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Co-guarantor liability questions answered

RECENTLY, the courts have considered the situation where it is intended that several guarantors provide a guarantee but one of the guarantors is not bound because he or she failed to sign the guarantee for some reason or other.

In that circumstance the guarantee may not be enforceable against the other co-guarantors who would otherwise be bound.

Although the courts have adopted different approaches to arrive at this principle, the underlying reason behind it is the same each co-guarantor expects that he or she will have the right of contribution from his or her co-guarantors.

Why then, should one guarantor be liable more than they intended?

In dealings with proposed guarantors, financiers must ensure that each guarantor the financier intends to be bound is actually bound or they risk losing the ability to enforce the guarantee against the balance of the co-guarantors.

If there is any proposed change to the guarantor parties or, in fact, to the security to be taken, the consent of all remaining guarantors and the borrower should be obtained.

Jamie Hodgkinson, solicitor

9288 6719

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