEEN:
(1) (name of debtor) of (address) ('the Debtor') and
(2) (name of executor) of (address) ('the Executor')
WHEREAS
(1) (name of testator) late of (address) ('the Testator') by his will ('the Will') dated (date of will)
appointed the Executor to be the executor of the Will
(2) The Testator died on (date) and the Will was proved by the Executor in the [Principal (or) (name)
Page 139
District] Probate Registry on (date)
(3) The Debtor was indebted to the Testator in the sum of ... ('the Debt') and still remains indebted
to the Testator's estate in that sum together with interest on it at the rate of ......% per year from
(date) (as the Debtor acknowledges)
(4) The Debtor has requested time for payment of the Debt and the interest on it and the Executor
has agreed to give the Debtor time on the terms set out below
[878]
1 The Executor agrees, subject to the provisions set out below, that he will not take any
proceedings against the Debtor to recover the Debt or any part of it so long as the Debtor on the
first day of every month commencing with the first day of (month) pays to the Executor the sum of
... in part payment of the Debt and also pays interest at the rate mentioned above on so much of
the Debt as shall from time to time remain unpaid PROVIDED that if the Debtor defaults in the
punctual payment of any such instalment or any such interest or if the Debtor commits any act of
bankruptcy or dies or has any execution levied on his goods or any judgment recovered against
him the Executor may immediately take such proceedings as he may think fit for the recovery of
the Debt or the unpaid part of it and the interest on it.
2 The Debtor covenants with the Executor that the Debtor or his personal representatives will
indemnify the Executor and his personal representatives against all actions proceedings claims
damages costs and expenses whatever that the Executor or his personal representatives may be
liable to or incur by reason of the Executor giving time to the Debtor to pay the Debt and not
taking proceedings to recover it.
IN WITNESS etc
[879]
1 A personal representative has, apart from statute, a duty to get in as speedily as possible all money owed to the testator
and outstanding upon personal security only. By statute however, a personal representative may, if and as he thinks fit, allow
any time for payment of any debt, and for this purpose may enter into such agreements and do such other things as to him
seem expedient, without being responsible for any loss occasioned by any act or thing done by him as long as he has
discharged the duty of care set out in the Trustee Act 2000 s 1: Trustee Act 1925 s 15 as amended by the Trustee Act 2000.
Precedents/K: INDEMNITIES/44 Indemnity by principal debtor to a guarantor liable under a guarantee
Page 140
44
Indemnity by principal debtor to a guarantor liable under a guarantee
1
[880]
BETWEEN:
(1) (name of principal debtor) of (address) ('the Principal') and
(2) (name of guarantor) of (address) ('the Guarantor')
WHEREAS
(1) This deed is intended to be supplemental to a guarantee ('the Guarantee') of even date herewith
and made between (1) the Guarantor and (2) (name of other party) by which the Guarantor
guaranteed (description of guarantee)
(2) The Principal in consideration of the Guarantor having entered into the Guarantee has agreed to
enter into the covenant set out below
NOW THIS DEED WITNESSES that, in pursuance of the above Agreement and in consideration of the
Guarantor having entered into the Guarantee, the Principal covenants with the Guarantor that he or his
personal representatives will at all times keep the Guarantor and his personal representatives and his and
their estate and effects indemnified against all actions, proceedings, liability, claims, damages, costs and
expenses in relation to or arising out of the Guarantee.
IN WITNESS etc
(signature of principal debtor)
[881]
1 As to a guarantor's right to be indemnified by his principal see Badeley v Consolidated Bank (1886) 34 Ch D 536 at 556
(on appeal (1888) 38 Ch D 238, CA); and see Paragraph 24 [164] ante.
Many guarantees, especially bank guarantees, bind the guarantor not to accept security of any kind whatsoever from the
principal debtor and provide that where this is done, the security or right shall enure for the benefit of the creditor.
Precedents/K: INDEMNITIES/45 Indemnity granted by company to guarantors and secured by an
assignment of book debts
Page 141
45
Indemnity granted by company to guarantors and secured by an assignment of book debts
1
[882]
BETWEEN:
(1) (name of company) the registered office of which is at (address) ('the Company')
(2) (names and addresses of guarantors) ('the Guarantors') and
(3) (trustee for guarantors) of (address) ('the Trustee')
WHEREAS the Guarantors have at the request of the Company by a guarantee ('the Guarantee') dated
(date) guaranteed to (name) ('the Bank') the payment, up to the sum of ..., of any overdraft due to the Bank
by the Company and the Company have agreed to enter into this deed
1 The Company covenants to keep the Guarantors indemnified against all liability under the
Guarantee.
2 The Company assigns to the Trustee [with [full (or) limited] title guarantee and] at the request of
the Guarantors all the book and other debts now due or owing to the Company and all book and
other debts that may at any time during the continuance of this security become due or owing to
the Company together with the full benefit of all securities for them to the Trustee to hold in trust
for the Guarantors in proportion to their respective liabilities under the Guarantee PROVIDED that
when the Guarantors have been released and discharged from all liability under the Guarantee
the Trustee shall upon the request and at the cost of the Company reassign the book debts to the
Company.
3 The Trustee and the Guarantors by themselves or their agents shall have the right at all times to
inspect the books of the Company and to take copies or extracts from them.
4 The Company shall on the first day of every month commencing with the first day of (month)
inform the Trustee and the Guarantors of the amount of the Company's overdraft at the Bank.
[883]
5 The Trustee may at any time at his discretion and shall if so requested by any of the Guarantors
give notice of this deed to the debtors for the time being of the Company.
