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Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(A) Publisher's Note GUARANTEES AND INDEMNITIES VOL 17(3) 2009 (A) PUBLISHER'S NOTE The commentary provides general guidance on the use of guarantees and indemnities, including sections on formal requirements, interpretation, the rights of guarantors and creditors, and matters which may lead to avoidance and discharge. The precedents cover a wide range of guarantees and indemnities, including precedents relating to the lending of money, companies, the supply of goods, factoring and the indemnification of trustees. The commentary and precedents have been reviewed and updated to incorporate relevant legislative and case law developments, including the decision of the Court of Appeal in Pitts v Jones [EWCA] Civ 1301 and the actual and prospective entry into force of various provisions of the Companies Act 2006. Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B) Commentary/A: SCOPE OF TITLE AND DEFINITIONS/1 General (B) COMMENTARY A: SCOPE OF TITLE AND DEFINITIONS 1 General [1] The difficulty in differentiating between guarantees and indemnities, and the loose and often misleading way in which the terms 'guarantee' and 'indemnity' are used to describe a particular contract 1 , justify, even compel, their being treated together 2 . A guarantee or indemnity may take the form of a separate contract, or may be embodied in a document by which other transactions are carried out to which the guarantee or indemnity is ancillary. In general, this title comprises forms of guarantee or indemnity that are separate documents. Guarantees or indemnities contained in ancillary clauses in documents relating to other transactions are included in the titles of this work dealing with such transactions. 1 As to the distinction between guarantees and indemnities see Paragraph 4 [11] post. 2 It is not possible to cover the whole law relating to the contracts of guarantee and indemnity in this work, although an attempt is made to cover the most important features. Page 1

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Page 1: Guarantees and Indemnities Vol 17(3) 2009

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(A) Publisher'sNote

GUARANTEES AND INDEMNITIES VOL 17(3) 2009

(A) PUBLISHER'S NOTE

The commentary provides general guidance on the use of guarantees and indemnities, including sections onformal requirements, interpretation, the rights of guarantors and creditors, and matters which may lead toavoidance and discharge. The precedents cover a wide range of guarantees and indemnities, includingprecedents relating to the lending of money, companies, the supply of goods, factoring and theindemnification of trustees.

The commentary and precedents have been reviewed and updated to incorporate relevant legislative andcase law developments, including the decision of the Court of Appeal in Pitts v Jones [EWCA] Civ 1301 andthe actual and prospective entry into force of various provisions of the Companies Act 2006.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/A: SCOPE OF TITLE AND DEFINITIONS/1 General

(B) COMMENTARY

A: SCOPE OF TITLE AND DEFINITIONS

1 General

[1]

The difficulty in differentiating between guarantees and indemnities, and the loose and often misleading wayin which the terms 'guarantee' and 'indemnity' are used to describe a particular contract1, justify, evencompel, their being treated together2.

A guarantee or indemnity may take the form of a separate contract, or may be embodied in a document bywhich other transactions are carried out to which the guarantee or indemnity is ancillary. In general, this titlecomprises forms of guarantee or indemnity that are separate documents.

Guarantees or indemnities contained in ancillary clauses in documents relating to other transactions areincluded in the titles of this work dealing with such transactions.

1 As to the distinction between guarantees and indemnities see Paragraph 4 [11] post.

2 It is not possible to cover the whole law relating to the contracts of guarantee and indemnity in this work, although anattempt is made to cover the most important features.

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Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/A: SCOPE OF TITLE AND DEFINITIONS/2 Use of terms concerning guarantees/2.1 General

2 Use of terms concerning guarantees

2.1 General

[2]

Under a contract of guarantee, one person contracts with another to pay some debt or perform some act orduty1 owed by a third person who nevertheless remains primarily liable for such payment or performance, iethe person giving the guarantee becomes liable only on the default of the third person. Without a principalobligation, there can be no accessory obligation of guarantee2.

The giver of the guarantee is termed 'the surety', or more often in modern documents, 'the guarantor'. Theperson receiving the guarantee is called 'the creditor', or in older documents, 'the guarantee', while theperson primarily liable is called 'the principal debtor', or 'the principal'.

[3]

1 An expression often found in guarantees is that the guarantor is answerable to a promisee for the 'debt', 'defaults', or'miscarriages' of another. These words originate from the Statute of Frauds (1677) s 4 as amended. As to the Statute of Frauds(1677) s 4 see Paragraph 10 [51] post.

2 The essential nature of a guarantee, namely that it is of an accessory nature, being always ancillary to some other contractor liability is stressed in such cases as Mountstephen v Lakeman (1871) LR 7 QB 196, Ex Ch (affd sub nom Lakeman vMountstephen (1874) LR 7 HL 17).

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/A: SCOPE OF TITLE AND DEFINITIONS/2 Use of terms concerning guarantees/2.2 Guarantorand principal debtor

2.2 Guarantor and principal debtor

[4]

Even though a principal debtor may sometimes be bound by the same instrument as a guarantor, the formeris not a party to the guarantor's contract with the creditor. There is therefore not necessarily privity of contractbetween the guarantor and the principal debtor, and they are not generally jointly liable to the creditor1.

The relationship of principal debtor and guarantor may arise not only where there is a contract of guaranteein the full sense, to which the creditor is a party, but also where there is an agreement between joint obligorsexpressly converting one into a guarantor for the other2, or in certain well defined instances where, withoutthere being a contract of guarantee, there is, as in the case of bills of exchange, a primary and secondaryliability of two persons for the same debt3.

[5]

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1 See Moschi v LEP Air Services Ltd [1973] AC 331, [1972] 2 All ER 393, HL.

Cases of joint liability are outside the Statute of Frauds (1677).

2 For an example of such an agreement see Form 35 [825] post. See also 49 Halsbury's Laws (5th Edn) para 1015.

3 See Duncan, Fox & Co v North and South Wales Bank (1880) 6 App Cas 1, HL; Wauthier v Wilson (1912) 28 TLR 239,CA.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/A: SCOPE OF TITLE AND DEFINITIONS/2 Use of terms concerning guarantees/2.3'Guarantee' and 'warranty'

2.3 'Guarantee' and 'warranty'

[6]

The term 'guarantee' is often misused to describe a warranty given by a manufacturer or vendor to apurchaser, which is not concerned with the solvency or fidelity of a person but rather with the title, quantity orquality of property sold1.

1 As to warranties and the sale of goods see generally vol 34 (2002 Reissue) SALE OF GOODS Paragraph 61 [401] et seq.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/A: SCOPE OF TITLE AND DEFINITIONS/2 Use of terms concerning guarantees/2.4 Kinds ofguarantee

2.4 Kinds of guarantee

[7]

There are three different kinds of guarantee:

2.4.1 those in which there is an agreement to constitute, for a particular purpose, the relation ofprincipal debtor and guarantor, to which agreement the creditor secured is a party;

2.4.2 those in which there is a similar agreement between the principal debtor and guarantor only, towhich the creditor is a stranger; and

2.4.3 those in which, without any such contract of guarantee, there is a primary and secondaryliability of two persons1 for one and the same debt, the debt being, as between the two, that ofone of those persons only and not equally of both, so that the other, if he should be compelledto pay it, would be entitled to reimbursement from the person by whom (as between the two) itought to have been paid2.

This title is principally concerned with the first category.

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[8]

1 Ie the principal debtor and the guarantor.

2 See Duncan, Fox & Co v North & South Wales Bank (1880) 6 App Cas 1 at 11, HL and see 49 Halsbury's Laws (5th Edn)paras 1019 and 1103 for the effect of knowledge on the part of the creditor of the arrangement between the two debtors.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/A: SCOPE OF TITLE AND DEFINITIONS/3 Use of terms concerning indemnities

3 Use of terms concerning indemnities

[9]

An indemnity in the widest sense of the term is a contract whereby one party agrees to hold the otherharmless from loss. In this wide sense, the term 'indemnity' includes a guarantee1.

The term is, however, commonly used in a narrower sense to denote a contract under which the promisorundertakes a primary obligation to indemnify and not, as in the case of a guarantee, an obligation that issecondary, ie contingent on the default of a third party.

In its narrower sense, an indemnity is a contract by which the promisor undertakes to hold the promiseeharmless from some liability or possibility of loss, independently of any default by a third party2.

In determining whether an obligation is one of indemnity or guarantee, a court will look at whether theobligation is an incident to the central object of the transaction (pointing to an indemnity) or is itself thecentral obligation of the transaction (pointing to a guarantee) and also at whether the promisor has a realinterest in the subject matter of the transaction (pointing to an indemnity) or merely a motive for supportingthe transaction (in which case it will be a guarantee)3.

[10]

1 See Harburg India Rubber Comb Co v Martin [1902] 1 KB 778, CA.

2 See Guild & Co v Conrad [1894] 2 QB 885, CA. An example is an indemnity in respect of a debt owed by a third partyirrespective of default on the part of the debtor.

3 See Pitts v Jones [2007] EWCA Civ 1301, [2008] QB 706, CA.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/A: SCOPE OF TITLE AND DEFINITIONS/4 Distinctions between contracts of guarantee andcontracts of indemnity/4.1 Statute of Frauds (1677)

4 Distinctions between contracts of guarantee and contracts of indemnity

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4.1 Statute of Frauds (1677)

[11]

One of the two major reasons why the distinction between an indemnity in the narrower sense1 and aguarantee is important, lies in the fact that a guarantee comes within the Statute of Frauds 1677, whereas anindemnity does not2.

1 As to the meaning of 'indemnity' see Paragraph 3 [9] ante.

2 As to the characteristics of contracts within the Statute of Frauds (1677) see Paragraph 11 [55] post.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/A: SCOPE OF TITLE AND DEFINITIONS/4 Distinctions between contracts of guarantee andcontracts of indemnity/4.2 Principal agreement void

4.2 Principal agreement void

[12]

The second major reason is that a guarantee cannot be enforced if the principal agreement to which it isaccessory is void, whereas an indemnity whereby the promisor undertakes to indemnify the promiseeagainst loss arising out of a contract between the promisee and a third party may be enforceable eventhough that contract is void1.

1 Coutts & Co v Browne-Lecky [1947] KB 104, [1946] 2 All ER 207; Yeoman Credit Ltd v Latter [1961] 2 All ER 294, [1961] 1WLR 828, CA. As to indemnities that are themselves void for illegality see Paragraph 44 [287] post.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/A: SCOPE OF TITLE AND DEFINITIONS/4 Distinctions between contracts of guarantee andcontracts of indemnity/4.3 Discharge

4.3 Discharge

[13]

The liability of a guarantor is normally co-extensive with that of the principal debtor; consequently dischargeof the latter entails discharge of the guarantor1. If the contract is one of indemnity, the indemnifier is notusually discharged by the discharge of any other person because the obligation to indemnify does notdepend on the existence of any obligation on the part of any other obligor2.

Modern contracts of guarantee often contain clauses preserving the guarantor's liability in circumstanceswhere the principal debtor is not liable to the creditor, and clauses entitling the creditor to treat the guarantoras principal debtor for certain purposes. Such contracts can be regarded as hybrids between guarantees andindemnities.

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1 As to discharge of guarantees see Paragraph 32 [241] et seq post.

2 See 49 Halsbury's Laws (5th Edn) para 1021.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/A: SCOPE OF TITLE AND DEFINITIONS/4 Distinctions between contracts of guarantee andcontracts of indemnity/4.4 Making the distinction

4.4 Making the distinction

[14]

The question whether any particular obligation is a guarantee or an indemnity has often been considered inrelation to hire purchase transactions1. The essential difference is that under a contract of guarantee, theguarantor assumes a secondary liability to answer for the debtor who remains primarily liable, whereas in acontract of indemnity, the indemnifier assumes a primary liability either alone, or jointly with the principaldebtor.

Which class of contract a particular instrument or transaction falls into, and to what extent it does so, isultimately a matter of construction2. Where the substance of the obligation undertaken is to "see to it" thatanother party performs its obligations to the creditor, that creates a secondary liability, and so a guarantee,rather than the primary liability required to create an indemnity3.

However, it should be noted that even though the relationship between indemnifier and creditor may be thatarising under a contract of indemnity, the principal debtor may still occupy the position of primary obligor asbetween himself and the indemnifier4. This is to be contrasted with situations such as those involvingrecourse agreements5 to indemnify a finance company in which the indemnifier is not a guarantor either asagainst the creditor or as against the debtor.

[15]

1 See Yeoman Credit Ltd v Latter [1961] 2 All ER 294, [1961] 1 WLR 828, CA; Western Credit Ltd v Alberry [1964] 2 All ER938, [1964] 1 WLR 945, CA; Goulston Discount Co Ltd v Clark [1967] 2 QB 493, [1967] 1 All ER 61, CA.

2 For a recent example, see Marubeni Hong Kong and South China Ltd v Government of Mongolia [2005] EWCA Civ 395,[2005] 2 All ER (Comm) 289, CA, in which an instrument was held to be a guarantee rather than an indemnity on the basis thatthe obligation to pay arose only on the default of the principal. The court considered that cases on 'demand bonds' in thebanking context were of no assistance as the document in question (a guarantee by the Mongolian Government) was not abanking document.

3 See Associated British Ports v Ferryways [2008] EWHC 1265 (Comm), [2008] 2 Lloyd's Rep 353. Where the obligor has alegal interest in the subject matter of the main transaction that is a factor pointing to the obligation being one of indemnity; onthe facts of Ferryways, however, although the obligor had an interest in the performance of the main transaction, it was merelya motive, and not a legal interest, and so was not sufficient to render the obligation an indemnity. See also Pitts v Jones [2007]EWCA Civ 1301, [2008] QB 706, CA and Paragraph 3 [9] ante.

4 See the analogous case of an assignee under a lease covenanting to indemnify the assignor against liability for breach ofcovenant: Baynton v Morgan (1888) 22 QBD 74, CA.

5 As to the meaning of 'recourse agreements' see Paragraph 47.1 [332] post.

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Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/A: SCOPE OF TITLE AND DEFINITIONS/4 Distinctions between contracts of guarantee andcontracts of indemnity/4.5 Insurance

4.5 Insurance

[16]

There are important general distinctions between a contract of guarantee and a contract of insurance (whichis a contract of indemnity in its widest sense), principally in that a contract of insurance is, and an ordinarycontract of guarantee is not, a contract 'uberrimae fidei'1. Further, by a contract of insurance, the underwritercontracts absolutely to pay in a particular event, whereas by a guarantee, the guarantor contracts to pay onlyif some other person does not pay2.

[17]

1 Ie a contract whose validity depends on full disclosure of all relevant factors having taken place 'in the utmost good faith'.

2 See Dane v Mortgage Insurance Corpn Ltd [1894] 1 QB 54, CA; and Re Sentinel Securities plc [1996] 1 WLR 316.

For an example of a contract that was held to be a guarantee rather than a contract of insurance see Trade Indemnity Co Ltd vWorkington Harbour and Dock Board [1937] AC 1 at 16-17, [1936] 1 All ER 454 at 458-459 per Lord Atkin, HL.

[18]-[30]

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/B: FORMAL AND ESSENTIAL REQUIREMENTS OF A GUARANTEE/1: GENERALREQUIREMENTS/5 Agreement and intention to create legal relations

B: FORMAL AND ESSENTIAL REQUIREMENTS OF A GUARANTEE

1: GENERAL REQUIREMENTS

5 Agreement and intention to create legal relations

[31]

As with any other contract, a valid guarantee must be constituted by a binding agreement1, usually involvingan offer and acceptance. There must also be an intention to create legal relations. The general requirementof consideration also applies2.

1 See also 49 Halsbury's Laws (5th Edn ) para 1023 et seq.

2 As to consideration see Paragraph 9 [39] post.

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Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/B: FORMAL AND ESSENTIAL REQUIREMENTS OF A GUARANTEE/1: GENERALREQUIREMENTS/6 Capacity--general

6 Capacity--general

[32]

Capacity to contract is as essential to the validity of a guarantee as it is to any other contract. Any individual,except a minor1 or a person lacking the mental capacity to contract2, can enter into contracts of guaranteewithout limitation.

Where a person, just of age, becomes a guarantor for a parent or for someone standing in loco parentis, thetransaction may not be upheld unless the intending guarantor receives independent advice, but each caseturns on its own special circumstances3.

[33]

1 The position regarding contracts entered into by minors (ie persons under 18) has been governed by common law sincethe repeal of the Infants Relief Act 1874 by the Minors' Contracts Act 1987. A minor does not have capacity to enter into acontract of guarantee: see 49 Halsbury's Laws (5th Edn) para 1030.

The Minors' Contracts Act 1987 s 2 provides that where:

(a) a guarantee is given in respect of an obligation of a party to a contract made after the commencement ofthat Act, and

(b) the obligation is unenforceable against him (or he repudiates the contract) because he was a minor whenthe contract was made,

the guarantee shall not for that reason alone be unenforceable against the guarantor.

2 As to persons suffering from mental disorder see Paragraph 7 [34] post.

3 Lancashire Loans Ltd v Black [1934] 1 KB 380, CA. Cf Midland Bank plc v Perry [1988] 1 FLR 161, CA.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/B: FORMAL AND ESSENTIAL REQUIREMENTS OF A GUARANTEE/1: GENERALREQUIREMENTS/7 Persons suffering from a mental disorder

7 Persons suffering from a mental disorder

[34]

A person who is mentally disordered is, it seems, liable under a guarantee, provided that the party to whom itwas given was unaware of the disability1.

1 See Imperial Loan Co Ltd v Stone [1892] 1 QB 599, CA and see also, in relation to contracts generally, Hart v O'Connor[1985] AC 1000, [1985] 2 All ER 880, PC; cf Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833, CA, where the liability of theguarantor on a continuing guarantee was determined once the creditor had notice of the guarantor's insanity, and the guarantee

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ceased to be operative, but his representatives were liable for the amount due at the time he became insane.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/B: FORMAL AND ESSENTIAL REQUIREMENTS OF A GUARANTEE/1: GENERALREQUIREMENTS/8 Companies/8.1 General

8 Companies

8.1 General

[35]

The powers of a company incorporated under the Companies Act 19851 are those derived from itsmemorandum of association. If the memorandum contains a power to give guarantees, it may be a limitedpower or unfettered. However, in general, the validity of any act done by a company, including the granting ofa guarantee, cannot be challenged on the ground of lack of capacity by reason of anything in thememorandum of the company2.

[36]

1 Ie the Companies Act 1985 or its predecessor, the Companies Act 1948. For the position of other corporations see 49Halsbury's Laws (5th Edn) para 1031. Incorporation of companies will operate under the Companies Act 2006 when therelevant provisions (see Part 2) come into force, which will occur on 1 October 2009.

2 See the Companies Act 1985 ss 35, 35A as substituted by the Companies Act 1989 s 108(1). Those sections will berepealed on 1 October 2009 but the position will be the same under the Companies Act 2006 ss 39 and 40 when thoseprovisions replace the Companies Act 1985 ss 35 and 35A. The directors must, however, act in accordance with any limitationson their powers imposed in the company's memorandum: Rolled Steel Products (Holdings) Ltd v British Steel Corpn [1986] Ch246, [1985] 3 All ER 52, CA. See generally Form 16 [546] post. Also, transactions involving directors may in certaincircumstances be set aside at the instance of the company: see 49 Halsbury's Laws (5th Edn ) para 1032.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/B: FORMAL AND ESSENTIAL REQUIREMENTS OF A GUARANTEE/1: GENERALREQUIREMENTS/8 Companies/8.2 Specific powers

8.2 Specific powers

[37]

Where a power is contained in the memorandum by virtue of an independent objects clause, it would seemthat the company may give guarantees for any purposes whatever1. Otherwise the power to give guaranteesmay only be incidental to the pursuit of its objects; if the giving of the guarantee is not in fact made for such apurpose, the directors may be liable for acting outside their authority2.

1 See Cotman v Brougham [1918] AC 514, HL; Garrard v James [1925] Ch 616. Note that a new style of memorandum ofassociation will be introduced when the Companies Act 2006 s 8 is brought fully into force on 1 October 2009. Provisions of thememorandum of association of existing companies which are not of a type covered by the new-style memorandum (when

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introduced) will then be treated as if they were part of the articles of association: Companies Act 2006 s 28 (also coming intoforce on 1 October 2009). Unless restricted by the company's articles, a company's objects will be unrestricted: Companies Act2006 s 31 (also not in force until 1 October 2009).

2 See the Companies Act 2006 s 171. In future, this issue is less likely to arise: see note 1 above.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/B: FORMAL AND ESSENTIAL REQUIREMENTS OF A GUARANTEE/1: GENERALREQUIREMENTS/8 Companies/8.3 Mortgages

8.3 Mortgages

[38]

Often a company may have power to mortgage to secure its indebtedness but not its obligations, andtherefore it may not be able to mortgage its property in support of a guarantee that it has given.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/B: FORMAL AND ESSENTIAL REQUIREMENTS OF A GUARANTEE/1: GENERALREQUIREMENTS/9 Consideration

9 Consideration

[39]

Although the promise of a guarantee must be recorded in writing1, the consideration for it need not be. Thedistinction is due to the Mercantile Law Amendment Act 1856 which provides that:

'No special promise to be made by any person ... to answer for the debt, default, or miscarriage of another person,being in writing, and signed by the party to be charged therewith, or some other person by him thereunto lawfullyauthorised, shall be deemed invalid to support an action, suit or other proceeding to charge the person by whom suchpromise shall have been made, by reason only that the consideration for such promise does not appear in writing, or bynecessary inference from a written document2.'

