Legal Blog:

I’ll Pay – Guaranteed

The law reports are replete with cases dealing with guarantors attempting to cast off their obligations. Although, almost inevitably, the guarantors are unsuccessful, sometimes they beat the odds. Of course, each time financial institutions see a successful defence, they simply change their guarantee forms to draft around it. They do so because, although there are several common law defences to an action on a guarantee, the courts recognise that contracting parties can, in their contract, avoid the application of those defences. One defence relates to increased risk. If the financial institution changes the risk to which the guarantor is exposed without the guarantor’s consent, the institution thereby completely releases the guarantor from the guarantee.

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