6 It shall not be incumbent on the Trustee to take any proceedings to enforce any of the assigned
debts unless so requested by any of the Guarantors who shall provide or give sufficient security
for any costs the Trustee may incur in connection with any such proceedings.
7 The Trustee shall not be liable or responsible for permitting the Company to receive any book
debts or other debts.
Page 142
8 The Guarantors may appoint any other person or persons to be a Trustee for the Guarantors in
place of the Trustee and upon such appointment the benefit of this security shall be assigned to
such new or new and continuing trustees.
9 Except where otherwise expressly stated the expression 'the Trustee' includes his personal
representatives and the trustees or trustee for the time being of this deed and the expression 'the
Guarantors' includes each of them and each of their personal representatives.
IN WITNESS etc
[884]
1 There is a risk that an assignment of book debts will be held to be a charge, notwithstanding the provisions for assignment
and re-assignment: see 7(1) Halsbury's Laws (4th Edn 2004 Reissue) para 1584 note 9. Accordingly the security must be
entered in the company's register of charges, and the necessary particulars of it must be sent to the Registrar of Companies
otherwise it will be void, in the event of winding up, against the liquidator and the creditors.
The company's power to charge its property should be checked. Where the memorandum of association of a company contains
the necessary authority, the company can charge or mortgage all its property of whatever nature, including book debts not yet
due: Bloomer v Union Coal and Iron Co (1873) LR 16 Eq 383.
Most bank guarantees embody a clause prohibiting the taking of such security as this by a guarantor, and operating so that in
effect such security becomes additional security available to the creditor: see Forms 12 [506]-17 [550] ante.
Precedents/K: INDEMNITIES/46 Indemnity by company secured by assignment of book debts to guarantors
who have requested discharge from guarantee
46
Indemnity by company secured by assignment of book debts to guarantors who have requested
discharge from guarantee
1
[885]
BETWEEN:
(1) (name of company) the registered office of which is at (address) ('the Company')
(2) (name of trustee for the guarantors) of (address) ('the Trustee') and
Page 143
(3) (names and addresses of guarantors) ('the Guarantors')
WHEREAS
(1) The Guarantors at the request of the Company by an agreement in writing dated (date) ('the
Guarantee') guaranteed to (bank) ('the Bank') the payment, up to the sum of ..., of any overdraft
due to the Bank from the Company.
(2) The Guarantors have requested the Company to discharge them from all further liability under the
Guarantee but at the express request of the Company have agreed with the Company to withdraw
such request for the time being and not to take any immediate steps to procure their discharge
from liability under the Guarantee in consideration of their receiving from the Company the
indemnity and security described below.
[886]
1 The Company covenants and undertakes, in pursuance of the above agreement, to indemnify the
Guarantors and each of them from all further liability under the Guarantee.
2 The Company assigns to the Trustee, by way of additional security, [with [full (or) limited] title
guarantee] all the book and other debts now owing to the Company and also all the book and
other debts that may at any time during the continuance of this security become owing to the
Company (but not including uncalled capital of the Company) and the full benefit of all the
securities for the said present and future book and other debts, to the Trustee to hold in trust for
the Guarantors in proportion to the amounts of their respective liabilities under the Guarantee but
subject to redemption on discharge of the Guarantors from all liability under or on account of the
Guarantee.
3 The Trustee shall at any time if requested to do so in writing [by the Guarantors or any one of
them (or) by the majority in number of the Guarantors] immediately give notice of this deed to the
debtors for the time being of the Company PROVIDED that it shall not be obligatory or incumbent
on the Trustee to give any notice of this deed to any of the present or future debtors of the
Company or to enforce any of the debts or to take any steps or proceedings for that purpose
unless and until so requested by the Guarantors and in the absence of any such request the
Trustee shall not be answerable or responsible for any loss occasioned to the Guarantors by any
delay or omission in any such respect.
[887]
4 The Trustee may if he shall in his discretion think fit give notice of this present assignment to all
or any of the present or future debtors of the Company (without having been previously requested
to do so by the Guarantors) and at his discretion may receive such debts or appoint a receiver of
them.
5 The statutory power of sale shall be exercisable at any time by the Trustee without further notice.
6 The Trustee shall not nor shall the Guarantors respectively or their respective personal
Page 144
representatives or any of them be answerable for or in any way chargeable on account of
permitting or authorising the Company to receive all or any such debts or to deal with the same or
the proceeds of them as if they were not subject to this deed and to the mortgage created by this
Deed.
7 The statutory power of appointing new trustees of this Deed shall be exercisable by the
Guarantors and the survivors or survivor of them.
8 The expression 'the Trustee' includes the trustee for the time being of this Deed.
IN WITNESS etc
[888]
1 Most bank guarantees embody a clause precluding the taking of such security as this by a guarantor, and operating so that
in effect, such security becomes additional security available to the creditor: see Forms 12 [506]-17 [550] ante.
Precedents/K: INDEMNITIES/47 Specific counter-indemnity--long form
47
Specific counter-indemnity--long form
1
[889]
To: (name of bank)
of: (address)
COUNTER-INDEMNITY
IN CONSIDERATION of your entering into or otherwise accepting liability under an instrument in the form
attached approved and initialled by [me (or) us] ('the Undertaking')
NOW [I (or) we], (name(s) of person(s) giving indemnity) of (address(es)), AGREE WITH YOU as follows:
1 [I (or) We] shall indemnify you and keep you indemnified against all demands, claims, liabilities,
losses, costs and expenses whatsoever (including all legal and other costs, charges and
expenses that you may incur in connection with the Undertaking, or in enforcing, or attempting to
enforce, your rights under this indemnity) arising in relation to or out of the Undertaking or as a
Page 145
result of your having issued it
2
.
