When referring to a guarantee, it is common law that a change to the debt that is being guaranteed, i.e. the ‘underlying obligations’ of the guarantee, can result in a discharge of the guarantor’s obligations. Amending the underlying obligations (for example by a change to the loan agreement) can even result in existing obligations being released, and at the very least is likely to discharge the guarantor’s obligations going forward.
Historically, the courts have been strict with banks when it comes to guarantees. The rule has even been applied when the guarantor is aware of amendments being made without its consent, or where there is a clause in the guarantee to the effect that amendments may be made without the guarantor’s explicit consent. Such clauses are known as ‘guarantor intent’ clauses and are often used to try to avoid the risk of amendments resulting in the guarantee being discharged. However, these are really only effective if the variation is insubstantial or would not adversely affect the guarantor.
There is no conclusive position on what constitutes a variation. Behaviour (such as waiving an obligation under the underlying loan agreement) can even be deemed a variation in some circumstances…
Click on the link below to read the rest of the Gateley briefing.
Sign in or Register to continue reading this article
It's quick, easy and free!
It takes just 5 minutes to register. Answer a few simple questions and once completed you’ll have instant access.Register now
Why register to The Lawyer
In-depth, expert analysis into the stories behind the headlines from our leading team of journalists.
Identify the major players and business opportunities within a particular region through our series of free, special reports.
Receive your pick of The Lawyer's daily and weekly email newsletters, tailored by practice area, region and job function.
More relevant to you
To continue providing the best analysis, insight and news across the legal market we are collecting some information about who you are, what you do and where you work to improve The Lawyer and make it more relevant to you.
News from The Lawyer
Briefings from Gateley Plc
A stark reminder to trustees of the limitations of exoneration clauses.
False statements which have damaged your reputation must be addressed.
Analysis from The Lawyer
Gateley bigshots see personal wealth soar on flotation, but face penalties for early exit .
Gateley is to float on the London Stock Exchange, becoming the first UK firm to list itself as a public limited company. But why would a firm would look to float, and what it could mean for the industry?