Generally, a guarantee given for past consideration is void3, but it remains open to the creditor todemonstrate by parol evidence that in fact the consideration was not past4. The question of consideration isimportant in considering whether the giving of a guarantee by a company constitutes a transaction at anundervalue impeachable under the Insolvency Act 19865.

[40]

1 See the Statute of Frauds (1677) s 4 as amended.

2 Mercantile Law Amendment Act 1856 s 3 as amended by the Statute Law Revision Act 1892. However, where the wholepromise cannot be collected from the written memorandum of the contract, the Statute of Frauds (1677) is not satisfied and oral

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evidence of the consideration may not be given to explain the promise: Holmes v Mitchell (1859) 7 CBNS 361.

Most common form bank guarantees do in fact state the express terms of the consideration. For examples of bankingguarantees see Form 12 [506] et seq post.

3 See Astley Industrial Trust Ltd v Grimston Electric Tools Ltd (1965) 109 Sol Jo 149.

4 See Goldshede v Swan (1847) 1 Exch 154. In that case the guarantee instrument itself was sufficiently ambiguous as tothe timing of the consideration that parol evidence could be admitted to show that the consideration was not in fact pastconsideration.

5 Ie the Insolvency Act 1986 s 238 as amended by the Enterprise Act 2002 s 248 Sch 17.

[41]-[50]

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/B: FORMAL AND ESSENTIAL REQUIREMENTS OF A GUARANTEE/2: WRITTENEVIDENCE/(a) The statutory provisions/10 The statutory requirements/10.1 The Statute of Frauds (1677)

2: WRITTEN EVIDENCE

(a) The statutory provisions

10 The statutory requirements

10.1 The Statute of Frauds (1677)

[51]

The Statute of Frauds (1677)1 provides that:

'... noe action shall be brought ... whereby to charge the defendant upon any speciall promise2 to answere for the debt3default4 or miscarriages5 of another person ... unlesse the agreement upon which such action shall be brought orsome memorandum or note thereof shall be in writeing and signed by the partie to be charged therewith or some otherperson thereunto by him lawfully authorized6.'

Although an oral guarantee cannot be enforced by action, it is not, on that account, void7. Therefore moneyactually paid under it probably cannot be recovered8, and its existence may be used as a defence9.

Although in principle it may be possible to invoke the doctrine of estoppel in aid of an oral guarantee, inpractice such cases are likely to be extremely rare. The oral promise itself cannot constitute therepresentation, encouragement or inducement on which the estoppel is founded: there must be some otheraction or statement that can constitute the required representation, encouragement or inducement10.

[52]

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1 Ie the Statute of Frauds (1677) s 4 as amended.

Much of the Statute of Frauds (1677) s 4 has been repealed, and it is now in force only in respect of the matters mentioned inthis Paragraph. It has also been disapplied in relation to certain financial collateral arrangements: see the Financial CollateralArrangements (No 2) Regulations 2003, SI 2003/3226.

2 'Special promise' excludes implied promises arising by operation of law: Gray v Hill (1826) Ry & M 420, and contractsmade by deed or of record: Holmes v Mitchell (1859) 7 CBNS 361 at 368, 369.

3 'Debt' refers to a contractual liability already incurred: Castling v Aubert (1802) 2 East 325 at 330. In modern terminology'to answer for' is 'to accept liability for': Moschi v Lep Air Services Ltd [1973] AC 331 at 347, [1972] 2 All ER 393 at 400-401, HL,per Lord Diplock.

4 'Default' refers to a future contractual liability: Re Young and Harston's Contract (1885) 31 Ch D 168, CA, and possibly toany future liability whether founded in contract or not: Kirkham v Marter (1819) 2 B & Ald 613 at 617.

5 'Miscarriages' comprehends that species of wrongful act for the consequences of which the law would make a personcivilly responsible: Kirkham v Marter (1819) 2 B & Ald 613 at 616, though probably it and 'default' equally apply to a promise toanswer for another, with respect to the non-performance of a duty, even where the duty is not founded in contract: Kirkham vMarter (1819) 2 B & Ald 613 at 617.

'Translated into modern terminology ... 'debt, default or miscarriages' is descriptive of failure to perform legal obligations,existing or future, arising from any source, not only from contractual promises, but in any other factual situations capable ofgiving rise to legal obligations such as those resulting from bailment, tort or unsatisfied judgments': Moschi v Lep Air ServicesLtd [1973] AC 331 at 347-348, [1972] 2 All ER 393 at 401, HL, per Lord Diplock.

6 See the Statute of Frauds (1677) s 4 as amended.

7 See Maddison v Alderson (1883) 8 App Cas 467, HL.

8 Shaw v Woodcock (1827) 7 B & C 73; and see Sweet v Lee (1841) 3 Man & G 452.

9 See Lavery v Turley (1860) 6 H & N 239.

10 Actionstrength Ltd v International Glass Engineering IN. GL. EN SpA [2003] UKHL 17, [2003] 2 AC 541. In addition, theother necessary elements (including unconscionability) would need to be established.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(B)Commentary/B: FORMAL AND ESSENTIAL REQUIREMENTS OF A GUARANTEE/2: WRITTENEVIDENCE/(a) The statutory provisions/10 The statutory requirements/10.2 The Statute of FraudsAmendment Act 1828

10.2 The Statute of Frauds Amendment Act 1828

[53]

The Statute of Frauds Amendment Act 18281 (sometimes called Lord Tenterden's Act) provides that:

'No action shall be brought whereby to charge any person upon or by reason of any representation or assurance madeor given concerning or relating to the character, conduct, credit, ability, trade, or dealings of any other person2, to theintent or purpose that such other person may obtain credit, money or goods upon, unless such representation orassurance be made in writing, signed by the party to be charged therewith3.'

The representation must be untrue to the maker's knowledge, and must be made with the intention ofinducing another person to act on it, so that the other person does so, and thereby suffers damage4.

The enactment only applies to actions upon representations as such, and not to actions in which the gist of

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the action is a breach of duty5.

[54]

1 Ie the Statute of Frauds Amendment Act 1828, which was passed to deal with a method of evading the Statute of Frauds(1677) that took the form of treating the guarantor's oral promise to be answerable to another as a false representation forwhich he was made liable in tort although not in contract: see Lyde v Barnard (1836) 1 M & W 101 at 114.

2 'Person' includes a corporation: Banbury v Bank of Montreal [1918] AC 626 at 708, 714, HL.

3 Statute of Frauds Amendment Act 1828 s 6.

4 See Behn v Kemble (1859) 7 CBNS 260.

Only statements going to an assurance of personal credit are, it seems, within the Statute of Frauds Amendment Act 1828:Clydesdale Bank Ltd v Paton [1896] AC 381, HL.

5 Banbury v Bank of Montreal [1918] AC 626, HL. It also applies only to fraudulent misrepresentations, not negligentmisrepresentations; see also 49 Halsbury's Laws (5th Edn) para 1054.

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11 Characteristics of contracts within the Statute of Frauds (1677)

[55]

For a promise of guarantee to fall within the Statute of Frauds (1677)1:

11.1 when the promise is made, the liability of a third party for the debt or duty guaranteed mustexist or be contemplated2;

11.2 the promise of guarantee must be made to the creditor3;11.3 the guarantor must not be liable independently of his promise of guarantee for what he

undertakes by such promise, or have any legal, as distinguished from a mere business, interestin any property released by means of his promise4;

11.4 the main and direct object of the promise of guarantee (and not merely an incident of it) mustbe to secure the doing of something by another person5; and

11.5 the promise of guarantee must not be part of an agreement for the assignment of the debt tothe guarantor or the transfer or surrender to him of some lien or security for the same6.

Where an alleged promise of guarantee does not present these features, it is outside the Statute of Frauds(1677), and need not be reduced to writing.

[56]

1 Ie the Statute of Frauds (1677) s 4 as amended. As to the Statute of Frauds (1677) see Paragraph 10.1 [51] ante; and 49

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Halsbury's Laws (5th Edn ) para 1058 et seq.

2 See Birkmyr v Darnell (1704) 1 Salk 27; Lakeman v Mountstephen (1874) LR 7 HL 17.

3 Eastwood v Kenyon (1840) 11 Ad & El 438; and see Re Hoyle, Hoyle v Hoyle [1893] 1 Ch 84, CA.

4 Fitzgerald v Dressler (1859) 7 CBNS 374; Harburg India Rubber Comb Co v Martin [1902] 1 KB 778, CA.

5 Macrory v Scott (1850) 5 Exch 907 at 914. See also Harburg India Rubber Comb Co v Martin [1902] 1 KB 778, CA.

6 See Castling v Aubert (1802) 2 East 325; Williams v Leper (1766) 3 Burr 1886.

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12 Requirement of writing not applicable to indemnities

[57]

The requirement of writing only applies to a contract of guarantee, ie a contract by which the promisorundertakes a liability that is secondary and contingent on the default of a third person who, notwithstanding,remains primarily liable1. It does not apply to a contract of indemnity whereby the promisor undertakes aprimary liability independently of the question of whether a third party makes default or not2.

1 As to terms relating to guarantees see Paragraph 2 [2] ante. See Harburg India Rubber Comb Co v Martin [1902] 1 KB778, CA; Guild & Co v Conrad [1894] 2 QB 885, CA.

2 As to terms relating to indemnities see Paragraph 3 [9] ante. See Guild & Co v Conrad [1894] 2 QB 885, CA.

[58]-[70]

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(b) The written evidence

13 When memorandum to be made

[71]

The written memorandum required to satisfy the Statute of Frauds (1677)1 need not be contemporaneouswith the agreement arrived at, but must be in existence before action is brought2. It must usually be amemorandum of an already completed contract3, although exceptionally it need not necessarily be so. Forexample, where there is a written and signed offer of guarantee, that offer constitutes a sufficientmemorandum to bind the offeror whether the acceptance is oral or written4.

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The Statute of Frauds (1677) need only be satisfied by a written memorandum once, so that where theoriginal written evidence of a guarantee is lost, oral evidence is admissible to show that the memorandumexisted5.

[72]

1 Ie the Statute of Frauds (1677) s 4 as amended. As to the evidence required see 49 Halsbury's Laws (5th Edn) para 1064et seq.

2 Lucas v Dixon (1889) 22 QBD 357, CA; Re Hoyle, Hoyle v Hoyle [1893] 1 Ch 84 at 97, CA. So in Birmingham Joinery vPhillips (26 February 1999, unreported), CA, a letter which referred to an oral guarantee constituted a sufficient memorandumfor the purposes of the Statute of Frauds.

3 Munday v Asprey (1880) 13 Ch D 855, but note Parker v Clark [1960] 1 All ER 93, [1960] 1 WLR 286.

4 Parker v Clark [1960] 1 All ER 93 at 102, [1960] 1 WLR 286 at 295 per Devlin J.

5 Barrass v Reed (1898) Times, 28 March; Crays Gas Co v Bromley Gas Consumers' Co (1901) Times, 23 March, CA.

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14 Form of a memorandum

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A strictly formal agreement in writing, complete in itself without the aid of other instruments to prove itscompletion, is not required. Any letter or memorandum or correspondence in writing from which the terms ofthe contract between the parties can be collected, and furnishing evidence of a guarantee under the hand ofthe guarantor, will suffice, even though it is apparent that a more formal document was really contemplatedor intended1.

It is necessary for the memorandum to contain all material terms of the guarantee2 and desirable that aguarantee should be evidenced by some formal document, comprising within it all the terms agreed upon. Itis, however, permissible to use oral evidence to identify a document referred to in another document so as toconnect them, or to show that a reference in one document that may refer to another document, does so infact3.

Where the written evidence of a contract within the Statute of Frauds (1677) Section 44 consists ofcorrespondence between the parties, the whole of it must be taken into consideration, even though the initialletters themselves apparently constitute a complete and binding contract5.

A contract of guarantee may be made:

14.1 by a company incorporated under the Companies Act 19856 by writing under its common seal,or

14.2 on behalf of a company by any person acting under its authority, express or implied,

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and any formalities required by law in the case of a contract made by an individual also apply to a contractmade by or on behalf of a company7.

[74]

1 Gray v Smith (1889) 43 Ch D 208, CA; Re Hoyle, Hoyle v Hoyle [1893] 1 Ch 84, CA; Rossiter v Miller (1878) 3 App Cas1124, HL.

2 Birmingham Joinery v Phillips (26 February 1999, unreported), CA.

3 Fitzmaurice v Bayley (1860) 9 HL Cas 78, HL; Pearce v Gardner [1897] 1 QB 688, CA; Long v Millar (1879) 4 CPD 450,CA; Ridgway v Wharton (1857) 6 HL Cas 238, HL.

4 Ie the Statute of Frauds (1677) s 4 as amended.

5 Bristol, Cardiff and Swansea Aerated Bread Co v Maggs (1890) 44 Ch D 616.

As to the admissibility of extrinsic evidence to explain a term in a guarantee within the Statute of Frauds (1677), irrespective ofwhether the liability is present or future, see Perrylease Ltd v Imecar AG [1987] 2 All ER 373 at 380, [1988] 1 WLR 463 at 472per Scott J.

6 Ie the Companies Act 1985 replacing the Companies Act 1948. Incorporation of companies will operate under theCompanies Act 2006 when the relevant provisions (see Part 2) are brought into force on 1 October 2009.

7 See the Companies Act 1985 s 36 as substituted by the Companies Act 1989 s 130(1) (and the position will be the sameunder the Companies Act 2006 s 43 when that section is brought into force on 1 October 2009, replacing the Companies Act1985 s 36). See generally vols 9-11 COMPANIES.

As to execution of documents by a company, see the Companies Act 2006 s 44 as and vol 12(2) (2007 Reissue) DEEDS,AGREEMENTS, DECLARATIONS AND ELECTRONIC SIGNATURES.

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15 Parties to be named in a memorandum

[75]

Whatever form the written evidence of a guarantee may take, it must, in order to satisfy the statutoryrequirements1, comprise the names of the contracting parties as such2. It is not sufficient that their namesare mentioned merely as descriptive of the subject matter of the contract3. The memorandum need not beactually addressed to the person to whom the promise of guarantee is made4.

1 See the Statute of Frauds (1677) s 4 as amended.

2 Williams v Lake (1859) 2 E & E 349; Sheers v Thimbleby & Son (1897) 76 LT 709, CA.

3 Vandenbergh v Spooner (1866) LR 1 Exch 316.

4 Gibson v Holland (1865) LR 1 CP 1.

[76]-[90]

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(c) Signature

16 Signature of memorandum

[91]

The written memorandum relied upon as evidence of a guarantee must be signed by the party to be chargedor his agent1. The signature need not be written in ink, but may be printed or pencilled2. It may even consistof a mark, initials or signed instructions for a telegraphic or similar message3.

An endorsement made on a signed guarantee by the guarantor in his own handwriting with a creditor'sconsent, for the purpose of correcting a mistake in the guarantee, is sufficiently authenticated by theguarantor's signature to the guarantee4.

[92]

1 See Elpis Maritime Co Ltd v Marti Chartering Co Inc, The Maria D [1992] 1 AC 21, [1991] 3 All ER 758, HL, where it washeld that the intention or capacity of the party signing the memorandum is irrelevant. See the Statute of Frauds (1677) s 4 asamended.

2 See generally Schneider v Norris (1814) 2 M & S 286; Geary v Physic (1826) 5 B & C 234; and Leeman v Stocks [1951]Ch 941, [1951] 1 All ER 1043.

3 See Selby v Selby (1817) 3 Mer 2; Godwin v Francis (1870) LR 5 CP 295. It has been held that any writing in amemorandum of a guarantee by which the guarantor can be identified, and that indicates an intention to adopt the guarantee, issufficient to constitute a signature for this purpose: Decouvreur v Jordan (1987) Times, 25 May, CA.

4 Bluck v Gompertz (1852) 7 Exch 862. See Holmes v Mitchell (1859) 7 CBNS 361 where it was held that oral evidence isinadmissible to explain a written promise under the Statute of Frauds (1677) s 4, but now see Perrylease Ltd v Imecar AG[1987] 2 All ER 373, [1988] 1 WLR 463 where objective extrinsic evidence was held admissible to construe guarantees, andwhere Holmes v Mitchell (above) was distinguished.

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17 Signature of memorandum by agents and partners

17.1 Agents

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Where an agent signs for the guarantor, his authority to do so need not be in writing1, nor need he expresslysign as agent, since oral evidence that he signed in that capacity is admissible2.

Where an agent expressly signs as principal, he cannot retreat from this position3; although in an action on aguarantee so signed, the claimant may establish, by oral evidence, the existence of an undisclosedprincipal4.

One of the contracting parties cannot act as authorised agent for the other so as to bind him by hissignature5.

[94]

1 Emmerson v Heelis (1809) 2 Taunt 38 at 46; Heard v Pilley (1869) 4 Ch App 548.

2 Young v Schuler (1883) 11 QBD 651, CA, as explained by Elpis Maritime Co Ltd v Marti Chartering Co Inc [1992] 1 AC 21at 28 et seq, [1991] 3 All ER 758 at 762 et seq, HL.

3 Higgins v Senior (1841) 8 M & W 834 at 844.

4 Wilson v Hart (1817) 7 Taunt 295; Higgins v Senior (1841) 8 M & W 834; Basma v Weekes [1950] AC 441, [1950] 2 All ER146, PC.

5 Farebrother v Simmons (1822) 5 B & Ald 333; Sharman v Brandt (1871) LR 6 QB 720, Ex Ch.

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17.2 Directors

[95]

A company is bound by a guarantee or other contract entered into by a director or other person purporting toact as its agent, only if he is acting within his actual authority, express or implied, or if he is acting within hisostensible authority, so that the company is bound by his act1. Accordingly, where the party dealing with thecompany has actual knowledge of the lack of authority of the director or other person, the company will notbe bound.

1 See Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549, [1967] 3 All ER 98, CA. See also Freeman & Lockyer (a firm) vBuckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 500, [1964] 1 All ER 630 at 642, CA, per Pearson LJ.

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17.3 Partners

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[96]

Every partner is an agent of the firm and his other partners, for the purpose of the business of thepartnership. The acts of any partner who does any act for carrying on in the usual way, business of the kindcarried on by the firm of which he is a member, binds the firm and his partners. This rule does not apply if thepartner so acting has in fact no authority to act for the firm in the particular matter, and the person with whomhe is dealing either knows that he has no authority or does not know or believe him to be a partner1.Therefore, for a guarantee given by one partner to be binding on the rest, where it has not been expresslyauthorised, it must be necessary for carrying on, or at least relate to, the business of the firm2.

[97]

1 Partnership Act 1890 s 5.

2 See Brettel v Williams (1849) 4 Exch 623. See also Sandilands v Marsh (1819) 2 B & Ald 673, applied in Governor and Coof the Bank of Scotland v Henry Butcher & Co [2003] EWCA Civ 67, [2003] 2 All ER (Comm) 557. Where a solicitor (A)undertook to B's solicitor that the firm of which A was a partner would pay a sum in discharge of a loan made by B to A's client,the undertaking was not binding on A's partner C, as it was not a normal part of a solicitor's business to guarantee repayment ofa loan made to his client: Hirst v Etherington [1999] All ER (D) 797, [1999] 31 LS Gaz R 42, CA.

[98]-[120]

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C: CLASSIFICATION OF GUARANTEES

18 Classes of guarantee

[121]

In this title, guarantees are treated according to whether they relate to the supply of goods1, payment ofmoney2, or to contracts of various types other than for the payment of money3.

1 For examples of guarantees relating to the supply of goods see Forms 2 [441]-7 [455] post.

2 For examples of guarantees relating to the payment of money see Forms 8 [491]-17 [550] post.

3 For examples of guarantees relating to other contracts see Forms 27 [701]-29 [708] post.

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19 Continuing and non-continuing guarantees

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[122]

A guarantee may be confined to a single credit or transaction, or may be made to cover and compriseseveral credits or transactions on a running account (for example bank overdrafts), in which latter case it istermed a 'continuing guarantee'1.

The effect of the term 'continuing' is not to give a fresh right of action against the guarantor from day to day,but to extend the guarantee beyond the original transaction to subsequent transactions2. Where, however, acontinuing guarantee was expressly stated to apply to the balance that there was or at any time thereaftermight be owing, it was held that the period of limitation ran from the time the balance sued for had beenconstituted3.

Especially in the case of bank guarantees, the guarantee is usually expressed so as to extend to subsequenttransactions, in order to avoid the operation of the rule in Clayton's Case, by which credit items are treatedas appropriated to the earliest debits to the account4.

The question of characterising a guarantee as continuing can raise difficult problems of construction. Aguarantee stated to cover 'future advances' may not cover a situation in which on the date for repayment, afresh loan is arranged at an increased rate of interest, but no money is actually transferred5. Where there isambiguity, a court may look at surrounding circumstances and resort to parol evidence6.

[123]

1 The fact that a guarantee is a continuing one may sometimes be implied from a reference to liability for an 'ultimatebalance'. For examples of banking guarantees see Form 12 [506] et seq post.

2 Parr's Banking Co Ltd v Yates [1898] 2 QB 460 at 466, CA, per Rigby LJ. A continuing guarantee may be discharged bythe opening of a new account if, on the construction of a contract of guarantee, the opening of the new account amounts to anunauthorised departure from the terms of the contract: see National Bank of Nigeria Ltd v Awolesi [1964] 1 WLR 1311, PC.

3 Wright v New Zealand Farmers' Co-operative Association of Canterbury Ltd [1939] AC 439, [1939] 2 All ER 701, PC; butsee Hartland v Jukes (1863) 1 H & C 667.