[890]
2 [I (or) We] shall pay and reimburse such sums as mentioned above to you on demand, together
with interest on them (as well after as before judgment), from the date when they were first paid or
incurred by you until payment of them by [me (or) us] in full, at the rate of ......% a year above the
cost to you (as conclusively determined by you) of acquiring any necessary funds in such
currency and manner as you may from time to time decide
3
. [I (or) We] shall not seek to rely upon
any set-off or counterclaim whatsoever so as to in any way extinguish or reduce [my (or) our]
liability to you under this Indemnity.
3 [I (or) We] irrevocably authorise you, without prejudice to any other right or remedy, to debit such
payment or reimbursement to any account that [I (or) we] may have with you
4
.
[4 [I (or) We] agree that:
4.1 if any judgment or order is given or made for the payment of any amount due under
this Indemnity and is expressed in a currency other than that in which such amount is
payable by [me (or) us] under this Indemnity, [I (or) we] shall Indemnify you against
any loss incurred by you as a result of any variation having occurred in rates of
exchange between the date as of which such amount is converted into such other
currency for the purpose of such judgment or order and the date of actual payment
pursuant to it;
4.2 this Indemnity shall constitute a separate and independent obligation on [my (or) our]
part and shall continue in full force and effect notwithstanding any such judgment or
order as stated above.]
[891]
5 [I (or) We]:
5.1 irrevocably authorise
5
you to make any payments or to comply with any demands that
appear or purport to be claimed or made under the Undertaking, without any reference
to or further authority from [me (or) us], without inquiry into the justification for them or
into the validity, genuineness or accuracy of any statement or certificate received by
you with respect to or under the Undertaking and despite any contestation on [my (or)
our] part, and
5.2 agree that any such claim or demand shall be binding on [me (or) us] and shall, as
between you and [me (or) us], be accepted by [me (or) us] as conclusive evidence that
you were liable to pay or comply with it.
6 Any notice, demand or communication given to [me (or) us] under this Indemnity shall be in
writing and shall be deemed to be duly served if left at or sent by registered first class mail (or by
airmail if overseas) to or, if sent by fax, received at: (address(es), and fax number(s) of person(s)
giving the indemnity)
7 [I (or) We] agree that any notice, demand or communication shall be deemed to be given:
7.1 if sent by registered first class mail, 2 business days after posting (or 5 business days
in the case of airmail), or
Page 146
7.2 if sent by fax and received by the other party, at the moment of dispatch, or
7.3 if left at the above address, at the time of delivery;
PROVIDED that if, in the case of notices, demands or communications made or given by fax or
delivery, the moment of dispatch or as the case may be the time of delivery does not occur on a
day that is a business day at the place where the notice, demand or communication is received,
such notice demand or communication shall not be deemed to have been given until the first
business day afterwards at such place of receipt.
[892]
8 Your rights under this Indemnity shall be in addition to and shall not be in any way prejudiced or
affected by any one or more other indemnities, guarantees, securities or other obligations you
may now or subsequently hold whether from [me (or) us] or from any other person
6
.
9 You may at any time and without reference to [me (or) us] give time for payment or grant any
other indulgence and give up, deal with, vary, exchange or abstain from perfecting or enforcing
any other indemnities, guarantees, securities or other obligations held by you at any time and
discharge any party to them or any of them, and realise them or any of them, and compound with,
accept compositions from and make any other arrangements with the beneficiary of the
Undertaking or any person or persons, as you think fit, without affecting [my (or) our] liability
under this Indemnity.
10 You are to be at liberty but not bound to resort for your own benefit to any other means of
payment at any time and in any order you think fit without in consequence diminishing [my (or)
our] liability and you may enforce your rights under this Indemnity either for the payment of the
ultimate balance after resorting to other means of payment or for the balance due at any time
without entitling [me (or) us] to any benefit from such other means of payment so long as any
money remains due or owing or payable (whether actually or contingently) from or by [me (or) us]
to you.
[893]
11 The Undertaking may from time to time be modified, amended, renewed or extended, either in
accordance with its original terms, or upon [my (or) our] request and the agreement thereto of you
and the beneficiary of the Undertaking and [my (or) our] liability under this Indemnity shall
continue to apply to the Undertaking as so modified, amended, renewed or extended from time to
time
7
.
12 Where the signatory to this Indemnity or any of the signatories to it is a partnership or otherwise
consists of more than one person:
12.1 the liability of the signatory or that signatory under this Indemnity shall be deemed to
be the joint and several liability of the partners or of the persons comprising the
signatory and any demand for payment made by you to any one or more of the persons
so jointly and severally liable shall be deemed to be a demand made to all such
persons; and
12.2 you may release or discharge any one or more of the persons jointly and severally
Page 147
liable under this Indemnity from liability under this Indemnity or compound with, accept
compositions from or make any other arrangements with any of such persons without
in consequence releasing or affecting your rights and remedies against any such other
party.
[894]
13 If this Indemnity is signed by or on behalf of more than one person and any one or more of those
persons is not bound by the provisions of this indemnity (whether by reason of his or their lack of
capacity, or improper execution of this Indemnity or for any other reason whatever), the remaining
signatory or signatories shall continue to be bound by the provisions of this Indemnity as if they
had always been the only party or parties hereto.
14 No delay or omission on your part in exercising any right, power, privilege or remedy in respect of
this Indemnity shall impair such right, power, privilege or remedy, or be construed as a waiver of
it, nor shall any single or partial exercise of any such right, power, privilege or remedy preclude
any further exercise of it or the exercise of any other right, power, privilege or remedy.
