There have been some recent cases which update the law of guarantees which, for a change, are not in the area of undue influence.
Stimpson v Smith
(on appeal): the court dealt with the relationship between co-guarantors and the creditor/lender.Mr Stimpson and Mr Smith were co-guarantors of the loan. Stimpson obtained the release from the guarantee by repaying outstanding indebtedness without Smith's knowledge of it and, also without having received a formal demand from the bank.
The crucial issue raised in the appeal was whether one co-guarantor of a debt could recover a contribution from another co-guarantor where the first had secured the release of the guarantee, without formal demand being made on either co-guarantor by the creditor. The guarantee in question provided for service of a written demand for payment.
It was held on appeal that the provision in the guarantee that there be service of a demand in writing duly signed, was not a condition precedent to liability under it. Mr Stimpson was entitled to a contribution from Mr Smith. The fact that the co-guarantors had guaranteed the liability jointly and severally and were co-guarantors rather than a sole guarantor made no difference
This case reiterates the warning to co-guarantors that their latent obligation can be triggered by no action on either their part or that of the creditor.
In view of this case, banks should keep in the back of their minds, the need to disclose all relevant information in order to establish true amounts outstanding in a litigation scenario.
For further information please contact Gwen Griffiths, 7 Devonshire Square, Cutlers Gardens, London EC2M 4YH, Tel: +44 171 655 1000
The information and opinions contained in this article are provided by Hammond Suddards. They should not be applied to any particular set of facts without appropriate legal or other professional advice.
