When a creditor can´t rely on a guarantee

Creditors must be careful when seeking to rely on a guarantee if they subsequently agree with a borrower to modify the guaranteed obligation, without obtaining the guarantor’s express consent.

The recent case of Triodos Bank N.V v Dobbs ([2005] All ER (D) 364 (May); [2005] EWCA Civ 630) involving an individual’s obligations to a bank under a limited guarantee provides a reminder that where the obligation guaranteed has been modified, and the change is not within the scope of changes permitted by the guarantee, the bank can no longer rely on the guarantee. This is despite provisions purporting to allow the bank to amend the underlying obligation without prior consent from or consultation with the guarantor.