15 The rights, powers, privileges and remedies provided in this Indemnity are cumulative and not
16 This Indemnity shall be governed by and construed in accordance with English law and all
disputes arising from or relating to this Indemnity shall be subject to the exclusive jurisdiction of
the English courts.
Dated:
AS WITNESS etc
(signature(s) of the person(s) giving indemnity)
(annex the approved and initialled form of Undertaking)
8
[895]
1 This Form is designed to cover liabilities arising out of a single document or transaction.
2 Notwithstanding the broad wording of this clause, it will not necessarily provide adequate protection to the bank if the
undertaking itself fails to specify clearly the circumstances in which the bank is required to pay. If it is intended that stamp duty
is to be indemnified, (eg in circumstances where the indemnity is to be used in relation to unstamped shares or securities or
land and the indemnity is intended to cover the unpaid duty itself), to reduce the risk of that part of the counter-indemnity being
void under the Stamp Act 1891 s 117, it should be drafted to refer to 'an amount equal to the stamp duty'.
3 The interest rate provision contained in this clause is necessary for the bank's protection, because between the time it
makes a payment under the undertaking and the time it receives reimbursement from its customer, it will be bearing the cost of
funding the payment and if there is no contractual interest provision, an English court merely has a discretion as to whether it
will award interest on a debt. Also, in the absence of a specified contractual rate, interest may be awarded at the statutory rate,
which may not cover the bank's cost of funds.
[896]
Page 148
4 This clause:
(a) reduces the prospect of any dispute as to the appropriateness of a set-off against a particular deposit
account, and
(b) permits the bank to debit a current account, which may then incur interest at the applicable overdraft
rate: it is important that the bank is not limited to the remedy of debiting an account, because eg the customer
may be in financial difficulties and the current account may already have been called, or the bank may be
advised not to debit the account for one reason or another, or the required currency of indemnity or
reimbursement may not match the currency of the existing account.
5 This authorisation is intended to provide, and to appear to provide, the widest possible authority to pay, regardless of any
allegations of unfair conduct on the part of the beneficiary of an undertaking. No clause will protect the bank in all
circumstances: if the bank pays in response to a request or demand that to its knowledge is made fraudulently in circumstances
where there is no right to payment (see Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159, [1978]
1 All ER 976, CA) or if the bank is negligent in its handling of the request or demand to pay, or otherwise deviates from its
instructions, it may lose its right to reimbursement.
6 Clauses 8-10 are useful if any undertaking is secured or supported by another indemnity or guarantee, such as a
continuing guarantee from a parent company, or there is any possibility that the bank might wish to take security.
[897]
7 Since many undertakings are subject to requests for extension, it is desirable to cover this point in the wording of the
original indemnity by providing explicitly that the indemnity applies to the original undertaking and all alterations. For example, in
the case of a performance bond for a construction project where the original expiry provision of the instrument reflects the
original work schedule, when the original work schedule cannot be met, there may be extensive negotiations between the
contractor (the bank's customer) and the beneficiary up to the last minute, and the bank may then receive only a simple, urgent
fax from the customer requesting an extension or change to the undertaking, without referring to the indemnity's coverage of the
amendment.
8 Instead of referring to a particular undertaking as eg a standby letter of credit when it might subsequently be classified by a
court as a guarantee, or vice versa, the approach followed in this Form is to attach to the counter-indemnity a copy of the
particular undertaking, initialled by the customer who, it is expected, would then be under an obligation to indemnify the bank
regardless of how a court might subsequently characterise the undertaking. It is important that the approved and initialled
undertaking is attached to a form containing a specific indemnity because the bank's, and therefore the customer's, liability
depends upon the precise wording of the undertaking actually issued, and the attachment of the actual text precludes the
customer from arguing that the undertaking issued by the bank differed from his understanding of what would be issued.
Precedents/K: INDEMNITIES/48 Specific counter-indemnity--short form
48
Specific counter-indemnity--short form
Page 149
[898]
To: (name of bank)
of: (address)
COUNTER-INDEMNITY
IN CONSIDERATION of your entering into or otherwise accepting liability under an instrument in the form
attached, which [I (or) we] have approved and initialled, ('the Undertaking'),
NOW [I (or) WE], (name(s) of person(s) giving the guarantee) of (address(es)), AGREE WITH YOU as
follows:
expenses you may incur in connection with the Undertaking, or in enforcing, or attempting to
enforce, your rights under this Indemnity) arising in relation to or out of the Undertaking or as a
1
.
incurred by you until payment of them by [me (or) us] in full, at the rate of ......% per year above
the cost to you (as conclusively determined by you) of acquiring any necessary funds in such
2
. [I (or) We] shall not seek to rely upon
3
.
payable by [me (or) us] under this Indemnity, [I (or) we] shall indemnify you against
pursuant to it, and
[899]
5 [I (or) We] irrevocably authorise you to make any payments or to comply with any demands that
appear or purport to be claimed or made under the Undertaking, and [I (or) we] agree that any
such claim or demand shall be binding on [me (or) us] and shall, as between you and [me (or)
us], be accepted by [me (or) us] as conclusive evidence that you were liable to pay or comply with
Page 150
it
4
.
airmail if overseas) to or, if sent by fax, received at: (address(es), fax number(s) of person(s)
giving the indemnity).