4 Ie the rule in Devaynes v Noble, Clayton's Case (1816) 1 Mer 529, 572. As to this rule generally see vol 4(1) (2008Reissue) BANKING Paragraph 6. See also Re Quest Cae Ltd [1985] BCLC 266 at 270 per Nourse J. See also 49 Halsbury'sLaws (5th Edn ) para 1108.

5 As in Burnes v Trade Credits Ltd [1981] 2 All ER 122, [1981] 1 WLR 805, PC.

6 Coles v Pack (1869) LR 5 CP 65 at 70; Hogarth v Miller, Brother & Co [1891] AC 48 at 53, HL. See also 49 Halsbury'sLaws (5th Edn) para 1084.

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20 Limited and unlimited guarantees

[124]

In relation to guarantees containing a limitation as to amount, certain principles have been enunciated with aview to determining whether the liability of the guarantor extends to the whole debt of the principal, with a

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limitation on the amount he can be called upon to pay, or covers a part only of the debt, co-extensive with theamount of the guarantee1.

The distinction is important in relation to the bankruptcy of the guarantor or the debtor. If the guarantorguarantees only part of the debt and pays the creditor the amount for which he is liable, then if the debtorbecomes bankrupt, the creditor can only prove in the debtor's bankruptcy for the balance of the debt, but theguarantor can prove in the same bankruptcy to recover the amount he has actually paid2. However, in thecase of a guarantee of the whole debt, subject to a limit on the amount that can be recovered from theguarantor, the creditor can prove for the whole debt in the bankruptcy of the debtor, even though theguarantor may have paid, and the guarantor cannot prove in his own right until the creditor has received adividend of 100p in the pound3.

A guarantee should therefore be so worded as to put the matter beyond doubt4.

[125]

1 See Ellis v Emmanuel (1876) 1 Ex D 157, CA, applied in Forster Dry Cleaning Co Ltd v Davidson (1963) 187 EstatesGazette 519. For a statement of these principles see 49 Halsbury's Laws (5th Edn) para 1088.

2 Re Sass, ex p National Provincial Bank of England Ltd [1896] 2 QB 12, where the language of a limited guarantee given tosecure a floating balance indicated a clear intention that the guarantee was to apply to the whole debt. See also Re Rees, ex pNational Provincial Bank of England (1881) 17 Ch D 98, CA; and Midland Banking Co v Chambers (1869) 4 Ch App 398(provision relinquishing the guarantor's right of proof in favour of creditor held to be effective where payment had been made bythe guarantor out of proceeds of counter-security given by principal).

3 Re Sass, ex p National Provincial Bank of England Ltd [1896] 2 QB 12. In the event of the bankruptcy of the guarantor whohas guaranteed the whole debt, the creditor can again prove in such bankruptcy for the whole amount up to receipt by him ofthe same level of dividend.

4 For forms of clauses expressly providing that the guarantee shall be a guarantee for the whole debt, that the guarantor'sright to subrogation shall not arise until the creditor has received the full payment of his claim against the principal debtor, andthat the guarantee shall be security for the whole amount due to the creditor, see eg Form 2 [441] post. For forms of clauses inguarantees to banks negativing any right of the guarantor to claim or prove or to be entitled to the benefit of a security incompetition with the bank see eg Form 11 [499] et seq post.

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21 Revocation of continuing guarantees

[126]

Every continuing guarantee should contain, in the interests of the guarantor, a power enabling him or hisrepresentative to revoke it1. Otherwise a guarantee is irrevocable if the consideration for it was entire2,although not if the consideration was fragmentary (that is to say, supplied from time to time, and thereforedivisible)3.

In either case, however, in the absence of agreement to the contrary4, a revocation by operation of law takesplace where a guarantee is given to or for a firm, whenever subsequent changes take place in theconstitution of the firm. The Partnership Act 1890 Section 18 provides that a continuing guarantee giveneither to a firm or to a third person in respect of the transactions of a firm is, in the absence of agreement tothe contrary, revoked as to future transactions by any change in the constitution of the firm to which, or of the

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firm in respect of the transactions of which, the guarantee or obligation was given5.

[127]

1 For a notice of revocation see Form 32 [783] post. For such a provision included in the body of an agreement see Form 2clause 8 [443] post and Form 4 clause 8 [448] post. See also 49 Halsbury's Laws (5th Edn) para 1200 et seq.

2 See Lloyd's v Harper (1880) 16 Ch D 290 at 319-320, CA.

3 Lloyd's v Harper (above); Bastow v Bennett (1812) 3 Camp 220; Coulthart v Clementson (1879) 5 QBD 42 at 46.

4 For examples of an agreement to the contrary see Form 2 clause 6 [443] and Form 14 clause 14 [522] post.

5 As to change of parties and of position see Paragraph 37 [255] post.

[128]-[140]

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D: CONSTRUCTION OF GUARANTEES

22 Rules

[141]

The ordinary rules of construction applicable to all contracts also govern contracts of guarantee1.

The whole agreement must be considered as for any other contract, and the natural meaning be given to thewords used, unless such meaning involves obvious absurdity. The surrounding circumstances may also betaken into consideration where the guarantee requires explanation2.

A guarantor will not be charged beyond the precise terms of his engagement3, because a guarantor isregarded in the light of a 'favoured debtor'4.

Where the terms of a guarantor's engagement admit of doubt, and all other rules of construction andexplanation fail, the principle that the guarantee should be construed 'contra proferentem' has been applied5.

If the operative part of a guarantee is ambiguous, but not otherwise, the recitals may provide the eventualinterpretation6, even though the recitals themselves are inconsistent with a meaning the operative part mightotherwise have been taken to bear7.

Finally, in construing a guarantee, such a meaning will be given to it as will, if possible, give effect to theinstrument and to the expressed intention of the parties8. If a written guarantee is ambiguous, oral evidenceis admissible to construe the meaning, though not to alter or vary in any way the terms of the instrument9.

[142]

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1 See Mason v Pritchard (1810) 12 East 227; Mayer v Isaac (1840) 6 M & W 605. As to the construction of a guaranteelimited in amount see Paragraph 20 [124] ante.

2 See Heffield v Meadows (1869) LR 4 CP 595; Perrylease Ltd v Imecar AG [1987] 2 All ER 373, [1988]1 WLR 463; Bank ofScotland v Wright [1991] BCLC 244 at 259. In addition, see Gastronome (UK) Ltd v Anglo Dutch Meats (UK) Ltd [2006] EWCACiv 1233, [2006] 2 Lloyd's Rep 587, where extrinsic evidence was admitted to identify the correct party to a guarantee. See alsoAmalgamated Investment and Property Co Ltd (in liquidation) v Texas Commerce International Bank Ltd [1982] QB 84, [1981] 3All ER 577, CA, in which consideration of the surrounding facts set up an estoppel.

3 Wright v Russel (1774) 2 Wm Bl 934 at 935; Henton v Paddison (1893) 68 LT 405.

4 Re Sherry, London and County Banking Co v Terry (1884) 25 Ch D 692 at 703, CA, per Lord Selborne LC.

5 See Eastern Counties Building Society v Russell [1947] 2 All ER 734, CA; First National Finance Corpn Ltd v Goodman[1983] BCLC 203, CA. However, see also Mayer v Isaac (1840) 6 M & W 605; Heffield v Meadows (1869) LR 4 CP 595;Eshelby v Federated European Bank Ltd [1932] 1 KB 254 at 266, DC (on appeal [1932] 1 KB 423, CA); and Moschi v Lep AirServices Ltd [1973] AC 331 at 345, [1972] 2 All ER 393 at 399, HL.

6 See generally Lord Arlington v Merricke (1672) 2 Saund 403.

7 Australian Joint Stock Bank v Bailey [1899] AC 396, PC; Oswald v Berwick-upon-Tweed Corpn (1856) 5 HL Cas 856, ExCh.

8 See Barber v Mackrell (1892) 68 LT 29, CA; York City and County Banking Co v Bainbridge (1880) 43 LT 732. As to themodern approach of the courts, see Bank of Scotland v Wright [1991] BCLC 244 at 259 per Brooke J.

9 See generally 49 Halsbury's Laws (5th Edn) para 1084 et seq.

[143]-[160]

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E: RIGHTS OF A GUARANTOR

23 Rights of a guarantor against the creditor

[161]

A guarantor has the following rights against the creditor, unless they are excluded by the terms of theguarantee or otherwise waived:

23.1 to have his guarantee discharged when he pays the sum for which he has made himselfliable1;

23.2 where he has discharged the whole debt or liability of the principal debtor, to be subrogated toall the rights possessed by the creditor in respect of the debt or liability to which the guaranteerelates, and to have assigned to him all the securities held by the creditor in respect of the debtor liability2;

23.3 to be discharged where the creditor varies his contract with the principal debtor without theguarantor's consent3;

23.4 when the debt is due, to require the creditor to call upon the principal debtor to pay off thedebt4.

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[162]

Where a guarantor is a guarantor for part only of the debt (as distinct from a guarantor for the whole debtwith a limitation on the amount of his liability)5, the guarantor, on paying that part, is in the absence of anagreement to the contrary, entitled to be subrogated to the rights of the creditor in respect of the amountpaid. In practice, however, where the guarantor is not to be liable for the whole amount of the debt, his rightsof subrogation are usually suspended by the terms of the guarantee until the creditor has been paid in full6.

A guarantor paying the creditor is also subrogated to the creditor's rights against the debtor, and this entitleshim to the benefit of all securities belonging to the debtor, including securities given to the creditor after theguarantee is given7. There is no such right until actual payment, although the court will protect theguarantor's potential right even before payment.

If sued by the creditor for payment under the guarantee, the guarantor may rely upon any right of set-off orcounterclaim that would be available to the debtor in reduction of the debt8.

[163]

1 As to appropriation of payments to the guaranteed debt see Re Sherry, London and County Banking Co v Terry (1884) 25Ch D 692, CA. As to the discharge of the guarantee otherwise than by payment by the guarantor see Paragraphs 32 [241]-38[257] post.

2 See the Mercantile Law Amendment Act 1856 s 5. That section does not, however, cover rights such as a landlord's rightof distress and forfeiture under a lease: see BSE Trading Ltd v Hands (1996) 75 P & CR 138, CA.

3 As to discharge by variation see Paragraph 34 [249] post. See also National Bank of Nigeria Ltd v Awolesi [1964] 1 WLR1311, PC. This right is often excluded in modern guarantees.

4 See Rouse v Bradford Banking Co [1894] 2 Ch 32 at 75, CA (affd [1894] AC 586, HL). In the absence of agreement, thecreditor is not, however, obliged to sue the principal debtor before suing the guarantor: see 49 Halsbury's Laws (5th Edn) para1104. The guarantor cannot compel the creditor to proceed against the principal debtor unless he undertakes to indemnify thecreditor for the risk, delay and expense in so doing: Wright v Simpson (1802) 6 Ves 714 at 734 per Lord Eldon LC.

5 As to this distinction see Paragraph 20 [124] ante.

6 As to the guarantor's right to share in the security held by the creditor see eg Goodwin v Gray (1874) 22 WR 312 and ReButlers Wharf Ltd [1995] 2 BCLC 43, (1995) Times, 17 April. See also 49 Halsbury's Laws (5th Edn) paras 1138 et seq.

7 Forbes v Jackson (1882) 19 Ch D 615. And the creditor owes the guarantor, as well as the principal debtor, when realisinga security for the liabilities of the principal debtor, a duty to do so at a proper price: Barclays Bank plc v Kingston [2006] EWHC533 (QB), [2006] 1 All ER (Comm) 519.

8 See also 49 Halsbury's Laws (5th Edn) para 1135. This right is often excluded in modern guarantees.

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24 Rights of a guarantor against the principal debtor

[164]

There may be an express right to indemnification granted to the guarantor by the principal debtor1; otherwise

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an implied right to an indemnity analogous to the rights enjoyed by one guarantor against another2 ariseswhenever the guarantee has been entered into at the principal debtor's actual or constructive request3. Theright of indemnity is not normally available to a person who assumed or discharged the liability of anotherwithout any antecedent request of that other being made4.

When the creditor has acquired the right to immediate payment of the debt from the guarantor5, the latter isentitled to call upon the principal debtor to pay the debt, and can take proceedings for exoneration againstthe principal debtor6. Similarly, a guarantor may by action against the principal debtor and creditor broughtbefore payment, obtain a declaration that he is relieved from all further liability under his guarantee where theacts and conduct of the principal debtor and creditor have in fact so relieved him7.

A guarantor for a company may, even before payment of the guaranteed debt, present a petition for thewinding up of the principal debtor because he is a contingent or prospective creditor8.

[165]

Whenever a guarantor pays any sum under his guarantee to relieve the principal debtor, he enjoys, subjectto the terms of the guarantee, an immediate right of action against the principal debtor9, but a guarantor cansue for such amount as against the principal debtor only if the liability is properly due10.

To the extent that he has paid the creditor so as to relieve his principal, the guarantor in effect becomes inturn a creditor of the principal debtor11. The Mercantile Law Amendment Act 1856 transforms such aguarantor from a simple contract creditor into a specialty creditor if the contract under which the principaldebtor's liability arose was under seal12.

The guarantor's right of indemnification is a right to be reimbursed the amount that he has actually paid for oron behalf of the principal debtor, together with interest13, as well as compensation for any damage sustainedover and above such amounts14.

[166]

1 Re Robinson, ex p Burrell (1876) 1 Ch D 537, CA.

2 As to rights of guarantors against each other see Paragraph 25 [168] post.

3 In these circumstances, the indemnity is an incident of the suretyship, and the principal debtor is liable to the guarantor forany sums he pays, without any further request being made by the guarantor: Leigh v Dickeson (1884) 15 QBD 60, CA. See alsogenerally Anson v Anson [1953] 1 QB 636, [1953] 1 All ER 867.

4 Owen v Tate [1976] QB 402, [1975] 2 All ER 129, CA. However, if he can show that there was some necessity that led himto assume the obligation, the guarantor will have a right of reimbursement: Owen v Tate as above.

5 As to when the liability of a guarantor arises see Paragraph 26 [191] post.

6 See Ascherson v Tredegar Dry Dock and Wharf Co Ltd [1909] 2 Ch 401; Watt v Mortlock [1964] Ch 84, [1963] 1 All ER388 and Thomas v Nottingham Incorporated Football Club Ltd [1972] Ch 596, [1972] 1 All ER 1176. A requirement that thecreditor serve a written demand upon the guarantor is for the latter's benefit and can be waived by him: Stimpson v Smith[1999] Ch 340, [1999] 2 All ER 833, CA. The amount must be due in the sense that the creditor could proceed against theguarantor immediately. In exceptional cases, equity may assist the guarantor where there is good evidence that liability will fallupon him, but the liability has not yet been ascertained: see Re Anderson-Berry, Harris v Griffith [1928] Ch 290, CA.

[167]

7 Oakeley v Pasheller (1836) 4 Cl & Fin 207, HL.

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8 See the Insolvency Act 1986 s 124(1) as amended. See also 49 Halsbury's Laws (5th Edn) para 1155.

9 Davies v Humphreys (1840) 6 M & W 153.

10 Morrison v Barking Chemicals Co Ltd [1919] 2 Ch 325.

11 Badeley v Consolidated Bank (1886) 34 Ch D 536; on appeal (1888) 38 Ch D 238, CA.

12 Mercantile Law Amendment Act 1856 s 5. That section does not, however, cover rights such as a landlord's right ofdistress and forfeiture under a lease: see BSE Trading Ltd v Hands (1996) 75 P & CR 138, CA. See Badeley v ConsolidatedBank (1886) 34 Ch D 536 at 556; on appeal (1888) 38 Ch D 238, CA; Ferguson v Gibson (1872) LR 14 Eq 379.

13 Re Fox Walker & Co, ex p Bishop (1880) 15 Ch D 400, CA.

14 Badeley v Consolidated Bank (1886) 34 Ch D 536; on appeal (1888) 38 Ch D 238, CA.

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25 Rights of a guarantor against a co-guarantor

[168]

Guarantors may, by express agreement, determine in what proportions each shall contribute towards thecommon liability, with a view to avoiding complications with regard to the precise amount of each guarantor'scontribution1. In the absence of such express agreement, each solvent guarantor must contribute equally, ifeach is guarantor for an equal amount, or otherwise proportionately to the amount for which each isguarantor2. The amount recoverable by way of contribution is at law and in equity dependent on the numberof solvent guarantors, and is not regulated by the number originally liable3.

Where guarantors are bound by different instruments for equal portions of a debt due from the sameprincipal debtor, and the suretyship of each being is a separate and distinct transaction, then there is no rightof contribution4.

[169]

Where there is liability in damages as opposed to liability for debt, the Civil Liability (Contribution) Act 19785

entitles any person liable in respect of any damage suffered by another person, to recover contribution fromsuch other person as might be liable in respect of the same damage (whether jointly with him or otherwise)6.The amount of the contribution is such as may be found by the court to be just and equitable, having regardto the extent of that person's responsibility for the damage in question7.

The right to seek contribution only arises when a guarantor has actually paid more than his due share8.However, a guarantor may be able to enforce his potential right before any payment by him by compelling hisco-guarantors to contribute towards discharge of a common liability9. If the creditor is party to such an action,the guarantor can obtain an order directing his co-guarantor to pay his share directly to the creditor10. Theprincipal debtor is normally joined as a party to any proceedings for contribution11, unless there is nopractical purpose in doing so, eg because of his insolvency.

In a case where one of two joint and several co-sureties made a payment under the guarantee without theother's knowledge and in the absence of a written demand, it was held that he was still entitled to acontribution from the other co-surety, as the debt was ascertained or ascertainable and, the creditor beingentitled to make immediate demand upon the sureties, the payment was not voluntary or officious12.

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[170]

1 See as an example of such difficulties Re Ennis, Coles v Peyton [1893] 3 Ch 238, CA, where the amount payable by theestate of a deceased guarantor was involved. See also Scholefield Goodman & Sons Ltd v Zyngier [1986] AC 562, [1985] 3 AllER 105, PC. For a form of agreement setting out rights of co-guarantors between themselves see Form 34 [821] post.

2 Pendlebury v Walker (1841) 4 Y & C Ex 424 at 441, per Alderson B. The right of contribution exists only where guarantorsare subject to a common liability and does not exist, eg where each is liable only for a separate sum.

If guarantors are not liable for the whole of the amount, but for different amounts, they are often ordered to pay in proportion tothe maximum liability that each assumed (cf the so-called 'independent liability' principle in indemnity insurance, used whereone of the guarantors has an unlimited liability but the liability of the others is in a limited amount): See Commercial UnionAssurance Co Ltd v Hayden [1977] QB 804, [1977] 1 All ER 441, CA.

3 See Lowe v Dixon (1885) 16 QBD 455 at 458 per Lopes J.

4 See Coope v Twynam (1823) Turn & R 426 and Pendlebury v Walker (1841) 4 Y & C Ex 424. Contrast ScholefieldGoodman & Sons Ltd v Zyngier [1986] AC 562, [1985] 3 All ER 105, PC.

5 Ie the Civil Liability (Contribution) Act 1978. This Act covers the case where there is a guarantee of a general obligationunder the main contract, eg to perform work, breach of which would result in the guarantor being liable for damages, as distinctfrom a guarantee of a general or stated indebtedness where the claim against the guarantor would not normally lead todamages; see however, Moschi v Lep Air Services Ltd [1973] AC 331, [1972] 2 All ER 393, HL. See also Hampton v Minns[2002] 1 All ER (Comm) 481, [2002] 1 WLR 1 where the Act was not applicable as the guarantor was liable for a debt.

[171]

6 Civil Liability (Contribution) Act 1978 s 1(1).

7 Civil Liability (Contribution) Act 1978 s 2(1).

8 Davies v Humphreys (1840) 6 M & W 153. In the case of a guaranteed liability payable in instalments, a co-guarantor hasto await payment of all the instalments: Stirling v Burdett [1911] 2 Ch 418.

9 Wolmershausen v Gullick [1893] 2 Ch 514.

10 Wolmershausen v Gullick (above).

11 Hay v Carter [1935] Ch 397, CA.

12 Stimpson v Smith [1999] Ch 340, [1999] 2 All ER 833, CA, where it was held that the requirement of a written demandwas evidentiary or procedural, and as it was for the benefit of the surety, the requirement could be waived by one surety eventhough the liability of the two sureties was joint and several. If the arrangement between the paying surety and the creditor hadbeen disadvantageous to the other surety, he might have deprived himself of the right to contribution.

[172]-[190]

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26 When the liability arises

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[191]

Any conditions precedent to the guarantor's liability must be fulfilled before recourse can be made to him1.However, the creditor is not obliged to notify the guarantor of the principal's default, at least in the absence ofexpress provision to the contrary2. Nor is there any general principle that the creditor must first proceedagainst the principal debtor before suing the guarantor3. Similarly, there is no requirement that the creditormust first make demand upon the guarantor before enforcing the guarantee4, unless the guarantee stipulatesotherwise, as most modern ones do. If a demand is stipulated, no cause of action can arise until demand ismade5.

If the guarantee contains a clause characterising the guarantor as principal as between the creditor and theguarantor, there is no need for the former to make demand6.

Guarantees may also contain 'conclusive evidence' clauses, designed to make a certificate from the creditorconclusive evidence of the amount due from the guarantor under the guarantee7. Such clauses will generallybe effective in the absence of fraud or bad faith or other special circumstances8.

[192]

1 See 49 Halsbury's Laws (5th Edn) para 1106.

2 See Eshelby v Federated European Bank Ltd [1932] 1 KB 423, CA; MS Fashions Ltd v Bank of Credit and CommerceInternational SA (in liquidation) (No 2) [1993] Ch 425, [1993] 3 All ER 769), CA, per Dillon LJ. Cf Bank of Scotland v Wright[1991] BCLC 244.

