'All monies' guarantee remains enforceable where the underlying contracts are amended

By Brian Cain

The Court of Appeal has confirmed that an ‘all monies’ guarantee will be enforceable against the guarantor where the underlying contracts between the beneficiary and the principal debtor are amended or extended and no consent is obtained from the guarantor.

Two director shareholders of CTF B and M had given a guarantee of ‘all sums that are now or may hereafter become owing to [the beneficiary] by CTF’. At the time the guarantee was given in 2002, approximately £200,000 was owed to the beneficiary by CTF. This fact was known to B and M. Between 2002 and 2006, the indebtedness of CTF to the beneficiary rose to more than £400,000. In late 2006, M resigned as a director of CTF and sold his shares to B. M did nothing about his guarantee. During the next couple of years, CTF’s account with the beneficiary went up to £700,000 partly as a result of CTF allowing a new associated company formed by B to use its credit facility with the beneficiary. When CTF went into liquidation, there was £330,000 outstanding and both B and M received demands under the ‘all monies’ guarantee they had given.

M disputed liability. He argued that when there is an existing contract between the creditor and the principal debtor, the terms of which are known to a guarantor who has given a guarantee whose terms are not limited to the securing of liability for the obligations under that contract, a variation of those terms without the guarantor’s consent will discharge the guarantor from his guarantee. Here M had given the guarantee on the basis CTF had a £200,000 credit limit (albeit that was extended to £400,000 with M’s consent later). The change in arrangements between CTF and the beneficiary to uplift CTF’s credit limit to £700,000 and CTF’s purchases on behalf of a new company formed by B after M had left the business, M argued, amounted to a variation of the contract between beneficiary and principal debtor that released M from the guarantee…

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