[900]
8 Where [the (or) any] signatory to this Indemnity is a partnership or otherwise consists of more
than one person:
8.1 the liability of [the (or) that] signatory under this Indemnity shall be deemed to be the
joint and several liability of the partners or of such persons as stated above and any
demand for payment made by you to any one or more of the persons so jointly and
severally liable shall be deemed to be a demand made to all such persons, and
Indemnity or compound with, accept compositions from or make any other
arrangements with any of such persons without thereby releasing or affecting your
rights and remedies against any other such party.
persons is not bound by the provisions of this Indemnity (whether by reason of his or their lack of
signatory or signatories shall continue to be bound by the provisions of this Indemnity as if they
[10 This Indemnity shall be governed by and construed in accordance with English law and all
the English courts.]
Dated:
AS WITNESS etc
(annex the approved and initialled form of Undertaking)
5
Page 151
[901]
1 Notwithstanding the broad wording of this clause, it will not necessarily provide adequate protection to the bank if the
2 This provision is necessary for the bank's protection, because between the time it makes a payment under the undertaking
and the time it receives reimbursement from its customer, it will be bearing the cost of funding such payment: if there is no
contractual interest provision, an English court merely has a discretion as to whether it will award interest on a debt, and in the
absence of a specified contractual rate, interest may be awarded at the statutory rate, which may not cover the bank's cost of
funds.
3 This clause:
account, and
rate: it is important that the bank is not limited to the remedy of debiting an account, because eg the customer
[902]
4 The degree of protection conferred upon the bank by this clause in relation to payments made by it and subsequently
disputed by its customer is less than that conferred by Form 47 clause 5 [891] ante.
5 Instead of referring to a particular undertaking as eg a standby letter of credit when it might subsequently be classified by a
court as a guarantee, or vice versa, the approach followed in this Form is to attach to the counter-indemnity a copy of the
particular undertaking, initialled by the customer who, it is expected, would then be under an obligation to indemnify the bank
regardless of how a court might subsequently characterise the undertaking. It is important that the approved and initialled
undertaking is attached to a form containing a specific indemnity because the bank's, and therefore the customer's, liability
depends upon the precise wording of the undertaking actually issued, and the attachment of the actual text precludes the
customer from arguing that the undertaking issued by the bank differed from his understanding of what would be issued.
Precedents/K: INDEMNITIES/49 General counter-indemnity--more than one transaction
49
General counter-indemnity--more than one transaction
Page 152
[903]
To: (name of bank)
of: (address)
GENERAL COUNTER-INDEMNITY
IN CONSIDERATION of your from time to time at our request entering into or otherwise accepting any form
of liability under any indemnity, guarantee, bond, letter of credit or other form of undertaking ('any
Undertaking')
NOW [I (or) WE], (name(s) of person(s) giving the indemnity) of (address(es)), AGREE with you as follows:
expenses you may incur in connection with any Undertaking, or in enforcing, or attempting to
enforce, your rights under this indemnity) arising in relation to or out of any Undertaking or as a
1
.
incurred by you until payment of them by [me (or) us] in full, at the rate of ......% per year above
the cost to you (as conclusively determined by you) of acquiring any necessary funds in such
2
. [I (or) We] shall not seek to rely on
3 [I (or) We] irrevocably authorise you, without prejudice to any right or remedy, to debit such
3
.
[904]
payable by [me (or) us] under this Indemnity, [I (or) we] shall indemnify you against
pursuant to it, and
appear or purport to be claimed or made under any Undertaking, without any reference to or
further authority from [me (or) us], without inquiry into the justification for them or into the validity,
genuineness or accuracy of any statement or certificate received by you with respect to or under
Page 153
any Undertaking and despite any contestation on [my (or) our] part, and [I (or) we] agree that any
such claim or demand shall be binding on [me (or) us] and shall, as between you and [me (or)
us], be accepted by [me (or) us] as conclusive evidence that you were liable to pay or comply with
it
4
.
airmail if overseas) to or, if sent by fax, received at (address(es), and/or fax number(s) of
person(s) giving the indemnity).
[905]
delivery, the moment of dispatch, or as the case may be, the time of delivery does not occur on a
8 Your rights under this Indemnity shall be in addition to and shall not be in any way prejudiced or
affected by any one or more other indemnities, guarantees, securities or other obligations you
may now or subsequently hold whether from [me (or) us] or from any other person
5
.
9 You may at any time and without reference to [me (or) us] give time for payment or grant any
other indulgence and give up, deal with, vary, exchange or abstain from perfecting or enforcing
any other indemnities, guarantees, securities or other obligations held by you at any time and
discharge any party to them or any of them and realise them or any of them, and compound with,
accept compositions from and make any other arrangements with the beneficiary or beneficiaries
of any Undertaking or any person or persons, as you think fit, without affecting [my (or) our]
liability under this Indemnity.
[906]
10 You are to be at liberty but not bound to resort for your own benefit to any other means of
payment at any time and in any order you think fit without in consequence diminishing [my (or)
our] liability and you may enforce your rights under this Indemnity either for the payment of the
ultimate balance after resorting to other means of payments or for the balance due at any time
without entitling [me (or) us] to any benefit from such other means of payments so long as money
remains due or owing or payable (whether actually or contingently) from or by [me (or) us] to you.
11 Any Undertaking may from time to time be modified, amended, renewed or extended, either in
accordance with its original terms or upon [my (or) our] request and the agreement of you and the
beneficiary of such Undertaking AND [my (or) our] liability under this indemnity shall continue to
Page 154
apply to any such Undertaking as so modified, amended, renewed or extended from time to time6.