3 See Moschi v Lep Air Services Ltd [1973] AC 331 at 356-357, [1972] 2 All ER 393 at 408-409 per Lord Simon of Glaisdale,HL.

4 Norton v Ellam (1837) 2 M & W 461 at 464.

5 Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833, CA; Re Brown's Estate, Brown v Brown [1893] 2 Ch 300. As thisrequirement is for the benefit of the guarantor, it can be waived by the guarantor. It can also be waived by one of two or morejointly and severally liable under the guarantee without losing the right to contribution against the co-guarantors, provided thedebt is ascertained or ascertainable: Stimpson v Smith [1999] Ch 340, [1999] 2 All ER 833, CA.

6 See MS Fashions Ltd v Bank of Credit and Commerce International SA (in liquidation) (No 2) [1993] Ch 425, [1993] 3 AllER 769. See also Esso Petroleum Co Ltd v Alstonbridge Properties Ltd [1975] 3 All ER 358, [1975] 1 WLR 1474, where ademand was held to be necessary because the indebtedness under the guarantee was not a 'present debt'. This is true of mostmodern guarantees that provide for payment of money that may from time to time be owing or unpaid, or contain similarlanguage importing the need for a demand.

7 For an example, see Form 8 clause 2 [492] post.

8 See 49 Halsbury's Laws (5th Edn) para 1092.

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27 Extent and duration of guarantor's liability

[193]

The extent and nature of the liabilities of a guarantor depend on the wording of the guarantee itself, as a

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guarantor should in general not be charged beyond the precise terms of his engagement1. A commonexample of a continuing guarantee is a guarantee of a bank overdraft, where the guarantee coverstransactions on a running account but the guarantor can terminate his liability for further advances by givingnotice to the bank2.

In the absence of provisions specifying a condition precedent, the guarantor's liability arises on the principal'sdefault3.

[194]

1 See Tanner v Woolmer (1853) 8 Exch 482; Moschi v Lep Air Services Ltd [1973] AC 331 at 345, [1972] 2 All ER 393 at399, HL, per Lord Reid. As to construction of guarantees, see Paragraph 22 [141] ante. As to when the liability arises, seeParagraph 26 [191] ante.

2 For continuing guarantees see Paragraph 19 [122].

3 See also 49 Halsbury's Laws (5th Edn) para 1103 and Eshelby v Federated European Bank Ltd [1932] 1 KB 423, CA;however, see also Parr's Banking Co Ltd v Yates [1898] 2 QB 460, CA, where in the case of a guarantee of the repayment ofadvances made from time to time, the right of action accrued as soon as the first advance was made. See also Wright v NewZealand Farmers' Co-operative Association of Canterbury Ltd [1939] AC 439, [1939] 2 All ER 701, PC.

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[195]

In general only the person named as creditor may sue upon the guarantee. Any change in the identity of thecreditor therefore revokes the guarantee as to future transactions unless a contrary intention is manifested inthe instrument1. However, a third party may enforce the guarantee where the contract expressly permits himto or where the term purports to confer a benefit on him2.

The person to whom a guarantee is given may assign the guaranteed debt and the securities for the debt3,and on such assignment, the assignee acquires all the rights of the assignor. Where the assignment isequitable only, the assignee must usually join the assignor in any proceedings4.

A creditor may of course become estopped from enforcing a guarantee by reason of misrepresentation5.

A creditor may not always have a right of action personally against the guarantor: the suretyship may takethe form of a pledge or security6.

[196]

1 See First National Finance Corpn Ltd v Goodman [1983] BCLC 203, CA. The person to whom the guarantee is given maybe a trustee of the benefit of the guarantee for others: Lloyd's v Harper (1880) 16 Ch D 290, CA.

2 See the Contracts (Rights of Third Parties) Act 1999, by virtue of which a third party to a contract may enforce a term ofthe contract if the contract expressly permits him to do so, or if the term purports to confer a benefit on him. In circumstances

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where there is a possibility of a third party claiming the benefit of a term, the matter should be put beyond doubt, one way or theother, by suitable drafting.

3 Wheatley v Bastow (1855) 7 De GM & G 261 at 279, but see also Re Barned's Banking Co, ex p Stephens (1868) 3 ChApp 753. See also 49 Halsbury's Laws (5th Edn) para 1124.

4 See generally Three Rivers District Council v Bank of England (Governor and Co) [1996] QB 292, [1995] 4 All ER 312, CA.

5 Where a guarantor approached the manager of the creditor bank to obtain assurance that he would be released fromliability under the guarantee if he sold his shareholding in the principal debtor company, and such assurance was given, and thesale went ahead in reliance upon it, the bank was estopped from relying on the guarantee: Bank of Baroda v Shah (30 July1999, unreported), CA.

6 See 49 Halsbury's Laws (5th Edn) para 1017.

[197]-[210]

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1: AVOIDANCE

29 Principal grounds of avoidance

[211]

The main grounds for avoiding1 a guarantee are fraud attendant upon its execution, in certain cases, thebreach by the creditor of his duty towards the guarantor to disclose material facts, undue influence,misrepresentation and non est factum2. As with any contract, it may also be voidable for mistake in certaincases3.

A guarantee may also be avoided where there is a total failure of consideration. A guarantee cannot beenforced if the primary obligation is illegal or void4.

A guarantee may also become unenforceable where the instrument creating the obligation is materiallyaltered. An alteration will be material if it affects the very nature or character of the document, or if it mightoperate to the prejudice of the guarantor5.

[212]

1 As to factors vitiating a guarantee see 49 Halsbury's Laws (5th Edn) para 1033 et seq.

2 As to these matters see Paragraph 30 [213] post.

3 As to avoidance for mistake see 49 Halsbury's Laws (5th Edn) para 1033.

4 As to void obligations see Paragraph 31 [221] post.

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5 See Raiffeisen Zentralbank Osterreich AG v Crossseas Shipping Ltd [2000] 3 All ER 274, [2000] 1 WLR 1135, CA. It is notnecessary for the guarantor to show actual prejudice. Where it is clear that there can be no prejudice to the guarantor by virtueof an alteration, the guarantee will not be avoided: Governor and Co of the Bank of Scotland v Henry Butcher & Co [2003]EWCA Civ 67, [2003] 2 All ER (Comm) 557.

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30 Misrepresentation, fraud, undue influence, non est factum

30.1 Misrepresentation, non-disclosure and fraud

[213]

A contract of guarantee, like any other contract, may be avoided where there has been a materialmisrepresentation of fact inducing entry into the contract, even if the misrepresentation is innocent1. Where amisrepresentation is made fraudulently and is of a kind that would be likely to induce a person to enter intothe contract, there is a presumption of reliance in favour of the victim of the misrepresentation. The creditorthen has the burden of proving that there was no reliance by the victim on the misrepresentation2.

A guarantee is not a contract uberrimae fidei3. The extent to which the creditor must disclose to theguarantor what he knows of the principal debtor with regard to the proposed contract depends on thecircumstances of each case. Partial disclosure of the facts may well in itself amount to misrepresentation4,so that a request for a prospective guarantor to enter into the guarantee may amount to a representation thatthere are no unusual risks attaching to the transaction of which the proposed guarantor ought to be madeaware5. Indeed, it has been held that the creditor is under a duty to the guarantor to disclose to the lattercontractual arrangements made between the creditor and the principal debtor which make the terms of theprincipal contract materially different in a potentially disadvantageous respect from those which the guarantormight naturally expect6. In the case of a continuing guarantee, this limited duty of disclosure continues tooperate as regards the future liability of the guarantor7. On the other hand, exceptional circumstances arerequired before a bank is required to disclose to a guarantor that an account is being used other than inaccordance with the terms of the guarantee8.

A stronger duty of disclosure may be applicable to the case of a guarantor being asked to guarantee theservices of an employee or an official under a fidelity bond9.

On the other hand, a bank that chooses to give advice to a customer on the effect of a mortgage documentwhich the customer is about to sign in favour of the bank is under a duty of care not to misstate the effect ofthe document, although the remedy lies solely in damages and does not extend to setting aside themortgage in the absence of undue influence10.

[214]

1 See also 49 Halsbury's Laws (5th Edn) para 1035.

2 County NatWest Bank Ltd v Barton [2002] 4 All ER 494, CA. Where a fraudulent misrepresentation had been made, therewas a presumption that the guarantors, who had already decided to enter into the contracts of guarantee by the time of themisrepresentation, had been induced to continue with the decision that they had already made. See also Ross River Ltd vCambridge City Football Club [2007] EWHC 2115 (Ch), [2008] 1 All ER 1004.

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3 Ie a contract requiring the utmost good faith. See Hamilton v Watson (1845) 12 Cl & Fin 109, HL, and London GeneralOmnibus Co Ltd v Holloway [1912] 2 KB 72, CA.

4 As in With v O'Flanagan [1936] Ch 575, [1936] 1 All ER 727, CA; DPP v Ray [1974] AC 370, [1973] 3 All ER 131, HL; andGoldsmith v Rodger [1962] 2 Lloyd's Rep 249, CA. These are all non-guarantee cases.

5 Lee v Jones (1864) 17 CBNS 482 at 503.

6 See Levett v Barclays Bank plc [1995] 2 All ER 615, [1995] 1 WLR 1260, and see also Hamilton v Watson (1845) 12 Cl &Fin 109, HL and Cooper v National Provincial Bank Ltd [1946] KB 1, [1945] 2 All ER 641.

7 See Phillips v Foxall (1872) LR 7 QB 666; Sanderson v Aston (1873) LR 8 Exch 73.

8 See Governor and Co of the Bank of Scotland v Henry Butcher & Co [2001] 2 All ER (Comm) 691; affd [2003] EWCA Civ67, [2003] 2 All ER (Comm) 557, CA.

9 See London General Omnibus Co Ltd v Holloway [1912] 2 KB 72, CA. See also 49 Halsbury's Laws (5th Edn ) para 1042.

10 Cornish v Midland Bank plc [1985] 3 All ER 513, CA. As indicated above, there is no obligation upon a bank or other biglender to explain, in the absence of a request, the meaning or effect of a guarantee, whether the guarantor is a customer of thebank or not: Barclays Bank plc v Khaira [1992] 1 WLR 623; O'Hara v Allied Irish Banks Ltd [1985] BCLC 52. Cf Lloyd's Bank plcv Waterhouse [1993] 2 FLR 97, CA.

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30.2 Undue influence

[215]

The House of Lords reviewed the law of undue influence in Barclays Bank plc v O'Brien1 and again in RoyalBank of Scotland v Etridge (No 2)2. Undue influence falls into two principal categories. The first category isthat of actual undue influence, where the complainant must prove affirmatively that the wrongdoer exertedundue influence on the complainant to enter into the transaction, and that the claimant did not enter into it ofhis own free will.

The second category is that of 'presumed' undue influence, where the complainant must establish theexistence of a relationship of trust and confidence with the wrongdoer, and a transaction that calls for anexplanation, such that it is fair to 'presume' that the wrongdoer abused the relationship in procuring thecomplainant to enter into the impugned transaction. It is, however, only an evidential presumption and can berebutted. Once that relationship has been established, there is an evidential burden upon the wrongdoer toshow that the complainant entered into the transaction of his own free will3.

The second class has often been subdivided into two, as the relationship can be established in two ways.The first subset consists of those relationships which are presumed by law to involve the necessary degreeof trust and confidence (eg solicitor and client, medical adviser and patient, parent and child). Thispresumption is not rebuttable4. The second subset consists of those where the relationship is not one towhich such a presumption applies, but the complainant proves in fact that he reposed the requisite trust andconfidence in the wrongdoer5.

[216]

In the case of presumed undue influence (both subsets), the complainant must show that the transactioncalls for an explanation6. There is no reason why a guarantee cannot in certain circumstances be such a

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transaction to the guarantor7 but it should not be assumed that the mere fact that a wife has guaranteed herhusband's debts always calls for an explanation8. There must be a balancing exercise between theseriousness of the risk of enforcement and the benefits acquired by the guarantor in accepting those risks.This exercise must be carried out primarily with regard to matters in existence at the time of the transaction,and must be viewed from the point of view of an independent and reasonable person who might haveconsidered the transaction at such time, with knowledge of all the relevant facts9. Where the complainantestablishes that the transaction calls for an explanation, it assists him in establishing a claim against thewrongdoer. It also affects the way the transaction appears to third parties, and so assists in establishing acase of constructive notice against a third party.

The presumption of undue influence can be rebutted by proof that the guarantee was given on a full, free andunforced basis10, usually as a result of the receipt of independent advice at the time. Where a solicitor isinstructed to advise a person who may be subject to the undue influence of another, the advice should covercertain issues, as a minimum: (1) the nature of the documents and the practical consequences if the personenters into them (including the possibility of losing their home and becoming bankrupt); (2) the seriousnessof the risks involved, including the risk of the principal transaction being varied without reference to theguarantor, and the extent of potential liability under the guarantee; (3) the fact that the person has a choiceand that the decision is theirs alone; (4) the solicitor should check whether the person wishes to proceed andwhether they are content for the solicitor to confirm to the creditor that advice has been given, or whetherthey would prefer to negotiate with the creditor on the terms of the guarantee11.

Where the entry of the complainant into the transaction was obtained by the undue influence of thewrongdoer, the question of whether the complainant can set aside the transaction as against a third partywho is not guilty of the undue influence depends on the doctrine of notice12. Such notice may be eitheractual, imputed or constructive.

[217]

Constructive notice applies when the creditor is put on inquiry as to the existence of the guarantor's equity. Incases involving relationships presumed by law to involve the necessary degree of trust and confidence,notice of the relationship itself puts the creditor on inquiry. Although the relationship of husband and wife isnot such a relationship, nor is that between cohabitees, a bank is nevertheless put on inquiry when it isproposed that a wife guarantee her husband's debts, or where one cohabitee is to guarantee the other'sdebts13. However, the bank is not put on inquiry where money is to be advanced jointly to both spouses (orcohabitees) unless the bank knows that the money is to be used solely for the purposes of one spouse (orcohabitee). The bank is put on inquiry where a wife offers to stand surety for a company jointly owned by thehusband and wife, even if the wife has an equal shareholding and is a director of the company14.

Where a bank is put on inquiry, it should take the steps set out in the decision in Royal Bank of Scotland vEtridge (No 2). One path a bank can take is to insist on a private meeting with the wife, at which the wife istold of the potential extent of the liability, warned of the risks involved, and urged to take independent legaladvice (including, in exceptional cases, insisting that she be separately represented from her husband)15. Inpractice, few banks choose to take this course, in which case they should then take the following steps: (1)the bank should insist that the wife take independent legal advice, telling her that it will require confirmationfrom the solicitor that she has been appropriately advised; (2) check with the wife which solicitor she wishesto instruct, including asking her whether she would prefer a separate solicitor, where there is already asolicitor acting for both husband and wife; (3) provide sufficient financial information to the solicitor to enableappropriate advice to be given; (4) warn the solicitor if the bank already suspects that some impropriety istaking place (eg by the husband misleading or putting undue pressure on the wife); (5) obtain writtenconfirmation from the solicitor that the wife has been appropriately advised. Having followed such steps, thebank will be able to rely on the solicitor's confirmation unless it knows or ought to know that the wife has notreceived the appropriate advice16.

Although the text above assumes that it is a wife that is being proposed as guarantor, the same steps would

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need to be taken where a husband is guaranteeing a wife's debts or one cohabitee is guaranteeing the debtsof the other (where the bank knows of the cohabitation).

In other cases where the complainant proves in fact that he reposed the requisite trust and confidence in thewrongdoer, the creditor may be put on inquiry if the transaction is not on its face to the advantage of theguarantor, and the creditor is aware that there is a substantial risk that, in procuring the guarantor to enterinto the guarantee, the principal debtor has acted improperly17.

[218]

1 Barclays Bank plc v O'Brien [1994] 1 AC 180, [1993] 4 All ER 417, HL.

2 Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44, [2002] 2 AC 773, [2001] 4 All ER 449.

3 Royal Bank of Scotland v Etridge (No 2) (above) at para 14, per Lord Nicholls.

4 Royal Bank of Scotland v Etridge (No 2) (above) at para 18, per Lord Nicholls.

5 See Barclays Bank plc v O'Brien [1994] 1 AC 180, [1993] 4 All ER 417, HL.

6 Goldsworthy v Brickell [1987] Ch 378, [1987] 1 All ER 853, CA; National Westminster Bank plc v Morgan [1985] AC 686,[1985] 1 All ER 821, HL; CIBC Mortgages plc v Pitt [1994] 1 AC 200, [1993] 4 All ER 433, HL. This requirement does not applyto cases of actual undue influence: see CIBC Mortgages plc v Pitt. While the requirement has often been expressed as showingthe existence of 'manifest disadvantage', that is simply one instance of a transaction that calls for an explanation: Royal Bank ofScotland v Etridge (No 2) [2001] UKHL 44, [2002] 2 AC 773, [2001] 4 All ER 449, paras 22-24, per Lord Nicholls. Even whenlooked at in terms of 'manifest disadvantage' this simply means that the disadvantage be 'clear and obvious', but thedisadvantage itself may be small: Cheese v Thomas [1994] 1 All ER 35, [1994] 1 WLR 129, CA; Barclays Bank plc v Coleman[2001] QB 20, [2000] 1 All ER 385, CA. Whether the transaction can be said to involve such disadvantage, or otherwise call foran explanation, is to be assessed objectively, and such assessment is carried out upon the circumstances prevailing at the dateon which the transaction was entered into: Barclays Bank plc v Coleman [2001] QB 20, [2000] 1 All ER 385, CA.

7 See eg Lloyds Bank Ltd v Bundy [1975] QB 326, [1974] 3 All ER 757, CA

8 See Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44, [2002] 2 AC 773, [2001] 4 All ER 449 para 30, per LordNicholls.

[219]

9 See eg Lloyd's Bank Ltd v Bundy [1975] QB 326, [1974] 3 All ER 757, CA.

10 See eg Zamet v Hyman [1961] 3 All ER 933 at 938, [1961] 1 WLR 1442 at 1446, CA.

11 See Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44, [2002] 2 AC 773, [2001] 4 All ER 449 para 65, per LordNicholls.

12 See Barclays Bank plc v O'Brien [1994] 1 AC 180, [1993] 4 All ER 417, HL. If the creditor is not fixed with notice of theundue influence, then he has no duty to ensure that the intending guarantor has independent advice: see eg Bank of Baroda vShah [1988] 3 All ER 24, CA.

13 See Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44, [2002] 2 AC 773, [2001] 4 All ER 449 paras 44-48, perLord Nicholls.

14 See Royal Bank of Scotland v Etridge (No 2) (above) at para 49, per Lord Nicholls.

15 See Royal Bank of Scotland v Etridge (No 2) (above) at para 50, per Lord Nicholls.

16 See Royal Bank of Scotland v Etridge (No 2) (above) at paras 56-57 and 79-80, per Lord Nicholls. When giving advice tothe guarantor, the solicitor is acting exclusively as his solicitor: Royal Bank of Scotland v Etridge (No 2), at para 74. Accordingly,the creditor is not fixed with imputed notice of what the solicitor learns during the course of giving such advice. These principlesalso apply where the advice is given by a legal executive: see Barclays Bank plc v Coleman [2001] QB 20, [2000] 1 All ER 385,CA.

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17 See Barclays Bank plc v O'Brien [1994] 1 AC 180, [1993] 4 All ER 417, HL.

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30.3 Non est factum

[220]

Even if the creditor has no knowledge of fraud, misrepresentation or undue influence, the guarantor canclaim 'non est factum' where he has entered into the guarantee in the belief that its effect was materially orradically different from that which in fact it was1. As a plea of non est factum can only succeed where theguarantor has not been careless in arriving at his belief, it is very rarely invoked with success.

1 Saunders v Anglia Building Society [1970] 3 All ER 961 HL; and see Avon Finance Co Ltd v Bridger [1985] 2 All ER 281,CA; Norwich and Peterborough Building Society v Steed [1993] Ch 116, [1993] 1 All ER 330, CA. The document must beradically or fundamentally different from the document that the person thought he was signing: Saunders v Anglia BuildingSociety (see above); and see Alex Lawrie Factors Ltd v Morgan (1999) Times, 18 August, CA.

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31 Illegal and void obligations

[221]

A guarantee cannot be enforced if the principal obligation is illegal or void1. On the other hand, an indemnityby which the promisor agrees to indemnify the promisee will remain valid in such circumstances2. However,a director's guarantee of an ultra vires corporate loan will in general be effective3. Further, where a bankcontinued to honour cheques drawn on a company's account with the bank after the presentation of awinding-up petition, and a winding-up order was later made against the company, the bank was entitled toenforce payment from the guarantor (who had guaranteed the indebtedness of the company) as although thedisposition to the third party payee was of no legal effect (such that the company could recover the amountsfrom the third party payee)4 there had been no disposition of money from the company to the bank, and asbetween the company and the bank, the money was validly borrowed5.

A guarantee given regarding an obligation of a minor is enforceable against the guarantor even if theobligation is unenforceable against the minor because of his age or his repudiation6.

[222]

1 See generally Heald v O'Connor [1971] 2 All ER 1105, [1971] 1 WLR 497; Swan v Bank of Scotland (1836) 10 Bli NS 627,HL. Therefore where two guarantors guaranteed the obligation of a company to pay monies to a creditor in consideration of the

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creditor licensing the company to operate a scheme which was held to be an illegal lottery, the creditor was unable to enforcepayment from the guarantors: Russell v Fulling and Page (1999) Times, 23 June. For avoidance in the context of the ConsumerCredit Act 1974, see also 49 Halsbury's Laws (5th Edn ) para 1207 et seq.