12 Where [the (or) any] signatory to this Indemnity is a partnership or otherwise consists of more
than one person:
12.1 the liability of [the (or) that] signatory under this Indemnity shall be deemed to be the
joint and several liability of the partners or of such persons as stated above and any
demand for payment made by you to any one or more of the persons so jointly and
severally liable shall be deemed to be a demand made to all such persons, and
Indemnity or compound with, accept compositions from or make any other
arrangements with any of such persons without in consequence releasing or affecting
your rights and remedies against any other such party.
[907]
persons is not bound by the provisions of this Indemnity (whether by reason of his or their lack of
signatory or signatories shall continue to be bound by the provisions of this indemnity as if they
14 No delay or omission on your part in exercising any right, power, privilege or remedy in respect of
this Indemnity shall impair such right, power, privilege or remedy, or be construed as a waiver of
it, nor shall any single or partial exercise of any such right, power, privilege or remedy preclude
any further exercise of it or the exercise of any other right, power, privilege or remedy.
15 The rights, powers, privileges and remedies provided in this Indemnity are cumulative and not
[16 This Indemnity shall be governed by and construed in accordance with English law and all
the English courts.]
Dated:
AS WITNESS etc
[908]
1 Notwithstanding the broad wording of this clause, it will not necessarily provide adequate protection to the bank if any
2 This provision is necessary for the bank's protection, since between the time it makes a payment under any undertaking
and the time it receives reimbursement from its customer, it will be bearing the cost of funding such payment. If there is no
Page 155
contractual interest provision, an English court merely has a discretion as to whether it will award interest on a debt, and in the
absence of a specified contractual rate, interest may be awarded at the statutory rate, which may not cover the bank's cost of
funds particularly in some inflationary currencies.
3 This clause:
account, and
rate. It is important that the bank is not limited to the remedy of debiting an account, because eg the customer
[909]
4 This clause is intended to provide, and to appear to provide, the widest possible authority to pay, regardless of any
allegations of unfair conduct on the part of the beneficiary of any undertaking. No clause will protect the bank in all
circumstances. If the bank pays in response to a request or demand that to its knowledge is made fraudulently in circumstances
where there is no right to payment (see Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159, [1978]
1 All ER 976, CA), or if the bank is negligent in its handling of the request or demand to pay, or otherwise deviates from its
instructions, it may lose its right to reimbursement.
5 Clauses 8-10 are useful if any undertaking is secured or supported by another indemnity or guarantee, such as a
continuing guarantee from a parent company, or there is any possibility that the bank might wish to take security.
6 As many undertakings are subject to numerous requests for extension, it is desirable to cover this point in the wording of
the indemnity, by providing explicitly that the indemnity applies to the original undertaking and all alterations. For example, in
the case of a performance bond for a construction project where the original expiry provision of the instrument reflects the
original work schedule, when the original work schedule cannot be met there may be extensive negotiations between the
contractor (the bank's customer) and the beneficiary up to the last minute, and the bank may then receive only a simple, urgent
fax from the customer requesting an extension or change to the undertaking, without referring to the indemnity's coverage of the
amendment.
Precedents/K: INDEMNITIES/50 Counter-indemnity for lost or destroyed documents
50
Counter-indemnity for lost or destroyed documents
1
[910]
To: (name of bank/other indemnifier under main indemnity)
of: (address)
Page 156
COUNTER-INDEMNITY FOR [LOST (or) DESTROYED] DOCUMENTS
IN CONSIDERATION of your [joining with [me (or) us] in]
2
entering into an indemnity ('the Indemnity') in
favour of (name of beneficiary) in the form of the instrument attached and initialled by the parties to this
Indemnity in respect of (description of lost or destroyed document) that has been [lost (or) destroyed]
NOW [I (or) WE], (name(s) of customer(s)) of (address(es)), AGREE WITH YOU as follows:
expenses you may incur in connection with the Indemnity, or in enforcing, or attempting to
enforce, your rights under this Counter Indemnity) arising in relation to or out of the Indemnity or
as a result of your having issued it.
2 [I (or) We] shall pay and reimburse such demands, claims, liabilities, losses, costs and expenses
to you on demand, together with interest on them (as well after as before judgment), from the date
when they were first paid or incurred by you until payment of them by [me (or) us] in full, at the
rate of ......% per year above your base rate from time to time.
payment or reimbursement to any account that [I (or) we] may have with you, together with all
costs, commissions and other banking charges and expenses you may charge against [me (or)
us].
[911]
appear or purport to be claimed or made under the Indemnity, without any reference to or further
authority from [me (or) us], without inquiry into the justification for it or the validity, genuineness or
accuracy of any statement or certificate received by you with respect to or under the Indemnity
and despite any contestation on [my (or) our] part, and [I (or) we] agree that any such claim or
demand shall be binding on [me (or) us] and shall, as between you and [me (or) us], be accepted
by [me (or) us] as conclusive evidence that you were liable to pay or comply with it.
5 [I (or) We] undertake if and when the above-mentioned document comes into [my (or) our]
possession to procure your release from the Indemnity and to return the Indemnity to you.
6 Any notice, demand or communication given to [me (or) us] under this Counter Indemnity shall be
in writing and shall be deemed to be duly served if left at or sent by registered first class mail (or
by airmail if overseas) to or, if sent by fax, received at: (address(es), and/or fax number(s) of
person(s) giving the indemnity).
[912]
Page 157
[913]
8 Where [the (or) any] signatory to this Counter Indemnity is a partnership or otherwise consists of
more than one person the liability of [the (or) that] signatory to this Counter Indemnity under this
Counter Indemnity shall be deemed to be the joint and several liability of the partners or of such
persons and any demand for payment made by you to any one or more of the persons so jointly
and severally liable shall be deemed to be a demand made to all such persons.
9 You may release or discharge any one or more of the persons mentioned in clause 8 above from
liability under this Counter Indemnity or compound with, accept compositions from or make any
other arrangements with any of such persons without thereby releasing or affecting your rights
and remedies against any such other party.
10 If this Counter Indemnity is signed by or on behalf of more than one person and any one or more
of those persons is not bound by the provisions of this Counter Indemnity (whether by reason of
his or their lack of capacity, or improper execution of this Indemnity or for any other reason
whatever), the remaining signatory or signatories shall continue to be bound by the provisions of
this Counter Indemnity as if they had always been the only party or parties hereto.
Dated:
AS WITNESS etc
(signature(s) of customer(s))
(annex the form of the Indemnity, initialled by the parties)
[914]
1 This Form omits certain provisions usually contained in a specific counter-indemnity (see eg Form 47 [889] ante). Although
this means that the bank (or other indemnifier) enjoys less protection, the inclusion of such provisions is not normally justified
when considering the extent of the risks involved.
2 The words in square brackets should be used if the bank is asked to enter into the indemnity jointly with its customer.
Precedents/K: INDEMNITIES/51 Indemnity to drawer of lost cheque on receipt of second cheque
51
Page 158
Indemnity to drawer of lost cheque on receipt of second cheque
[915]
To: (name of drawer of cheque)
of: (address)
INDEMNITY
IN CONSIDERATION of your giving [me (or) us] a further cheque for the sum of ... being the amount of a
cheque that has been lost dated (date of lost cheque), drawn by you in [my (or) our] favour, and of your
stopping the earlier cheque;
NOW [I (or) we], (name(s), of person(s) giving indemnity) of (address(es)), AGREE WITH YOU that:
losses, costs and expenses whatsoever that may be incurred by you as a result of the
presentation to and payment by your bankers of the earlier cheque or as a result of your being
called upon to make any payment in respect of such earlier cheque by any person legally entitled
[(as to which your certificate
1
given in good faith shall be conclusive)] to such payment.
2 [I (or) We] shall pay and reimburse such sums to you on demand.
Dated:
AS WITNESS etc
(signature(s) of person(s) giving indemnity)
[916]
1 If the certificate provision is omitted, the drawer, as a precondition to his recovering payment under this indemnity, must
prove that the person to whom payment in respect of the earlier cheque has been made was in fact legally entitled to receive
such payment.
Precedents/K: INDEMNITIES/52 Indemnity by ship vendor's bank
52
Indemnity by ship vendor's bank
Page 159
[917]
To: (name of purchaser)
of: (address)
WE, the undersigned (name of vendor's bank) have been advised that a contract ('the Contract') has been
made on (date) between (1) (name of vendor) ('the Vendor') and (2) yourself (the Purchaser) for the sale of a
vessel ('the Vessel') named (name) to be delivered not later than (date).
WHEREAS clause (number) of the Contract provides for payment of ... as an advance payment, to be
made by you to the Vendor's account with this bank ('the [1st] Instalment')
[918]
NOW IN CONSIDERATION of your making payment of the [1st] Instalment under the Contract to the
Vendor's account with this bank we irrevocably and unconditionally undertake as primary obligor and not
merely as guarantor to pay to your account with a bank to be nominated by you a sum equal to the amount
of the [1st] Instalment that has been paid to the Vendor's bank account (together with interest thereon at the
rate of ......% a year accruing from the date payment is received by the Vendor on his account with us to the
date of receipt of any refund made to you or on your behalf on your account with a bank to be nominated by
you) within (number) working days after receipt from you of a written demand (together with supporting
documentary evidence) stating that the Vendor has failed to deliver the Vessel according to the Contract or
that you have become entitled to cancel or rescind the Contract or claim any refund thereunder. Such written
demand together with supporting documentary evidence is the only pre-condition for our payment obligation
hereunder.
OUR UNDERTAKING hereunder shall not be affected by any indulgence or by any amendment or variation
of the Contract whether as to time or otherwise that may be agreed between you and the Vendor and will
come into force on the date when the [1st] Instalment is received by the Vendor on his account with us and
shall remain valid until [delivery and acceptance of the Vessel] after which date this payment obligation shall
become null and void.
Irrespective of the above, if we receive notification from you or the Vendor (confirmed by an arbitrator) stating
that your claim to cancel or rescind the Contract or your claim for a refund thereunder has been disputed and
referred to arbitration in accordance with the Contract, the period of validity of this Indemnity shall be
extended until (number) days after the final award has been rendered in the arbitration.
AS WITNESS etc
(signatures on behalf of Vendor's bank)
[919]-[950]
Precedents/L: PERFORMANCE BONDS/53 Performance bond by contractor's bank
L: PERFORMANCE BONDS
53
Page 160
Performance bond by contractor's bank
1
[951]
To: (name of employer)
of: (address)
WE, the undersigned (name of Contractor's bank) have been advised that a contract ('the Contract') has
been made on (date) between (1) yourself, as employer, and (2) (name) ('the Contractor') for the provision of
Services (as defined in the Contract).
WHEREAS clause (number) of the Contract requires the Contractor to procure the provision of a bond in
your favour in the manner appearing as follows in the sum of ... (and state amount in words)
2
[952]
NOW IN CONSIDERATION of your accepting our obligations in this bond in discharge of the Contractor's
obligation to procure such a bond we (name of Contractor's bank) of (address) hereby irrevocably and
unconditionally agree to make payment to you of any amount or amounts up to or equal to the Maximum
Aggregate Sum (as defined below) and accordingly agree as follows:
1
The Maximum Aggregate Sum shall be ... (and state amount in words).