2 As to illegal indemnities see Paragraph 44 [287] post.

3 See Garrard v James [1925] Ch 616.

4 By virtue of the Insolvency Act 1986 s 127 as amended by the Enterprise Act 2002.

5 Coutts & Co v Stock [2000] 2 All ER 56, [2000] 1 WLR 906, which also emphasises that any clause in the guarantee whichpurports to maintain the liability of the guarantor in circumstances where the liability of the principal debtor is void, must be inthe clearest language.

6 Minors' Contracts Act 1987 s 2.

[223]-[240]

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2: DISCHARGE

32 General considerations

[241]

The discharge of the guarantor can be accomplished in many ways1. The governing principles are the sameat law and in equity2. The discharge of a guarantor (except on fulfilment of his undertaking) is generallybrought about by the conduct of the creditor who by some act or omission, inconsistent with the rights of theguarantor, relieves the latter wholly or partially from liability under his guarantee.

A guarantor may, however, contract out of his right to be discharged in accordance with the aboveprinciples3. Consequently, clauses designed to avoid the discharge of the guarantor have becomecommonplace, with the effect that the legal principles involved have assumed much less importance. Mostcommon law and equitable principles that normally protect a guarantor are negatived by the terms of modernguarantees, not only in the context of bank guarantees but in most others in common use such as hirepurchase guarantees, guarantees for the performance of contracts and leases, as well as guarantees for thepayment of money.

The more important of the events that will discharge a guarantor in the absence of express provision to thecontrary are discussed in the following paragraphs.

[242]

1 For a form of deed releasing a guarantor from liability under his guarantee see Form 36 [828] post.

2 Samuell v Howarth (1817) 3 Mer 272 at 277, 278 per Lord Eldon.

3 See eg Greenwood v Francis [1899] 1 QB 312, CA; Perry v National Provincial Bank of England [1910] 1 Ch 464, CA.

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33 Performance, release and novation

33.1 Performance

[243]

Performance by the principal debtor that discharges him necessarily also discharges the guarantor1.Similarly, part performance by the debtor discharges the guarantor pro tanto2. However, since a creditor cannormally appropriate money paid by his debtor to a debt that may not be guaranteed, where a guarantorguarantees a running account with a bank and the account is then closed, the bank may be entitled toappropriate payments to the new account on the ground that the debtor had not appropriated them to thecurrent account3.

[244]

1 This is the case even if the discharge occurs by premature termination of the principal contract, eg by return of the goodscombined with part payment: see Western Credit Ltd v Alberry [1964] 2 All ER 938, [1964] 1 WLR 945, CA.

2 Perry v National Provincial Bank of England [1910] 1 Ch 464, CA.

3 See Re Sherry, London and County Banking Co v Terry (1884) 25 Ch D 692, CA. See also 49 Halsbury's Laws (5th Edn)paras 1191-1193.

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33.2 Release and novation

[245]

The creditor may discharge the principal debtor by a binding legal agreement that also effects the dischargeof the guarantor1. However, not all releases in favour of the principal debtor will have this effect, as therelease may be personal to the principal debtor, and the creditor's rights may be reserved against theguarantor2. Release of one co-guarantor may also release the others, but again the question turns uponwhether the release is absolute, or a personal release in favour of one with a reservation of rights againstothers3.

Similarly, should the creditor enter into a novation as a consequence of which the debtor is discharged inconsideration of a new debtor assuming the liability in question, the guarantor under the original agreementis also discharged in the absence of provision to the contrary4.

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[246]

1 See Moss v Hall (1850) 5 Exch 46.

2 See Watts v Aldington (1993) Times, 16 December, CA, and Johnson v Davies [1999] Ch 117, [1998] 2 All ER 649, CA,which make clear that it is no longer appropriate to try to fit a particular agreement into one category (release) or the other(covenant not to sue); instead the true question is whether the agreement between the creditor and the debtor precludes thecreditor from enforcing his rights against the guarantor, or whether the creditor has reserved his rights against the guarantor.

3 See Johnson v Davies [1998] 2 All ER 649, CA, where one co-guarantor was to be released by virtue of the provisions ofan individual voluntary arrangement under the Insolvency Act 1986 Pt VIII (ss 252-263G). It was held that such a release was inprinciple capable of releasing the other co-guarantors, but on the facts, the release was not intended to be immediate andabsolute, such that the creditor's rights against the co-guarantors were preserved.

4 Commercial Bank of Tasmania v Jones [1893] AC 313, PC. Where a clause in the guarantee provided that the guarantor'sliability should not be affected by any variation of the principal contract, and there was subsequently a rescheduling of theamounts due under the loan to the debtor, it was held that the rescheduling was a variation and not a novation, with the resultthat the guarantor remained liable: Samuels Finance Group plc v Beechmanor Ltd (1993) 67 P & CR 282, CA.

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33.3 Breach of contract

[247]

The commission of a breach of contract by the creditor discharges a guarantor if the principal is alsodischarged1. If, however, such a breach only gives the principal debtor a right to counterclaim for damages,the guarantor may only be able to claim this right by way of set-off provided he joins the principal as a partyto the proceedings2.

Where the principal debtor commits a repudiatory breach of the principal contract which is accepted by thecreditor, the extent of the guarantor's liability generally depends upon whether the guarantor has guaranteedcomplete performance of the contract by the principal debtor3.

In the case of contracts involving payment by instalments, the guarantor normally is not liable for paymentsyet to fall due, as the principal would also not be liable in such event, but he is liable in debt for anyinstalments that have accrued due as at the date of termination of the contract4.

There is no general principle that any form of 'irregular' conduct on the part of the creditor discharges theguarantor, even if prejudicial to his interests5. The creditor can act in any way he chooses, provided that hedoes not commit an act of bad faith, misrepresentation, or concealment amounting to misrepresentation, orin any way connive with the default of the principal debtor6.

[248]

1 Watts v Shuttleworth (1861) 7 H & N 353. A non-repudiatory breach of the principal contract does not effect a discharge ofthe guarantor: see National Westminster Bank plc v Riley [1986] BCLC 268, CA.

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2 See Bechervaise v Lewis (1872) LR 7 CP 372, but see also Wilson v Mitchell [1939] 2 KB 869, [1939] 2 All ER 869. Clearwords must be used to exclude a right of set-off: see BOC Group plc v Centeon LLC [1999] 1 All ER (Comm) 970, CA.

3 See generally Moschi v Lep Air Services Ltd [1973] AC 331, [1972] 2 All ER 393, HL; Hyundai Heavy Industries Co Ltd vPapadopoulos [1980] 2 All ER 29, [1980] 1 WLR 1129, HL; and Hyundai Shipbuilding and Heavy Industries Co Ltd v Pournaras[1978] 2 Lloyd's Rep 502, CA.

4 See generally Moschi v Lep Air Services Ltd [1973] AC 331, [1972] 2 All ER 393, HL, and Hyundai Shipbuilding and HeavyIndustries Co Ltd v Pournaras [1978] 2 Lloyd's Rep 502, CA. Depending on the terms of the guarantee, the guarantor may beliable for damages by reason of the principal debtor's breach.

5 Bank of India v Trans Continental Commodity Merchants Ltd and Patel [1983] 2 Lloyd's Rep 298, CA. The position isdifferent if the creditor acts in bad faith or connives at the default by the principal debtor.

6 As to misrepresentation see Paragraph 30.1 [213] ante.

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34 Discharge by variation of the principal agreement

[249]

Variation of the terms of the principal contract without the guarantor's consent, in the absence of contraryprovision in the guarantee1, discharges him, especially if he states that he contracts on the faith of theprincipal agreement. However, unless he can show that he had notice of its terms2, only a material variationof the principal agreement discharges him3. A variation will be material unless it is manifestly insubstantial orincapable of prejudicing the guarantor.

[250]

1 For a clause negativing discharge in a guarantee for the performance of a contract see Form 27 clause 3 [603] post. Seealso Samuels Finance Group plc v Beechmanor Ltd (1993) 67 P & CR 282, where a provision preserving the liability of theguarantor in the event of a variation of the principal contract had the effect of maintaining the guarantor's liability despite therescheduling of the loan made to the principal debtor. However, see also Triodos Bank NV v Dobbs [2005] EWCA Civ 630,(2005) Times, 30 May, CA, where a provision in a contract of guarantee that permitted variations and amendments to be madeto the principal contract without avoiding the guarantee was held not to cover the making of a new loan agreement entirelyreplacing the original principal agreement.

2 Sanderson v Aston (1873) LR 8 Exch 73 at 76.

3 See Holme v Brunskill (1878) 3 QBD 495, CA; Stewart v M'Kean (1855) 10 Exch 675; Smith v Wood [1929] 1 Ch 14, CA.The question is whether there has been any agreement between the principals (ie the creditor and debtor) which alters theprincipal contract or the mode of performance thereof in such a manner as to bring about a risk of prejudice to the guarantor.Unless the variation is obviously insubstantial or cannot be otherwise than beneficial to the guarantor, the guarantor isdischarged unless he has consented to the alteration: Holme v Brunskill (1878) 3 QBD 495, 505-506. For example, where alandlord granted a licence under a user covenant in a lease to a tenant by assignment, the guarantors of the original tenantwere discharged because in any subsequent rent review, the licence might lead to a higher rental value than would have beenthe case in the absence of the licence, thus potentially increasing the risk borne by the guarantors: Howard de Walden EstatesLtd v Pasta Place Ltd [1995] 1 EGLR 79.

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35 Agreement to give time

[251]

A binding agreement, express or implied, to give time to the principal debtor without reserving the creditor'sremedies against the guarantor, and without the guarantor's consent, discharges the guarantor1.

Mere inactivity on the part of the creditor, extending, possibly, for several years2, or an omission to sue thedebtor3 or to press him to fulfil his obligation, does not discharge the guarantor, or amount in a legal sense toa giving of time. 'Giving of time' has been defined to mean extending the period at the end of which, by thecontract between them, the principal debtor was originally liable to pay the creditor, and extending it by anew and valid contract between the creditor and the principal debtor, to which the guarantor does notassent4. The new and valid contract must be made with the principal debtor himself (rather than eg with astranger or with one of several guarantors5), or it will not discharge the guarantor6. It makes no differencewhether the creditor contracts with the principal debtor to give him time, or to give time to the guarantor, as ineither case, the guarantor will be discharged7.

An agreement permitting the creditor to grant '[any other] indulgence or consideration' to the debtor has beenheld not to cover the making of a fresh loan at an enhanced rate of interest. The guarantor was not liable forsuch increased liability without his assent8.

[252]

1 Mahant Singh v U Ba Yi [1939] AC 601 at 606-607, PC. For a clause waiving the guarantor's right where time is granted tothe principal debtor see Form 2 clause 4 [442] post.

2 Orme v Young (1815) Holt NP 84; Samuell v Howarth (1817) 3 Mer 272 at 278; Midland Motor Showrooms Ltd v Newman[1929] 2 KB 256 at 263, CA; Durham Corpn v Fowler (1889) 22 QBD 394 at 417; Clarke v Birley (1889) 41 Ch D 422 at 434.

3 Overend, Gurney & Co Ltd (Liquidators) v Oriental Financial Corpn Ltd (Liquidators) (1874) LR 7 HL 348.

4 Howell v Jones (1834) 1 Cr M & R 97 at 107.

5 Clarke v Birley (1889) 41 Ch D 422; Frazer v Jordan (1857) 8 E & B 303.

6 Frazer v Jordan (1857) 8 E & B 303.

7 Overend, Gurney & Co Ltd (Liquidators) v Oriental Financial Corpn Ltd (Liquidators) (1874) LR 7 HL 348. See also MidlandCounties Motor Finance Co Ltd v Slade [1951] 1 KB 346, [1950] 2 All ER 821, CA.

8 Burnes v Trade Credits Ltd [1981] 2 All ER 122, [1981] 1 WLR 805, PC.

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36 Release or loss of securities and negligence regarding realisations

[253]

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The guarantor is also discharged where the creditor releases securities, even if others are taken insubstitution; but not where they are realised1 or temporarily released to the principal debtor against hisundertaking to return them2.

If the creditor through negligence fails to realise the security or realises the same negligently, the guarantormay be discharged to the extent of his prejudice3, but does not enjoy a claim against the creditor for breachof duty4, unless the creditor is in breach of an express or implied term of the guarantee.

[254]

1 Taylor v Bank of New South Wales (1886) 11 App Cas 596, PC.

2 Bushell v Collett (1862) 6 LT 20.

3 See Wulff v Jay (1872) LR 7 QB 756 and Barclays Bank plc v Kingston [2006] EWHC 533 (QB), [2006] 1 All ER (Comm)519, but see also Carter v White (1883) 25 Ch D 666, CA. The guarantor will not automatically be discharged completely, buthis liability will be reduced by the extent to which the creditor's negligence has caused him loss: Skipton Building Society v Stott[2001] QB 261, [2000] 2 All ER 779, CA, where in fact the best price reasonably obtainable for the security would, had it beenobtained by the creditor, have discharged the debt, and so the guarantor's liability was in fact extinguished completely. There is,however, generally no duty upon a creditor to prevent a security from becoming worthless: China and South Sea Bank Ltd vTan Soon Gin (alias George Tan) [1990] 1 AC 536, [1989] 3 All ER 839, PC.

4 Watts v Shuttleworth (1861) 7 H & N 353; Rouse v Bradford Banking Co [1894] AC 586, HL; China and South Sea BankLtd v Tan Soon Gin (alias George Tan) [1990] 1 AC 536 at 544, [1989] 3 All ER 839 at 841, PC; Downsview Nominees Ltd vFirst City Corpn Ltd [1993] AC 295 at 315, PC.

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37 Change of parties and of position

[255]

Where there is a change in the constitution of a firm, a continuing guarantee given to or in respect of the firmis revoked, in the absence of agreement to the contrary1.

In the case of amalgamation and reconstruction of companies, a guarantee given before either event isgenerally invalidated as to future transactions unless a contrary provision is contained in the guarantee2. Aguarantee of a definite amount due to a company (ie the creditor) at the date of its amalgamation has beenheld to enure for the benefit of the new company formed to take over the assets and liabilities of thatcompany and another company3.

A guarantee of the regular payment of the interest payable in respect of a debenture until repayment by thecompany of the principal sum due is not discharged by the dissolution of the company4.

Where a lease to a limited company contains a covenant by guarantors for the due payment of rent duringthe term, and the company is later dissolved, the guarantors remain liable as the lease does not come to anend, but vests in the Crown, the Duchy of Lancaster or the Duke of Cornwall, as appropriate, as bonavacantia5. Where the liquidator of a company that is a tenant under a lease disclaims the lease, suchdisclaimer terminates the liability of the company under the lease, but the lease is deemed to continue for thepurpose of continuing liabilities of third parties such as the original tenants and guarantors6.

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The release of one of several joint or joint and several guarantors without consulting the rest or reservingremedies against them may discharge the remaining guarantors7.

[256]

1 Partnership Act 1890 s 18.

2 As to changes in the parties see 49 Halsbury's Laws (5th Edn) para 1205 et seq.

3 Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833, CA.

4 Re Fitzgeorge, ex p Robson [1905] 1 KB 462.

5 Companies Act 1985 s 654 (to be repealed from 1 October 2009, but the position will be the same under the CompaniesAct 2006 s 1012, which comes into force on the same day).

6 Hindcastle Ltd v Barbara Attenborough Associates Ltd [1997] AC 70, [1996] 1 All ER 737, HL (but see now the Landlordand Tenant (Covenants) Act 1995 s 5 as regards the position of tenants who assign the premises). If no vesting order is made,though, and the landlord takes possession, the liabilities of such persons also ceases as regards the future, as the lease is thentreated as at an end for all purposes. The position is the same in cases of bankruptcy of individuals. The position is, however,different where the disclaimer is by the Crown after dissolution of the company, as such a disclaimer by the Crown releases theguarantor from liability, but his liability revives if the company is restored: Allied Dunbar Assurance plc v Fowle [1994] 1 EGLR122, [1994] 2 BCLC 197.

7 Mercantile Bank of Sydney v Taylor [1893] AC 317, PC; see also Liverpool Corn Trade Association Ltd v Hurst [1936] 2 AllER 309. However, whether any particular release has the effect of releasing co-guarantors will depend on construction of therelease, and suitable wording can reserve the creditor's rights against the released's co-guarantors: see Watts v Aldington(1993) Times, 16 December, CA, and Johnson v Davies [1999] Ch 117, [1998] 2 All ER 649, CA and see generally Paragraph33.2 [245] above.

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38 Revocation

[257]

A guarantor has power in certain circumstances to revoke a continuing guarantee1. If a guarantee does notexpressly stipulate for revocation by notice, and if the consideration for the guarantee is entire (ie aonce-and-for-all transaction), no notice can be given without the creditor's agreement2. If, on the other hand,the consideration is divisible (eg advances made or to be made from time to time), the guarantee isrevocable in respect of liability to accrue in the future3. In such a case, the guarantor remains liable for anysums incurred by the principal debtor up to and including the date of the notice4.

The death of a guarantor does not always automatically determine a guarantee5, although notice of deathdoes so if the guarantee was revocable and there is nothing to the contrary in its terms6.

[258]

1 As to revocation of continuing guarantees see Paragraph 21 [126] ante.

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2 Lloyd's v Harper (1880) 16 Ch D 290, CA.

3 Coulthart v Clementson (1879) 5 QBD 42.

4 If the guarantee is payable only on demand and a guarantor gives the prescribed notice (eg three months) at the end ofwhich liability ceases, the guarantor may escape liability if no demand is made before the end of the notice period: NationalWestminster Bank plc v Hardman [1988] FLR 302, CA.

5 Bradbury v Morgan (1862) 1 H & C 249. In general, personal representatives are bound by the deceased's contractualobligations even though they are not named in the contract: Basch v Stekel [2001] L & TR 1, CA.

6 Coulthart v Clementson (1879) 5 QBD 42, and see also Re Silvester, Midland Rly Co v Silvester [1895] 1 Ch 573.

[259]-[270]

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39 Stamp duty on guarantees and indemnities

[271]

An instrument comprising a guarantee or indemnity would not itself be subject to stamp duty1, although aninstrument that is labelled an indemnity but is in fact more than an indemnity (and constitutes a transfer onsale of stock or marketable securities) could give rise to a charge to stamp duty or stamp duty reserve tax.

The giving of an indemnity does not generally rank as consideration for the purposes of the 'transfer on sale'as it is usually unascertainable at the date the instrument is executed. However if the indemnity wereascertainable at that point, it is submitted that the value of that indemnity would result in the transfer beingstampable on that value.

For the purposes of stamp duty reserve tax, such an indemnity could rank as dutiable consideration on theground that it may amount to 'money's worth'2, although this would be relevant only in the case of transfers of'chargeable securities' as defined3.

An instrument that purports to indemnify someone or which guarantees the payment of a stamp duty liabilityis itself void4. The usual way round this is to draft the agreement such that the indemnifying party or theguarantor agrees to pay 'an amount equal to the stamp duty liability' rather than the stamp duty itself. Assuch, it is not an agreement falling within Section 117.

[272]

1 Stamp duty is, since the enactment of the Finance Act 2003 only chargeable on instruments transferring stock ormarketable securities: Finance Act 2003 s 125.

2 Finance Act 1986 s 87(1).

3 Finance Act 1986 s 99(4), (5) as amended by the Finance Act 1999 s 122 Sch 19 para 12 and SI 2003/2868.

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4 Stamp Act 1891 s 117.

[273]-[280]

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I: INDEMNITIES

40 General requirements and definitions

[281]

Generally, an 'indemnity' denotes a contract by which a promisor undertakes, by an original and independentobligation, to indemnify on request any loss or damage suffered by the promise. It has already beenindicated that a contract of indemnity, as opposed to a contract of guarantee, is a contract by which thepromisor undertakes a primary obligation, as distinct from a secondary obligation dependent on the default ofa third party1.

An indemnity in this sense, unlike a guarantee, does not need to be evidenced in writing2. An indemnity to apromisee against loss arising out of a contract between the promisee and a third party may be enforceableeven though the contract between the promisee and the third party is void, whereas a guarantee of theperformance of such a contract would itself be void3.

An indemnity may even render the indemnifier liable for loss suffered by the promisee upon termination of acontract with a third party even though the third party was entitled to terminate the contract. The indemnifierowes a primary liability that is not dependent upon any liability or default of the third party.

Indemnities can be classified according to the manner in which they arise, the subject matter of theindemnity, and whether they are personal undertakings or are secured by a mortgage or charge onproperty4.

[282]

1 As to contracts of indemnity and guarantee generally see Paragraphs 2 [2]-4 [11] ante. 'Contract of indemnity' in its widestsense includes most contracts of insurance (see Castellain v Preston (1883) 11 QBD 380 at 386, CA), but it is not used in thatsense in this title.

2 See Paragraph 12 [57] ante.

3 As to void obligations under a contract of guarantee see Paragraph 31 [221] ante.

4 A contract of indemnification can be specifically performed with the result that the indemnifier can be ordered to pay theamount concerned directly to the person to whom the relevant liability is owed by the party enjoying the right of indemnity: FirmaC-Trade SA v Newcastle Protection and Indemnity Association, The Fanti [1991] 2 AC 1 at 28, [1990] 2 All ER 705 at 711-712,HL. As to enforcement see Paragraph 43 [285] post.

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41 Creation and classification of indemnities

[283]

Rights of indemnity may arise from an express or implied contract, from the relationship of the parties1, or bystatute2. This title is only concerned with rights of indemnity arising out of an express contract between theparties, the main purpose of which is the creation of the indemnity.

The subject matter to which an indemnity may relate is virtually unlimited3. Reference should also be madeto other titles covering the subject matter of an intended indemnity.

1 Eg a guarantor's right to be indemnified by the principal debtor; see Duncan, Fox & Co v North and South Wales Bank(1880) 6 App Cas 1, HL.

2 An instance of a statutory right of indemnity is the power of the court, where a trustee commits a breach of trust at theinstigation or with the written consent of a beneficiary, to order the impounding of all or any part of the beneficiary's singularinterest in the trust estate by way of indemnity to the trustee or persons claiming through him. See generally the Trustee Act1925 s 62 as amended by the Married Women (Restraint upon Anticipation) Act 1949 s 1(4), Sch 2.

3 For forms of indemnity see Forms 38 [861]-52 [917] post.

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42 Capacity of parties and construction of contracts

[284]

The same rules apply to the capacity of persons or companies to grant indemnities as apply to the capacityto grant guarantees1. The requisites of a contract of indemnity are the same as the common law requisites ofa contract of guarantee2. The ordinary rules of construction of contracts apply to covenants for indemnity.

1 As to capacity to grant guarantees see Paragraphs 6 [32]-8 [35] ante.

2 Ie mutual consent of two or more parties, the competency to contract on the part of those entering into it (see Paragraphs6 [32]-8 [35] ante), and, where the agreement is not executed as a deed, valuable consideration. Note, however, that anindemnity is not affected by the requirement of writing laid down in the Statute of Frauds (1677): see Guild & Co v Conrad[1894] 2 QB 885, CA.

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43 Enforcement, costs and subrogation

[285]

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The circumstances in which an indemnity is enforceable depends on its terms1. At law, an action upon acontract of indemnity normally did not lie until the promisee had paid the third party's claim2. In equity, thepromisee may obtain relief as soon as his liability to the third party has arisen, and before he has actuallysuffered loss3. An indemnity against loss under a contract with a third party may be enforceable even thoughthat contract is void4.

The date when time begins to run against a person entitled to an indemnity depends upon the nature andextent of the indemnity, and the nature of the relief claimed5.

The court may also grant relief even before any liability has actually arisen in exceptional cases where thereare real grounds for fearing that the rights of the party indemnified are being put in jeopardy6.

In all cases where there is a contract of indemnity, the costs of proceedings properly incurred by the personindemnified are recoverable7.

Both guarantor and indemnifier are subrogated to the rights of the creditor against the persons whoseobligation has been discharged8.

Where a sum is payable pursuant to an indemnity, the benefit can be assigned9.

[286]

1 Liability on an indemnity ceases if the holder of the indemnity so acts that the consideration for which the indemnity wasgranted is destroyed: see Guy-Pell v Foster [1930] 2 Ch 169, CA (the act of the indemnified party was held to be a breach of animplied term that repudiated the contract of indemnity).

2 Collinge v Heywood (1839) 9 Ad & El 633.

3 See Re Richardson, ex p St Thomas's Hospital (Governors) [1911] 2 KB 705 at 709, CA, per Cozens-Hardy MR. Theposition in equity has prevailed: see Firma C-Trade SA v Newcastle Protection and Indemnity Association, The Fanti [1991] 2AC 1 at 28, [1990] 2 All ER 705 at 711-712, HL. Jurisdiction exists to compel the person giving the indemnity to pay the amountdue directly to the third person or, where the giver of the indemnity is under no liability to the third person, to the person entitledto the indemnity: see Firma C-Trade SA v Newcastle Protection and Indemnity Association, The Fanti.

4 As to void obligations generally see Paragraph 31 [221] ante.

5 See Telfair Shipping Corpn v Inersea Carriers SA, The Caroline P [1985] 1 All ER 243, [1985] 1 WLR 553.

6 Re Anderson-Berry, Harris v Griffith [1928] Ch 290, CA. There must be good evidence that liability will fall upon the partyentitled to be indemnified, even though the liability has not yet been ascertained.

7 Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555, [1957] 1 All ER 125, HL.

8 As to rights of a guarantor against a creditor see also Paragraph 23 [161] ante.

9 See generally Re Perkins, Poyser v Beyfus [1898] 2 Ch 182, CA.

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44 Illegal indemnities

[287]

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An express indemnity may be unenforceable for illegality1. In general, there is no enforceable right ofindemnity in respect of the consequences of a transaction involving a breach of the criminal law if the party tothe transaction or performing the act in respect of which the indemnity is claimed knew2, or if he had notbeen grossly negligent, would have known3, that it was illegal, or if, being ignorant of the illegality of thetransaction or act, he knew of circumstances that rendered it unlawful4.

A contract of indemnity between tortfeasors in respect of a wrongful act committed by both is in generalunenforceable where the party claiming under the indemnity knew or may be presumed to have known thathe was committing a wrongful act5.

An indemnity of a particular kind may be rendered void or unenforceable by statute6.

[288]

1 As to indemnities unenforceable for illegality see 49 Halsbury's Laws (5th Edn) para 1269.

2 Burrows v Rhodes [1899] 1 QB 816, DC.

3 Askey v Golden Wine Co Ltd [1948] 2 All ER 35.

4 Burrows v Rhodes [1899] 1 QB 816, DC.

A motor insurance policy covering third party liability is, however, enforceable even when the claim arises from manslaughter.This is because the law intends such acts to be covered: Tinline v White Cross Insurance Association Ltd [1921] 3 KB 327;James v British General Insurance Co Ltd [1927] 2 KB 311.

5 W H Smith & Son v Clinton and Harris (1908) 25 TLR 34, distinguished in Bradstreets British Ltd v Mitchell andCarapanayoti & Co Ltd [1933] Ch 190.

Note also the Civil Liability (Contribution) Act 1978 s 2(1) which makes provision for the assessment of contribution inproceedings brought under the Civil Liability (Contribution) Act 1978 s 1, and which states that the amount to be recovered issuch as is found to be just and equitable, having regard to the extent of the contributor's responsibility for the damage inquestion. The Civil Liability (Contribution) Act 1978 s 7(3) further provides that nothing in that Act shall either affect any expresscontractual right to indemnity which would be enforceable apart from the Act or render enforceable any agreement for indemnitynot enforceable apart from the Act.

6 For example, a provision by which a company indemnifies a director of the company against liability that would otherwiseattach to him in respect of any negligence, default, breach of duty or breach of trust in relation to the company is, except inspecified circumstances, rendered void by the Companies Act 2006 s 232.

[289]-[310]

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J: PERFORMANCE BONDS

45 General

[311]

Some contracts for sale of goods or services require the seller or contractor to procure the provision of a

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performance bond in favour of the buyer or client1. The bond is usually provided by a bank and will oftenprovide for payment to be made upon mere demand. The obligations under the bond are not dependent onthe obligations in the principal contract, and so the bond is not a guarantee. The bank cannot refuse to paybased on any argument that the seller has, in fact, performed his obligations, or that there is some disputebetween the seller and the buyer. Bonds commonly provide that the buyer's demand shall be conclusiveevidence of both the obligation of the bank to pay and the amount to be paid.

The obligation to pay on demand is subject only to an exception for fraud. In such circumstances the sellercan obtain an injunction to prevent the bank from paying under the bond (as the bank will almost alwayshave a back to back indemnity from the seller, it will be in the seller's interest to stop payment). However,there must be clear evidence of fraud, and the fraud must be known to the bank, or so obvious that it is theonly inference that could be drawn by the bank2. It is not for the bank to investigate and verify mereallegations.

1 See 49 Halsbury's Laws (5th Edn) paras 1271 et seq.

2 See Banque Saudi Fransi v Lear Siegler Services Inc [2005] EWHC 2395 (Comm), [2006] 1 Lloyd's Rep 273, affd [2006]EWCA Civ 1130, [2007] 1 All ER (Comm) 67.

[312]-[330]

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K: FACTORING

46 General

[331]

The subject matter of factoring is not within the scope of this title, but guarantees and indemnities arefrequently given in connection with factoring agreements1. Essentially a factor purchases the trade debts of asupplier as they arise in the ordinary course of business in order to provide finance to the supplier, and torelieve him of the task of administering his sales ledger, as well as to give some measure of protectionagainst bad debts.

1 For examples of forms of guarantee and indemnity under factoring agreements see Forms 25 [671] and 26 [675] post.

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47 Types of factoring agreement

[332]

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The following are the most important types of distinguishing characteristics1. However, this list is notexhaustive:

47.1 Whether provision is made for recourse; if the factor assumes the risk that debts purchased byit may prove to be irrecoverable, the agreement is described as being 'non-recourse'. Where,on the other hand, the factor reserves the right of full recourse against the supplier, if the debtis unpaid for any reason, the factor can require the supplier to repurchase the debt.Intermediate agreements are possible, where the factor agrees to 'non-recourse' in the case ofcertain debts approved by it and within approved credit limits.

47.2 Whether payment is made by the factor to the supplier in advance of collection or upon eitheractual collection or the estimated date of collection; in advance factoring, the advance paymentis usually only of a certain percentage of the debt purchased by the factor, the remainder beingheld until actual collection of the debt by the factor.

47.3 Whether the debtor is notified of the assignment of the debt to the factor; the supplier is oftenrequired to notify the debtor of the assignment and require the debtor to make payment directto the factor. However, that is not always the case, and under 'block' or 'invoice' discountingagreements no such notification is given, and the supplier collects the debts as agent for thefactor.

47.4 Whether the factoring agreement provides for actual purchase by the factor of debts due orbecoming due to the supplier, or instead provides for the supplier to offer each debt to thefactor, who may accept or reject the offer, in which case no purchase occurs until the factoraccepts the offer.

1 See further vol 4(2) BUSINESSES (2007 Reissue) Paragraph 142 and for a form of factoring agreement see vol 4(1) (2008Reissue) BANKING Form 22.

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48 Common provisions of factoring agreements

[333]

Most factoring agreements provide for the vesting of the debts in the factor by means of the imposition of anobligation on the supplier to offer the debts, with a corresponding right in the factor to accept or reject anydebt. As the factor enjoys in effect an option to purchase each debt, such arrangements are often describedas 'facultative'.

As the factor is invariably concerned to ensure that any debt he purchases vests in him, many provisionsdesigned to secure that position are usually inserted in standard factoring agreements, (for example,warranties by the supplier as to the value and validity of the debt, as to the rights surrounding the debt, andas to subsequent incumbrances), as well as various undertakings given by the supplier not to vary or cancelany contract by virtue of which the debt arises.

In addition, there is often provision in a factoring agreement by which a supplier undertakes or declares thatany payment received by him from a debtor in respect of a debt otherwise vested in the factor will be held intrust for the factor1.

The undertakings and warranties given by the supplier are frequently supported by a guarantee given by a

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third party for the supplier's performance of them2.

1 See generally International Factors Ltd v Rodriguez [1979] QB 351, [1979] 1 All ER 17, CA.

2 For examples of a guarantee and/or indemnity see Forms 25 [671] and 26 [675] post.

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49 Breach of warranty

[334]

Should the factor suffer a breach of any of the appropriate warranties or undertakings at the hand of thesupplier, he may be unable to recover any of the debts supplied to him, or at most can recover only some ofthem, dependent upon the nature of the breach in question. In such cases, the factor seeks recourse againstthe supplier or relies upon any guarantee and/or indemnity given on behalf of the supplier1.

1 For examples of a guarantee and/or indemnity see Forms 25 [671] and 26 [675] post.

[335]-[400]

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/A: CHECKLIST/1 Checklist of points to consider when drafting a guarantee or an indemnity

(C) FORMS AND PRECEDENTS

A: CHECKLIST

1

Checklist of points to consider when drafting a guarantee or an indemnity

[401]

1 Guarantee or indemnity?1.1 It is important to ensure that the instrument is clearly drawn up as a guarantee or as an indemnity

as appropriate.The mere employment of those terms does not of itself constitute the contract one or the other1.

1.2 A contract of indemnity may need to contain provisions analogous to those found in guarantees,eg provisions under which the indemnifier's liability is maintained despite any variation of or

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release under the principal contract2.1.3 Consideration in both cases should be given to whether if the creditor acts to the prejudice of the

guarantor or indemnifier, the guarantor or indemnifier is to be discharged, or whether their liabilityis to be maintained3.

[402]

2 Capacity, written evidence, co-sureties and consideration2.1 A guarantee should cater for the possibility of the principal contract being or becoming void

through illegality or incapacity, but much depends upon the nature of the illegality. Very clearlanguage is required to maintain the liability of the guarantor in circumstances where the liability ofthe principal debtor is void by reason of a statute4.

2.2 All statutory formalities, not only those prescribed by the Statute of Frauds (1677)5, should becomplied with.Particular attention is drawn to the provisions of the Consumer Credit Act 1974 Section 1056.

2.3 If there are to be joint guarantors, the drafting should reflect the requirement that all must besignatories or the instrument will not be fully binding and effective7. Where the guarantors are tobe jointly and severally liable, it may be sensible to include a provision that those who sign arebound irrespective of whether other intended guarantors also sign, to prevent arguments overwhether the signing of some was conditional on others signing. Sometimes the principal debtormust sign in conjunction with the guarantor8.

2.4 Past consideration generally causes a guarantee to fail. Every effort should therefore be made toavoid that result, eg by reference to future advances, debts or goods, as well as to avoid anysuggestion that the transaction or the consideration is illusory9.

[403]

3 The type of guaranteeIt is necessary to ensure that the instrument clearly addresses itself to the following principalmatters:

3.1 whether the guarantee is to be continuing or non-continuing10;3.2 whether the guarantee is to be retrospective or not11;3.3 whether the guarantee is to be unlimited in amount or limited12;3.4 whether the guarantee is to be in respect of the whole debt or only part of the debt13;3.5 whether the guarantee is to have a limited duration (as is the case with many standard form bank

guarantees);3.6 whether the guarantee clearly addresses itself to the principal transaction or transactions

guaranteed, including any contingent liability, and to how liability or indebtedness is to beestablished, eg by use of a so-called 'conclusive evidence' clause14;

3.7 whether and how the guarantee requires the creditor to prove that the guarantor is liable15.

[404]

4 Avoidance, discharge and enforcement4.1 When advising a creditor, consideration should be given to providing for protection against the

possibility of the discharge of the guarantor by:

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4.1.1 a material variation of the principal contract16;4.1.2 the giving of time to the principal debtor17;4.1.3 the release of any co-guarantor18;4.1.4 the impairment to or release of any security held in support of the principal

obligation19;4.1.5 a release of the principal by operation of law20;4.1.6 a novation or assignment of the principal contract21.

4.2 Other matters that should be considered include:4.2.1 providing for the continuing liability of the guarantor in the event that the creditor

accepts the principal debtor's repudiatory breach of contract22;4.2.2 availability or non-availability to the guarantor of defences or cross-claims that would

be open to the principal debtor eg set-off or counterclaim;4.2.3 provision for the guarantee to remain in force if any security or payment received by

the creditor is set aside as a preference or transaction at an undervalue under theInsolvency Act 1986, notwithstanding that but for the preference or transaction beingset aside, the creditor would have been paid in full23;

4.2.4 appropriation of payments24;4.2.5 where relevant, the question of whether provision should be made for the currency in

which monies payable under the guarantee are to be paid, and where such monies areto be paid25;

4.2.6 where relevant, whether provision should be made concerning the effects oftaxation26;

4.2.7 providing for the continuance of the guarantee despite any changes in the constitutionof the parties27;

4.2.8 where relevant, whether express provision should be made relating to the governinglaw of the guarantee and to jurisdiction28;

4.2.9 where there is more than one guarantor, the nature of their obligations29.

[405]

4.3 A guarantee may need to provide for the right to revoke, in which case consideration should begiven as to how to deal with the liability of the principal accruing before and after the date ofexpiration and/or before and after notice of revocation30.

4.4 Provision should sometimes be made for bankruptcy or insolvency of any or all the parties, andthe following should be covered:4.4.1 the effect of payments received from the guarantor prior to the bankruptcy of the

principal debtor and the right of the creditor nonetheless to prove for the full amount ofthe debt;

4.4.2 the ability of the guarantor to prove in the principal's bankruptcy, eg whether this isexcluded until the creditor has been paid in full or whether the guarantor proves in thebankruptcy, but as trustee for the creditor31.

4.5 The requirements for making a demand must be clearly stated and sometimes specific provisionabout service should be considered32.If there is to be a condition precedent to the guarantor's liability, this should be specified with care,

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often with reference to the statement of consideration and recitals33.

[406]

5 Rights of the guarantorIf in a position to do so, a guarantor should at least consider requiring that the following matters, towhich he might or might not otherwise be entitled, be embodied in the instrument:

5.1 the right to quia timet relief by injunction application34;5.2 the right to contribution, particularly in cases in which a co-guarantor has effected the release of

the principal debtor35;5.3 an entire claim to be subrogated to the creditor's rights on payment36;5.4 a full indemnity against the principal debtor37;5.5 a requirement for notice of default by the principal debtor to be given to the guarantor as a

condition precedent to his liability, there being no right to such notice in the absence of a contraryterm in the agreement38.

[407]

1 As to distinctions between guarantees and indemnities see Paragraph 4 [11] ante.2 As towhich see Paragraph 34 [249] ante.3 As to which see Paragraphs 34 [249] to 36 [253] ante.4See Coutts & Co v Stock [2000] 2 All ER 56, [2000] 1 WLR 906. As to capacity see Paragraphs 6[32]-8 [35] ante. For an example of a clause preserving liability despite illegality or incapacity seeForm 11 clause 3.3 [500] and also Form 13 clause 6 [512] post.5 Ie the Statute of Frauds(1677) s 4 as amended. As to the formalities see Paragraph 10 [51] et seq ante.6 See vol12(1)A (2007 Reissue) CONSUMER CREDIT Paragraph 90 [351] et seq and Form 48 [898] etseq.7 See National Provincial Bank of England v Brackenbury (1906) 22 TLR 797; JamesGraham & Co (Timber) Ltd v Southgate Sands [1986] QB 80, [1985] 2 All ER 344, CA.Note alsothat any express or implied conditions precedent to a guarantor's liability must be fulfilled beforehe can be made liable. See eg Associated Japanese Bank (International) Ltd v Crédit du Nord SA[1988] 3 All ER 902, [1989] 1 WLR 255.8 Eg where the principal is also a cross-guarantor; see for example Form 15 [530].9 As to consideration see Paragraph 9 [39] ante.10 Eg a guarantee of all money that is nowor may from time to time hereafter be owing or remain unpaid, as opposed to eg the guarantee inMorrell v Cowan (1877) 7 Ch D 151, CA, which stated the consideration as the creditor 'having atmy request agreed to supply and furnish goods' to a person. As to continuing and non-continuingguarantees see Paragraph 19 [122] ante.11 But see Paragraph 9 [39] ante.12 As to limitedand unlimited guarantees see Paragraph 20 [124] ante.13 See Paragraph 20 [124]ante.[408]14 Such clauses are generally valid: see Paragraph 26 [191] ante. See also egBache & Co (London) Ltd v Banque Vernes et Commerciale de Paris [1973] 2 Lloyd's Rep 437,CA; but see also Re Kitchin, ex p Young (1881) 17 Ch D 668, CA. For such a clause see Form 11clause 3.4 [500] post.15 As to liability of the guarantor generally see Paragraph 26 [191] et seqante.16 As to variation see Paragraph 34 [249] ante.17 As to giving of time see Paragraph35 [251] ante and Form 2 clause 4 [442] post. For an example of a clause making provision for thegiving of time see Form 13 clause 4.2 [510] post.18 See Forms 8 clause 5 [493] and 34 clause9 [823] post.19 As to release of securities see Paragraph 36 [253] ante. See for example Form14 clause 10.3.2 [520] post.20 As to release see Paragraph 33.2 [245] ante.21 As tonovation see Paragraph 33.2 [245] ante.22 Wording in a guarantee such as 'if the debtor is indefault of any payment I will immediately make the payment in default on behalf of the debtor'does not necessarily render the guarantee ineffective on determination of the principal contract:see eg Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 2 All ER 29, [1980] 1 WLR 1129,HL, and generally Moschi v Lep Air Services Ltd [1973] AC 331, [1972] 2 All ER 393, HL.23See eg the Insolvency Act 1986 ss 238-241 as amended by the Enterprise Act 2002 s 248 Sch 17

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for the case of liquidators. Invariably, standard bank guarantees stipulate that a bank can retainthe guarantee for longer than the appropriate period during which a preference or transfer at anundervalue may be set aside.[409]24 See Form 7 clause 4 [455] post.25 See eg Form 15clauses 18 [540] and 19 [541] post.26 See Form 15 clause 18 [540] post.27 See eg Form 15clauses 14 [538] and 17 [539] post.28 See eg Form 14 clause 26 [527] post.29 See eg Form13 clause 10 [513] post.30 As to revocation of continuing guarantees see Paragraph 21 [126]ante. For an example of a clause providing for revocation see Form 11 clause 3.1 [500] post. Seealso Form 14 clause 4 [517] post.31 For a form of clause prohibiting the guarantor from provingin competition with the creditor see Form 13 clause 5 [510] post, and for a long form clausedealing with proof by the guarantor (including the possibility of being directed by the creditor toprove in the liquidation or bankruptcy of the principal debtor and to hold the dividends on trust forthe guarantor) see Form 14 clause 12 [521] post.32 As to demands see Paragraph 26 [191]ante. For a form of clause providing for methods of service etc see Form 14 clause 24 [526]post.33 As to conditions precedent see Paragraph 26 [191] ante.34 As to enforcement byinjunction see Paragraph 24 note 6 [166] ante.35 As to rights of guarantors inter se seeParagraph 25 [168] ante.36 As to subrogation see Paragraph 23 [161] ante.37 As to rightsagainst the principal see Paragraph 24 [164] ante.38 For an example see Form 8 clause 2 [492]post.[410]-[440]

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/B: GUARANTEES RELATING TO THE SUPPLY OF GOODS/2 Continuing guarantee, limited inamount, for the supply of goods to a trader

B: GUARANTEES RELATING TO THE SUPPLY OF GOODS

2

Continuing guarantee, limited in amount, for the supply of goods to a trader

[441]

To: (name of supplier)

of: (address of supplier)

GUARANTEE FOR SUPPLY OF GOODS

IN CONSIDERATION of your having at my request agreed to supply (name of principal debtor) ('thePrincipal') of (address of principal debtor) with goods for his trade and business as a (details of trade orbusiness) ('Trade Goods') now carried on by him at (address where trade or business carried on)

NOW I (name of guarantor) of (address of guarantor) AGREE WITH YOU as follows:

1 I will GUARANTEE and be answerable and responsible to you for the due payment by thePrincipal for all Trade Goods that you may from time to time at his request supply [and deliver] tohim:1.1 notwithstanding that I may not have notice of any neglect or omission on his part to

pay for any Trade Goods supplied by you according to the terms agreed on betweenyou and him, but

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1.2 so that my liability under this Guarantee is not to exceed in aggregate the sum of £ ...