2
Upon receipt of a written demand ('Demand'), in the form set out in the Schedule to this bond,
made by you upon us from time to time, and without any of the following namely:
2.1
our being entitled or obliged to make any enquiry of either you or the Contractor,
2.2
the need for you to take any legal action against or to obtain the consent of the
Contractor,
2.3
any conditions or proof of any default or liability on the part of the Contractor, and
2.4
any right of set-off or counterclaim,
and notwithstanding any objection by the Contractor or any other party, we shall pay to you
forthwith the amount or amounts specified in such Demand, subject to clause 1.
3 You may make as many separate Demands under this bond as you think fit, provided that
such demands shall not exceed in aggregate the Maximum Aggregate Sum.
[953]
4
Any Demand referred to in clause 2 above shall be deemed to be sufficiently served upon us if
signed by one of your directors and delivered to us at the following address, namely (address; fax
number). A Demand shall be deemed to have been served upon us on the day calculated in
accordance with the following provisions, namely:
4.1
if left at the registered or principal office or last known place of abode, on the day it
was so left if such day is a Working Day, or if such day is not a Working Day, on the
next Working Day,
4.2
if sent by first class prepaid post, 2 Working Days after the day when the Demand was
put in the post (and in proving delivery it shall be sufficient to prove that the same was
properly addressed and put in the post),
Page 161
4.3
if sent by fax before 4.30 pm on a Working Day (as defined below), on the day it was
so faxed, or if faxed otherwise, on the next Working Day.
5
For the purpose of this bond, 'Working Day' shall mean a day (other than a Saturday, Sunday or
public holiday) when banks are open for the conduct of normal banking business.
6
Subject to clauses 1 and 4 above, we shall within (number) Working Days after service of any
Demand pay to you the sum specified in such Demand to the account specified in the Demand.
7
Subject to clauses 1 and 4 above, your Demand shall be conclusive evidence
3
of our liability to
pay you and of the amount which we are liable to pay you. Our obligation to make payment under
this bond shall be a primary, independent and absolute obligation and we shall not be entitled to
delay or withhold payment for any reason.
[954]
8
Without prejudice to the generality of clause 7 above, our obligations under this bond shall not be
affected by any act, omission or matter which might (but for this clause) operate to release or
discharge us from our obligations in whole or in part, including without limitation:
8.1
any legal limitation, disability, incapacity on the part of the Contractor or lack of
authority of any director or other person appearing to be acting for the Contractor in
any matter in respect of the Contract or any part of it,
8.2
any renewal, modification, release, or abstaining from the perfection or enforcement of
any security
4
or guarantee on your part with regard to any security or guarantee now or
hereafter held from the Contractor or any other person,
8.3
any time
5
or waiver or accommodation or credit granted to the Contractor, or any
abstention from enforcing your rights against the Contractor,
8.4
any variation of or amendment
6
to the Contract (and references to the Contract in this
bond shall be references to the Contract as so varied or amended from time to time),
8.5
any obligation on the part of the Contractor being void, unenforceable or frustrated,
8.6
the acceptance by you of a repudiatory breach by the Contractor or the termination of
the Contract by you for material breach by the Contractor
7
,
8.7
the bankruptcy, liquidation or insolvency of the Contractor or the making of an
application for an administration order in respect of the Contractor or the making of any
such order or the appointment of (or giving of notice to appoint) an administrator in
respect of the Contractor,
8.8
any thing or matter that would or might have discharged or affected our liability if our
obligations under this bond had been secondary rather than primary.
9
The benefit of this bond may be assigned by you to any person to whom the benefit of the whole
Contract is assigned by you, but shall not otherwise be assignable without our prior written
consent, such consent not to be unreasonably withheld.
10
This bond shall not confer any right or benefit on any third party
8
.
Executed and delivered as a Deed on (date)
AS WITNESS etc
(signatures on behalf of Contractor's bank)
Page 162
[955]
SCHEDULE: FORM OF DEMAND UNDER BOND
To: (name of bank)
of: (address)
DEMAND
TAKE NOTICE THAT the Contractor has made default in the performance of its obligations under the
Contract and is liable to us in the sum of ....
AND TAKE NOTICE THAT WE REQUIRE YOU immediately to pay or cause to be paid to us that sum by
payment (in such manner as shall result in cleared funds being received by us within (number) Working Days
from service of this Demand) to the following account (set out account details)
otherwise legal proceedings to enforce and recover payment will be taken against you at the expiration of
(period) from the date of this notice.
Dated:
(signature of director of employer)
[956]
1 As to performance bonds, see Paragraph 45 [311] ante.
2 This should be the same amount as specified in clause 1.
3 As to conclusive evidence clauses, see Paragraph 26 [191] ante.
4 As to the possibility of discharge of a guarantor by reason of the release or loss of securities, see Paragraph 36 [253] ante.
5 As to the giving of time, see Paragraph 35 [251] ante.
6 As to the possibility of discharge of a guarantor by variation of the principal agreement, see Paragraph 34 [249] ante.
7 This clause is intended to prevent there being an argument that termination of the main contract for breach discharges the
bank from liability under the bond. Contracts of the type requiring the procurement of a bond will generally contain provisions for
termination on the ground of material breach. Clause 8.6 in this Form should be adapted, where appropriate, to suit the
particular termination provisions of the main contract.
8 The bank will wish to ensure that there is no potential liability to third parties by reason of the Contracts (Rights of Third
Parties) Act 1999 s 1.
[957]-[1000]
Page 163

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