[442]

2 This Agreement is to be a continuing guarantee1 to you (within the above limits) for the wholedebt that is contracted with you by the Principal in respect of Trade Goods to be supplied [anddelivered] to him and, for the avoidance of doubt, is to be treated as security for the whole debt2

and not for so much of it as equals the limit of my liability as stated in clause 1.2 above.3 All dividends compositions and payments received by you from the Principal or from his estate,

whether in bankruptcy or otherwise, are to be taken and applied by you as payments without youmaking any deduction in respect of any claim arising under this Guarantee3; and my right to besubrogated4 to you in respect of such dividends or payments shall not arise until you havereceived the full amount of all your claims against the Principal5.

4 You may at any time or times at your absolute discretion, and without giving any notice whateverto me, refuse further credit or supplies to the Principal and grant to him, or to any drawers,acceptors or endorsers of bills of exchange, promissory notes or other securities received by youfrom him or on which he may be liable to you, any time or other indulgence and compound withhim or them respectively without discharging or impairing my liability under this Guarantee6.

[443]

5 This Guarantee may be enforced against me notwithstanding that any negotiable or othersecurities referred to in this document, or to which this Guarantee extends or is applicable, are atthe time of proceedings being taken against me on this Guarantee outstanding or in circulation.

[6 (where the supplier is a partnership) No changes in the constitution of your firm shall impair ordischarge my liability under this Guarantee notwithstanding Section 18 of the Partnership Act1890]7

[7 In order to give effect to this Guarantee I declare that you shall be at liberty to act as though Iwere a principal debtor and I now waive all and any of my rights as guarantor that may at any timebe inconsistent with any of the above provisions. In particular, and without prejudice to thegenerality of the foregoing, no variation of your contract or contracts with the Principal fallingwithin clause 1 above, or of the mode of performance thereof, shall discharge me from liabilityunder this Guarantee even though I may not have consented to such variation.]

8 This Guarantee shall be revocable8 at any time as to future transactions by (state period, eg 3months') notice in writing given to you or your duly authorised agent by me or, in case of mydeath, by my personal representatives, but shall not affect my liability (or my estate's liability) fortransactions entered into before notice of revocation was received.

Dated:

(signature of guarantor)

[444]

1 As to continuing guarantees see Paragraph 19 [122] ante.

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2 Where a guarantor gives a continuing guarantee limited in amount in respect of a debt not already ascertained, eg tosecure payment for goods to be supplied or advances to be made, the intention to make the guarantee operate as a security forthe whole debt should be clearly expressed: see Ellis v Emmanuel (1876) 1 Ex D 157, CA, applied in Forster Dry Cleaning CoLtd v Davidson (1963) 187 Estates Gazette 519. The question is important in relation to proof in bankruptcy.

3 Such dividends etc are sometimes described as payments 'in gross', although the term is drawn from a somewhat differentcontext, relating to money payable by a mortgagor of land (formerly said to be payable in gross), as distinct from rents drawnfrom the land.

4 As to rights of subrogation see Paragraph 23 [161] ante.

5 There seems little point in adding a provision to the effect that a guarantee is to represent a security for the payment of any'ultimate balance', as that phrase serves not only to confuse the rights the creditor already clearly possesses in this form ofguarantee, but also produces the risk of an argument by the guarantor that he is not answerable to the creditor at all unless anduntil all other realisations have been got in for and on behalf of the creditor.

6 As to the effect of the giving of time or other indulgence to the principal in the absence of a clause of this type seeParagraph 35 [251] ante.

7 As to the effect of changes in the constitution of a partnership see Paragraph 37 [255] ante.

8 As to the need for an express power of revocation see Paragraph 21 [126] ante.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/B: GUARANTEES RELATING TO THE SUPPLY OF GOODS/3 Continuing guarantee for thesupply of goods to a trader--short form

3

Continuing guarantee for the supply of goods to a trader--short form

[445]

To: (name of supplier)

of: (address of supplier)

GUARANTEE FOR SUPPLY OF GOODS

IN CONSIDERATION of your having agreed at my request to supply (name of trader) ('the Trader') of(address of trader) with goods for his business ('Trade Goods')

NOW I (name of guarantor) of (address of guarantor) AGREE that:

1 I shall be responsible to you for the price of all Trade Goods that you may supply to the Trader[up to a limit of £ ... being outstanding from the Trader to you at any given time]1

2 Subject to the limit in 1 above my liability to you shall be in respect of the whole debt2 but themaximum aggregate recoverable from me under this Guarantee shall be the sum of £ ...3

3 This Guarantee is a continuing4 guarantee and security and my liability under it shall not beaffected by your giving time or any other indulgence to the Trader

I RESERVE the right for myself or my personal representatives by notice to revoke5 this Guarantee at any

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time as to all future dealing by the Trader with you after the date of such notice

Dated:

(signature of guarantor)

[446]

1 The optional wording in the square brackets should be used if the guarantor wishes to prevent unlimited indebtedness as aresult of which the trader's capacity to pay the guaranteed debt might diminish.

2 As to the need to make clear that the guarantee covers the whole debt see Form 2 note 2 [444] ante.

3 This sum (the limit on the guarantor's liability) need not be the same figure as in clause 1 (which is by contrast the limit onthe outstanding indebtedness at any time of the debtor to the creditor).

4 As to continuing guarantees see Paragraph 19 [122], and as to agreements to give time see Paragraph 35 [251] ante.

5 As to the need for an express power of revocation see Paragraph 21 [126] ante.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/B: GUARANTEES RELATING TO THE SUPPLY OF GOODS/4 Continuing guarantee for thesupply of goods to a trader--co-guarantors with unequal liabilities

4

Continuing guarantee for the supply of goods to a trader--co-guarantors with unequal liabilities

[447]

To: (name of supplier)

of: (address of supplier)

GUARANTEE FOR SUPPLY OF GOODS

IN CONSIDERATION of your having at our request agreed to supply (name of principal debtor) ('thePrincipal') of (address of principal debtor) with goods ('Trade Goods') for his trade carried on at (addresswhere trade carried on)

NOW WE, the undersigned, AGREE WITH YOU as follows:

1 We GUARANTEE to you the payment by the Principal for all Trade Goods supplied by you to himas mentioned above, but subject to the limit on our aggregate and individual liability set out inclauses 3 and 4 below.

2 This Guarantee shall be a continuing guarantee1.

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3 Our aggregate liability under this Guarantee shall not exceed the sum of £ ... (insert total of theindividual liabilities).

4 The proportion and share of liability of each of us individually in respect of the sum stated inclause 3 above shall not exceed in amount the sum placed opposite our respective signatures atthe foot of this document; PROVIDED that if one or more of us during the continuance of thisGuarantee becomes bankrupt or the subject of a voluntary arrangement or is unable to pay hisdebts within the meaning of the Insolvency Act 1986 or is otherwise unable to discharge andsatisfy his individual liability under this Guarantee, any deficiency caused by that event shall bemade good by the remainder of us in proportion to our individual liability under this Guarantee2.

5 Should the common liability be less than the sum stated in clause 3 above, the share due fromeach of us in respect of it shall be paid in proportion to his individual liability under this Guaranteeand not otherwise.

[448]

6 Within the limits of liability set out in clauses 2 to 5 above, this Guarantee shall extend to and beapplicable to the whole debt3 due to you from the Principal in respect of goods supplied by you tohim as mentioned above and not merely to so much of the debt as equals the limit of our liability.

7 You may without discharging us or any of us from liability under this Guarantee:7.1 grant time or other indulgence4 to the Principal in respect of goods supplied by you asmentioned above;7.2 agree with the Principal (but without need for our consent) any variation to the terms of youragreement with the Principal;7.3 accept payment from him in cash or by means of negotiable instruments; and7.4 treat him in all respects as though we were jointly liable with him as debtors to you insteadof being merely guarantors of the Principal.

8 This Guarantee shall at our option be revocable5 at any time as to future transactions by (stateperiod, eg 3 months') notice in writing given to you or your agent by us jointly and, in case of ourdeath or the death of any one or more of us, by our respective personal representatives or thesurvivors or survivor of us and the personal representatives of such as may be deceased.

[449]

Dated:Names and signatures of guarantors Amount guaranteed(name of first guarantor) (insert amount)Signed(name of second guarantor) (insert amount)Signed(continue as necessary for all guarantors)6

[450]

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1 As to continuing guarantees see Paragraph 19 [122] ante.

2 Amongst the guarantors themselves, the contribution of each depends on the amount of his individual liability: Pendleburyv Walker (1841) 4 Y & C Ex 424 at 441. However, in the case of the insolvency of any one of their number, liability isproportionately increased: Lowe v Dixon (1885) 16 QBD 455 at 458.

3 Where a guarantor gives a continuing guarantee limited in amount in respect of a debt not already ascertained, eg tosecure payment for goods to be supplied or advances to be made, the intention to make the guarantee operate as a security forthe whole debt should be clearly expressed: see Ellis v Emmanuel (1876) 1 Ex D 157, CA, applied in Forster Dry Cleaning CoLtd v Davidson (1963) 187 Estates Gazette 519. The question is important in relation to proof in bankruptcy.

4 As to the effect of the giving of time or other indulgence to the principal in the absence of a clause of this type seeParagraph 35 [251] ante.

5 As to the need for an express power of revocation see Paragraph 21 [126] ante.

6 If the guarantors are to be joint obligors, all the guarantors must sign, because if not, none of them is bound: NationalProvincial Bank of England v Brackenbury (1906) 22 TLR 797; James Graham & Co (Timber) Ltd v Southgate Sands [1986] QB80, [1985] 2 All ER 344, CA. In any event, all should sign as otherwise there may be arguments as to whether liability was to beconditional on all signing. If there is a risk that one or more contemplated guarantors may not sign, consideration should begiven to adding a clause that states that all those who sign are bound, notwithstanding that one or more of the contemplatedguarantors does not sign.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/B: GUARANTEES RELATING TO THE SUPPLY OF GOODS/5 Continuing guarantee in respectof the supply of goods to a non-trader

5

Continuing guarantee in respect of the supply of goods to a non-trader

[451]

To: (name of supplier)

of: (address of supplier)

GUARANTEE FOR SUPPLY OF GOODS

IN CONSIDERATION of your agreeing to supply (name of principal debtor) ('the Principal') of (address ofprincipal debtor) with goods on credit ('Credit Goods')

NOW I (name of guarantor) of (address of guarantor) AGREE WITH YOU as follows:

1 I shall be answerable and responsible to you for the due payment by the Principal for all CreditGoods that you may from time to time supply to him but my liability under this Guarantee shall notat any one time exceed the sum of £ ....1

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2 This Agreement shall be a continuing2 guarantee to you for all debts whatever and whenevercontracted by the Principal with you in respect of Credit Goods to be supplied to him subjectalways to the above limitation.

3 You may, without notice to me at any time and without in any way discharging me from myliability under this Guarantee:3.1 grant time or other indulgence3 to the Principal;3.2 accept payment from him in cash or by means of negotiable instruments; and3.3 treat me in all respects as though I were jointly and severally liable with him to you

instead of being merely guarantor for him.

Dated:

(signature of guarantor)

[452]

1 As to limited guarantees see Paragraph 20 [124] ante.

2 As to continuing and non-continuing guarantees see Paragraph 19 [122] ante.

3 As to the effect of the giving of time or other indulgence to the principal in the absence of a clause of this type seeParagraph 35 [251] ante.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/B: GUARANTEES RELATING TO THE SUPPLY OF GOODS/6 Guarantee in respect of goodssupplied to third person, limited to one transaction

6

Guarantee in respect of goods supplied to third person, limited to one transaction

[453]

To: (name of supplier)

of: (address of supplier)

GUARANTEE FOR SUPPLY OF GOODS

NOW I (name of guarantor) of (address of guarantor) AGREE as follows:

1 I shall be answerable to you for the price of (amount and description of goods to be supplied) tobe delivered to (name of principal debtor) of (address of principal debtor) ('the Principal') on (date)

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payable in one month from the date of delivery.2 This Guarantee is not a continuing guarantee1 (being instead limited to the single transaction

referred to above) but my liability shall not be terminated or affected by my death [or by anychange in the constitution of your firm2] or by your giving time or other indulgence to thePrincipal3.

Dated:

(signature of guarantor)

[454]

1 As to continuing and non-continuing guarantees see Paragraph 19 [122] ante.

2 The words in square brackets should be used if the supplier is a partnership.

3 As to the effect of changes in the parties see Paragraph 37 [255] ante, as to the effect of the giving of time or otherindulgence to the principal in the absence of a clause of this type see Paragraph 35 [251] ante.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/B: GUARANTEES RELATING TO THE SUPPLY OF GOODS/7 Guarantee in respect of goods,limited to one transaction, with appropriation of payments

7

Guarantee in respect of goods, limited to one transaction, with appropriation of payments

[455]

To: (name of supplier)

of: (address of supplier)

GUARANTEE FOR SUPPLY OF GOODS

IN CONSIDERATION of your agreeing to supply (name of principal debtor) ('the Principal') of (address ofprincipal debtor) with goods for his trade and business as a (details of trade or business) up to but notexceeding the sum of £ ...

NOW I (name of guarantor) of (address of guarantor) AGREE that:

1 I guarantee to you the payment of the said sum of £ ...2 This Guarantee is not a continuing guarantee or security1

3 This Guarantee shall not extend or apply to any goods that shall be supplied by you, whether at

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one time or otherwise, to the Principal in excess of the sum of £ ...2

4 All payments made by the Principal to you after the date of this Guarantee on account of goodssupplied to him by you must be appropriated3 by you in reduction of any liability under thisGuarantee until the said sum of £ ... has been wholly paid or satisfied by the Principal and myliability under this Guarantee has been by that or in some other way discharged.

Dated:

(signature of guarantor)

[456]

1 As to continuing and non-continuing securities see Paragraph 19 [122] ante.

2 As to limited guarantees see Paragraph 20 [124] ante.

3 Appropriation to the guaranteed debt of payments made by the debtor cannot be insisted upon by the guarantor in theabsence of express stipulation to that effect: see Re Sherry, London and County Banking Co v Terry (1884) 25 Ch D 692 at704, 705, CA.

[457]-[490]

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/C: GUARANTEES RELATING TO MONEY/8 Guarantee regarding money lent or advanced--foruse by an individual or for joint and several liability

C: GUARANTEES RELATING TO MONEY

8

Guarantee regarding money lent or advanced--for use by an individual or for joint and several liability

[491]

To: (name of lender)

of: (address of lender)

GUARANTEE FOR REPAYMENT OF MONEY LENT

[(guarantee for limited indebtedness)

IN CONSIDERATION of your having at [my (or) our] request agreed to advance to (name of principal debtor)('the Principal') of (address) sums of money, not exceeding at any time [in the aggregate] the sum of £ ...,

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that he may require during the period of (number) years from (date).

NOW [I (name of guarantor) of (address) (or) WE (names) of (addresses)] AGREE WITH YOU as follows:

1 [I (or) We] guarantee to you the repayment by the Principal of all sums of money advanced by youto him as set out above with interest at the rate of ......% a year.]

[(guarantee for unlimited indebtedness)

IN CONSIDERATION of your agreeing to provide facilities and other accommodation to (name of principaldebtor) ('the Principal') of (address)

NOW [I (name of guarantor) of (address) (or) WE (names) of (addresses)] AGREE WITH YOU as follows:

[492]

1 [I (or) We] as principal obligor[s], unconditionally and irrevocably guarantee to you the duepayment and discharge by the Principal of all his present and future indebtedness and otherliabilities to you, whether actual or contingent (or whether incurred solely or jointly) as well aspayment of all interest, commission, charges and expenses payable by him to you.](in both cases)

2 Notice in writing of any default on the part of the Principal is to be given by you1 to [me (or) us]and within ...... days from receipt of such notice, payment shall be made by [me (or) us] of allsums then due from [me (or) us] under this Guarantee [PROVIDED that any certificate by yourauthorised representative or officer of the amount payable shall be conclusive unless manifestlyincorrect].

3 This Guarantee shall be a continuing guarantee [within the limits set out above as to time andamount].

[493]

[(where joint and several liability required)]

4 Subject to clause 7 below our liability under this guarantee is joint and several.]2

5 [I (or) We] shall not be discharged by time or any other indulgence or concession given to thePrincipal or any third party by you, or by anything you may do or omit to do or by any otherdealing, act or omission that but for this provision would discharge [me (or) us] as guarantor[s].

[(where liability is to be limited)3

6 This Guarantee is a guarantee of the aggregate sums owing by the Principal to you [but our total[joint and several] liability under this Guarantee shall under no circumstances exceed the sum of £...].]

7 [I (or) Any one of us] shall be at liberty at any time to withdraw from all liability under thisGuarantee on payment to you of the sum of £ ... or of so much of it as shall not already have beensatisfied by payment or otherwise and in the event of [my death (or) the death of any one of us][my (or) the deceased guarantor's] personal representatives shall be at liberty to exercise the like

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power of withdrawal and shall by doing so relieve [my (or) the deceased guarantor's] estate offuture liability under this Guarantee4.

Dated:

(signature(s) of guarantor or guarantors)

[494]

1 Without such a clause, the guarantor is not entitled to notice of the principal debtor's default or conduct. See Eshelby vFederated European Bank Ltd [1932] 1 KB 423, CA.

2 Normally, the death of one guarantor does not determine the liability of the survivor where such liability is joint and several.

3 As to limited guarantees see Paragraph 20 [124] ante.

4 As the person to whom the guarantee is given may recover the total amount due under the guarantee from any one of theguarantors jointly and severally liable, this clause will generally be of some benefit to a guarantor. It will not, however, relievehim or his estate of liability to contribution in the event of the remaining guarantors having ultimately to pay more than theirshare of the common liability owing to the insolvency of one or more of them. As to rights of guarantors between themselvessee Paragraph 25 [168] ante. On the other hand, where there is only one guarantor, a provision enabling him to withdraw fromthe guarantee at any time on payment of a sum of money would certainly be of advantage to the guarantor, particularly in caseswhere the guarantee is otherwise irrevocable.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/C: GUARANTEES RELATING TO MONEY/9 Guarantee regarding money lent or advanced withcharge as security for advance to third person

9

Guarantee regarding money lent or advanced with charge as security for advance to third person1

[495]

To: (name of lender)

of: (address of lender)

GUARANTEE FOR MONEY LENT OR ADVANCED

IN CONSIDERATION of your advancing to (name of principal debtor) ('the Principal') of (address) at myrequest the sum of £ ...... as a loan for the period of (number) years from the date of this Guarantee

NOW I (name of guarantor) of (address) AGREE WITH YOU as follows:

1 I will on demand make good and guarantee any default on the part of the Principal or his estate inthe payment of the loan and of all interest due on it.

2 I will deposit immediately in your hands the [security (or) securities] referred to in the Schedule to

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this Guarantee ('the [Security (or) Securities]') as collateral security for the loan until therepayment or satisfaction of it with interest at the rate of ......% a year.

3 The [Security (or) Securities] are charged by me with the payment of the loan and interest andshall not be sold or further charged or otherwise disposed of by me in any way without yourconsent in writing first obtained so long as anything shall remain due to you in respect of the loanor from me under this Guarantee.

[496]

4 I will whenever required by you to do so execute at my own expense [a proper transfer (or)proper transfers] to you of [so much (or) so many] of the [Security (or) Securities] as [is (or) are]capable of being transferred together with the power of sale and all other necessary powers forsecuring and enforcing the repayment of the loan and interest (save that no such sale or otherenforcement shall be exercised unless I have failed to discharge in full the loan and interest within(number) days following demand being made under clause 1 above).

5 Giving of time to the Principal or neglect or forbearance by you in requiring or enforcing paymentof the loan and interest or other indulgence shall not in any way prejudice or affect my liabilityunder this Guarantee2.

Dated:

SCHEDULE

The [Security (or) Securities]

(describe the deposited security or securities)

(signature of guarantor)

[497]

1 The terms of this guarantee represent an outline of the basic terms required. Where more detailed provisions are required,the provisions of the bank guarantees set out in Forms 11 [499]-14 [516] post can be adopted and modified as appropriate.

2 As to the effect of the giving of time or other indulgence to the principal in the absence of a clause of this type seeParagraph 35 [251] ante.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/C: GUARANTEES RELATING TO MONEY/10 Guarantee of debt in consideration ofdiscontinuance of proceedings or promise not to sue

10

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Guarantee of debt in consideration of discontinuance of proceedings or promise not to sue

[498]

To: (name of creditor)

of: (address of creditor)

GUARANTEE OF DEBT

IN CONSIDERATION of your having at my request agreed to [forego (or) discontinue (or) your undertakingnot to sue or take] any legal proceedings that you are or may be entitled to maintain against (name ofprincipal debtor) ('the Principal') of (address) in respect of the sum of £... ('the Debt') that he owes you

NOW I (name of guarantor) of (address) AGREE WITH YOU as follows:

1 I guarantee the payment to you of:1.1 the Debt or such part of the Debt as the Principal shall not have repaid to you within(number) months from the date of this Guarantee, and1.2 £ ... in respect of interest, and1.3 all reasonable costs charges expenses up to but not exceeding £ ... that have already beenincurred by you for the purpose of recovering the Debtby equal monthly instalments commencing on (date of first instalment)

2 Any and all payments made to you by the Principal are to be applied in the first place in ortowards payment or reduction of, first the sums mentioned in clause 1.3 above, then accruedinterest, and then the Debt.

Dated:

(signature of guarantor)

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/C: GUARANTEES RELATING TO MONEY/11 Guarantee and indemnity with security--long form(corporate guarantor)

11

Guarantee and indemnity with security--long form (corporate guarantor)

[499]

THIS GUARANTEE AND INDEMNITY is made the ...... day of ...... ......

BETWEEN:

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(1) (name of guarantor) Company Registration Number (number) the registered office of which is at(address) [together with (name etc of any other guarantor)] ('the Guarantor[s]') and

(2) (name of bank) the registered office of which is at (address) ('the Bank')

NOW IT IS AGREED as follows:

1 InterpretationIn this Guarantee the following words and expressions have the following meanings:

1.1 'this Guarantee' means this guarantee and indemnity as amended or supplemented from time totime;

1.2 'the Debenture' means the debenture in the form annexed to this Guarantee to be granted by theGuarantor[s] in favour of the Bank;

1.3 'the Indebtedness' means all the Principal's present or future indebtedness to the Bank on anyaccount, whether current or otherwise, and all the Principal's other liabilities to the Bankwhatsoever and wheresoever including without limitation any and all liability arising under bills ofexchange, promissory notes, guarantees and indemnities, actual or contingent, whether or notmatured or accrued due and whether incurred solely, severally or jointly with any other person inwhatever currency, together with interest, commission, bank charges and any other costs,charges and expenses (on a full indemnity basis) charged or incurred by the Bank in enforcingthis Guarantee and any other security held by the Bank from time to time;

1.4 'the Principal' means (name of principal debtor).

[500]

2 GuaranteeIn consideration of the Bank making available or continuing to make available banking facilities forso long as it thinks fit to the Principal the Guarantor[s] hereby [jointly and severally] guarantee[s]to pay to the Bank on demand all money and discharge the Indebtedness as primary obligor andnot only as guarantor; and also agree[s] to indemnify the Bank on demand from and against anyloss it may incur as a result of or in connection with its having now or hereafter advanced anymoney to the Principal [PROVIDED that the total principal amounts recoverable hereunder shallnot exceed £ ...] together with interest thereon and all other sums due under this Guarantee.

3 Continuing security1

3.1 This Guarantee is a continuing security and shall secure the ultimate balance owing from time totime to the Bank by the Principal notwithstanding the liquidation, administration or otherinsolvency or other incapacity of or any change in the constitution of the Principal or of theGuarantor[s] or any of them or in the name or style thereof or any settlement of account or anymatter whatsoever until 3 months after receipt by the Bank of notice2 in writing to determine thesame signed by [all (or) any one or more of] the Guarantor[s] PROVIDED that such notice shallnot affect the liability of any of the Guarantor[s] for money, obligations or liabilities, present orfuture, actual or contingent, due, owing or incurred prior to the expiration of such 3-month period[and PROVIDED further that notwithstanding the determination as to one or more of theGuarantor[s] this Guarantee shall remain as a continuing security as to the others].

3.2 This Guarantee is in addition to and shall not merge with or otherwise prejudice or affect any

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contractual right or remedy or any guarantee, indemnity, lien, pledge, bill, note, mortgage, chargeor other security now or hereafter held by the Bank.

3.3 This Guarantee shall not be discharged or affected by any failure of or defect or informality in anysecurity given by or on behalf of the Principal in respect of the Indebtedness or by any legallimitation, disability, incapacity3 or lack of any borrowing powers of the Principal or lack ofauthority of any director or other person appearing to be acting for the Principal in any matter inrespect of the Indebtedness or any part of it.

3.4 A certificate signed on behalf of the Bank of the amount for the time being of the Indebtednessand/or the amounts due to the Bank shall be conclusive evidence for all purposes against theGuarantor[s] unless manifestly incorrect.

[501]

4 SecurityAs security for [its (or) their] obligations under this Guarantee, the Guarantor[s] undertake[s]:

4.1 to execute the Debenture and deliver it to the Bank and4.2 to maintain the Debenture in full force and effect until all the [Guarantor's (or) Guarantors'] actual

or contingent liability to the Bank under this Guarantee has been paid or discharged in full4.5 The Principal

Prior to enforcement of this Guarantee the Bank shall not be under any obligation to take anysteps to recover the Indebtedness or any part of it from the Principal5.

6 Protective clausesThe liability of the Guarantor[s] [or any of them] shall not be affected nor shall this Guarantee bedischarged or diminished by reason of:

6.1 any renewal, variation, determination or increase relating to any accommodation or credit given tothe Principal on the part of the Bank6;

6.2 any renewal, modification, release, or abstaining from the perfection or enforcement of anysecurity or guarantee on the part of the Bank with regard to any security or guarantee now orhereafter held from the Principal or any other person, including any signatory to this Guarantee, inrespect of the Indebtedness7;

6.3 the granting of time8 or of any indulgence to or the compounding with the Principal or any otherperson or guarantor on the part of the Bank; and/or

6.4 the doing or the omitting to do anything on the part of the Bank that but for this provision mightoperate to exonerate or discharge the Guarantor[s] [or any of them] from any of [its (or) their]obligations under this Guarantee;and this Guarantee shall not be discharged or affected by anything that would not havedischarged or affected [the (or) any] Guarantor's liability if [the (or) that] Guarantor had been aprincipal debtor to the Bank instead of a guarantor.

[502]

7 Powers of the Bank7.1 Any money received in connection with this Guarantee may be placed to the credit of a suspense

account for as long as the Bank thinks fit, without any obligation to apply any part towards

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reducing the Indebtedness.7.2 If this Guarantee is determined or called in by the Bank, the Bank may in its discretion open a

new account or accounts with the Principal or any other person for whose liabilities this Guaranteeis available PROVIDED that if the Bank does not open a new account it shall be deemed to havedone so at the time of the determination or calling in.

8 Set-offThe Guarantor[s] [jointly and severally] agree[s] that the Bank may at any time without noticeafter as well as before any demand and notwithstanding any settlement of account or other mattercombine or consolidate all or any then existing accounts including accounts in the name of theBank (of whatever type or description) of [any one or more of] the Guarantor[s] alone or jointlywith others wherever situated and set-off or transfer any sum standing to the credit of one or anymore such accounts in or towards satisfaction of the Indebtedness.

9 Warranties9

9.1 The Guarantor[s] warrant[s] that [it (or) they] [does (or) do] not hold and will not without theBank's written consent take or hold any security from the Principal in relation to this Guarantee.Any security so taken will be held on trust for the Bank and the Guarantor[s] undertake[s] todeposit assign or otherwise transfer such security with or to the Bank as soon as possible, therebeing no obligation on the Bank to make any demand with regard thereto.9.2 The Guarantor[s] [and each of them] warrant[s] that [its (or) their] entry into this Guaranteedoes not contravene any law or statute, and [the Guarantor (or) each Guarantor] warrants that ithas power to enter this Agreement [and has obtained all necessary approvals to do so].

[9.3 [The Guarantor (or) Each Guarantor] warrants that since the date of its last filed accounts (a copyof which has been provided to the Bank) there has not been any material change (nor is any suchchange expected) in the position or prospects of the Guarantor (in particular but without prejudiceto the generality of the foregoing the position regarding its assets and liabilities) as compared withthe position in those accounts.]

[503]

10 Guarantor10.1 Until all amounts due or to become due from the Guarantor[s] have been paid and discharged in

full, the Guarantor[s] shall not:10.1.1 be entitled to share in any security held or money received or receivable by the Bank

on account of that balance or to stand in the place of the Bank with regard to anysecurity or money;

10.1.2 take any steps to enforce any right or claim against the Principal in respect of anymoney paid by the Guarantor[s] to the Bank under this Guarantee; or

10.1.3 exercise any rights as guarantor[s] in competition with or in priority to any claims of theBank.

10.2 In the event of the Bank applying any payment made by the Guarantor[s] [or any of them] to thecredit of a suspense account as provided for by clause 7.1 above, notwithstanding any payment inany bankruptcy, liquidation, composition or arrangement of whatever sort affecting the Principal,the Bank may prove for and agree to accept any dividend or composition in respect of the wholeor any part of the Indebtedness as if this Guarantee had not been given.

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11 Joint and several obligations11.1 Where this Guarantee is executed by or on behalf of two or more parties the Guarantors'

obligation shall take effect as joint and several obligations.11.2 This Guarantee shall not be revoked or impaired as to any of such parties by the death,

incapacity or insolvency of any of the others.11.3 The Bank may release or discharge any one or more co-guarantors without releasing or

discharging the other(s) or otherwise prejudicing or affecting the Bank's rights and remediesagainst the Principal10.

[504]

12 Notices12.1 Any notice or demand for payment by the Bank under this Guarantee shall be in writing

addressed to the relevant party.12.2 Without prejudice to any other effective mode of service, a notice or demand shall be deemed to

have been properly served on [the (or) any] Guarantor if served on any one of the directors or onthe secretary of [the (or) such] Guarantor or delivered or sent by first class letter post to [the (or)such] Guarantor at its registered office or any of its principal places of business.

13 Miscellaneous13.1 This Guarantee shall be binding on the Guarantor[s] and [its (or) their] successors and permitted

assigns and shall enure to the benefit of and be enforceable by the Bank and its successors andassigns but so that the Guarantor[s] may not assign or transfer any of [its (or) their] rights orobligations under this Guarantee.

13.2 This Guarantee shall be governed by and construed in accordance with English law and shall besubject to the exclusive jurisdiction of the English courts.AS WITNESS etc

(signatures of appointed persons on behalf of the parties)

(annex the form to be used for the debenture)

[505]

1 As to continuing guarantees see Paragraph 19 [122] ante.

2 As to revocation of continuing guarantees see Paragraph 21 [126] ante. Consideration should be given to whetherindividual guarantors can revoke or whether revocation is only to be possible by all the guarantors jointly.

3 As to capacity see Paragraphs 6 [32]-8 [35] ante.

4 Protection against the possible adverse effect of the Insolvency Act 1986 ss 238, 239 can be provided by a clause statingthat if any right or security held by or disposition or payment made to a creditor by a guarantor is void or ordered to be refundedthe creditor can nevertheless enforce the guarantee as if such release, discharge or settlement had not occurred and any suchsecurity, disposition or payment had not been made. See Form 13 clause 3 [509] post for an example.

5 As to rights of a guarantor against the creditor see Paragraph 23 [161] ante.

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6 As to the possibility of discharge of the guarantor by variation of the principal agreement see Paragraph 34 [249] ante.

7 As to release or loss of securities see Paragraph 36 [253] ante.

8 As to giving of time see Paragraph 35 [251] ante.

9 A list of warranties can be lengthy. Refer to other titles for further warranty clauses.

10 Without such a provision, there is a risk that release of one guarantor would discharge the others. See Paragraph 37[255] ante.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/C: GUARANTEES RELATING TO MONEY/12 Short guarantee to a bank covering a specifictransaction

12

Short guarantee to a bank covering a specific transaction1

[506]

To: (name of bank)

of: (address of bank)

SHORT GUARANTEE: SPECIFIC TRANSACTION

IN CONSIDERATION of your entering into (details of the agreement under which the principal debtor'sobligations arise) ('the Agreement') with (name of principal debtor) ('the Principal') of (address)

NOW [I (or) WE] (name(s) of guarantor(s)) of (address(es)) AGREE WITH YOU as follows:

1 [I (or) We] unconditionally guarantee the due payment of all money payable under the Agreementand agree that [I (or) we] will pay to you immediately on demand any money so payable.

2 [I (or) We] agree that this Guarantee shall not be affected by any time or other indulgence youmay see fit to grant to the Principal, and it shall also not be affected by you agreeing with thePrincipal (but without needing our consent) any variation to the Agreement. If and insofar as theAgreement is found to be void or voidable, all sums that would (had it been valid) have beenpayable under the Agreement shall be recoverable from [me (or) us] on the basis of indemnity.

3 The paper on which this Guarantee is written shall remain at all times the property of the Bank2.

Dated:

(signature(s) or seals of guarantor(s))

[I (or) WE] ACKNOWLEDGE receipt of a copy of the above guarantee3.

(signature(s) of guarantor(s))

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[507]

1 This Form and Forms 13 [508] (extended guarantee) and 14 [516] (long guarantee) post perform the same basic function.While there are certain differences in their drafting, based principally on the primary obligations to which they relate, the relativelength of the documents reflects a function common to most commercial legal documents, ie the limitation of risk.

Provisions in guarantees are generally designed to protect the bank against some risk that might result in its being unable torecover under the guarantee. Decisions of the courts have led to the creation of a considerable number of situations in which aguarantor is not, in the absence of contrary provision, held liable under his guarantee: see Paragraphs 29 [211] and following,ante. The style of document to adopt must, therefore, reflect the user's decision as to the amount of risk that is acceptable;reduction of risk in a long document must be balanced against the simplicity and greater intelligibility (especially to a lay person)of a shorter document.

Most of the risks stem from the nature of a guarantee as a secondary obligation. There are many occasions when the desiredresult can be better achieved by relying on primary obligations. This Form clearly gives to the bank the basic protection it wants,but with the minimum degree of protection against ancillary risks; careful consideration must be given to the particularcircumstances before deciding that longer forms of wording are not necessary.

Guarantee documents are commonly much lengthier than straightforward contracts of indemnity, owing to the need toincorporate language ensuring that the guarantor remains liable under his guarantee. Before using this Form, thought shouldtherefore be given to the possible use of an indemnity (see Forms 47 [888], 48 [898] post) or a stand-by letter of credit which,although relatively short, would avoid the risks to the bank involved in taking a short guarantee that does not exclude certainpossible defences available to the guarantor.

2 This provision is included because, even after the guarantor's liability under the guarantee has ceased, it is the normalpractice of a bank to retain the discharged guarantee rather than hand it to the guarantor.

3 An acknowledgment that the guarantor has received a copy of the guarantee should be obtained as a matter of practice.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/C: GUARANTEES RELATING TO MONEY/13 Extended guarantee to a bank covering a specifictransaction

13

Extended guarantee to a bank covering a specific transaction1

[508]

To: (name of bank)

of: (address of bank)

EXTENDED GUARANTEE: SPECIFIC TRANSACTION

IN CONSIDERATION of your entering into (details of the agreement under which the principal debtor'sobligations arise) ('the Agreement') [a copy of which is annexed to this Guarantee] with (name of principaldebtor) ('the Principal') of (address)

NOW [I (or) We] (name(s) of guarantor(s)) of (address(es)) ('the Guarantor[s]') UNCONDITIONALLY

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GUARANTEE TO AND AGREE WITH YOU as follows:

[509]

1 Principal's failure to payIf and whenever the Principal fails to pay on the due date any sum whatsoever payable under theAgreement the Guarantor[s] will pay that sum to you immediately on demand by you.

2 Guarantee to remain in force until repayment in fullThis Guarantee shall continue in effect until all sums whatsoever payable by the Principal underthe Agreement have been finally paid in full.

3 Proviso to settlement or dischargeAny settlement or discharge between you and the Guarantor[s] shall be subject to the conditionthat no security given or payment made to you by the Principal or any other person shall beavoided or reduced by virtue of any provisions or enactments relating to bankruptcy, liquidation orinsolvency for the time being in force, and if any such security or payment shall be so avoided orreduced you shall be entitled to recover the value or amount of it from the Guarantor[s]subsequently as if the settlement or discharge had not occurred.

[510]

4 Indulgence4.1 The liability of the Guarantor[s] under this Guarantee shall not be affected by any arrangement

you may make with the Principal or any other person that might (but for this provision) operate todiminish or discharge the liability of or otherwise provide a defence to a guarantor.

4.2 Without prejudice to the generality of clause 4.1 above you may at any time and withoutreference to the Guarantor[s]:4.2.1 give time for payment or grant any other indulgence;4.2.2 give up, deal with, vary, exchange or abstain from perfecting or enforcing any other

securities or guarantees held by you at any time and discharge any party to them, andrealise such securities or guarantees or any of them, as you think fit; and

4.2.3 compound with, accept compositions from and make any other arrangements with thePrincipal or any person or persons liable on bills, notes or other securities orguarantees held or to be held by you

without affecting the [Guarantor's (or) Guarantors'] liability under this Guarantee2.5 No proof in competition with bank

If any sum becomes payable by the Guarantor[s] under this Guarantee, the Guarantor[s] shall notin the event of the bankruptcy, liquidation or insolvency of the Principal prove in competition withyou until all sums whatsoever payable by the Principal under the Agreement have been finallypaid in full, but will give you the benefit of such proof and all money to be received in respect of it.

[511]

6 Money not recoverable on footing of guarantee

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As a separate and independent stipulation it is agreed by the Guarantor[s] that any moneypayable by the Principal under the Agreement that may not be recoverable from the Guarantor[s]on the footing of a guarantee, whether by reason of any legal limitation on, disability or incapacityof the Principal or by virtue of any statutory provision rendering the liability of the Principal void orby reason of any other fact or circumstance, and whether known to you or the Guarantor[s] or not,shall nevertheless be recoverable from the Guarantor[s] as sole or principal debtor[s] in respect ofit and shall be paid by the Guarantor[s] on demand.

7 Payment under Guarantee7.1 Each payment to be made by the Guarantor[s] under this Guarantee shall be made to you in the

appropriate currency in accordance with the terms of this Guarantee, to the credit of your accountwith any bank designated by you and located in the country of that currency.

7.2 All payments to be made by the Guarantor[s] under this Guarantee shall be made in full withoutset-off or counterclaim [and free and clear of and without deduction of or withholding for or onaccount of any tax of any nature now or subsequently imposed by any country or any subdivisionor taxing authority of or in any country or any federation or organisation of which any country is amember]3.

[7.3 If any payment to be made by the Guarantor[s] under this Guarantee shall be subject to any taxmentioned in clause 7.2 or if the Guarantor[s] shall be required to make any such deduction orwithholding, the Guarantor[s] must pay the tax, ensure that the payment, deduction or withholdingmeets the legal liability for it and simultaneously pay to you such additional amount as may benecessary to enable you to receive, after all payments, deductions and withholdings, a net amountequal to the full amount payable under this Guarantee.

7.4 If the Guarantor[s] make[s] any such payment, deduction or withholding the Guarantor[s] mustwithin 30 days forward to you an official receipt or other official documentation evidencing thepayment, deduction or withholding.

7.5 As used in this clause the term 'tax' includes all levies, imposts, duties, charges, fees, deductions,withholding, turnover tax, transaction tax, stamp tax and any restrictions or conditions resulting ina charge]4.

[512]

[8 Indemnity8.1 It is further agreed by the Guarantor[s] that if any judgment or order given or made for the

payment of any amount due under this Guarantee is expressed in a currency other than that inwhich the amount is payable by the Guarantor[s] under this Guarantee, the Guarantor[s] mustindemnify you against any loss incurred by you as a result of any variation occurring in rates ofexchange between the date as at which that amount is converted into the other currency for thepurposes of the judgment or order and the date of actual payment of the amount.

8.2 This indemnity constitutes a separate and independent obligation of the Guarantor[s] and shallapply irrespective of any indulgence granted to the Guarantor[s] from time to time and continue infull force and effect notwithstanding any judgment or order as mentioned above.]5

[9 Liability of signatoriesIf this Guarantee is signed by or on behalf of more than one person and any one or more of thosepersons is not bound by the provisions of this Guarantee (whether by reason of his or their lack of

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capacity, or improper execution of this Guarantee or for any other reason whatever), theremaining signatory or signatories shall continue to be bound by the provisions of this Guaranteeas if they had always been the only party or parties hereto. The fact that any intended signatoryshall not have signed the Guarantee shall not prejudice the application of the Guarantee to thosepersons that have signed the Guarantee.]6

[513]

[10 Joint and several liabilityWhere this Guarantee is signed as guarantor by more than one person or is signed by one personfor himself and on behalf of other persons (whether that person is signing on behalf of apartnership or otherwise):

10.1 the expression 'the Guarantors' shall include all the persons signing as guarantor or on whosebehalf this Guarantee is signed as guarantor

10.2 the liability of the Guarantors under this Guarantee shall be the joint and several liability of allthose persons and any demand for payment made by you to any one or more of those personsshall be deemed to be a demand made to all such persons, and

10.3 you may release or discharge any one or more of such persons from liability under thisGuarantee or compound with, accept compositions from, or make any other arrangement with anyof such persons without in consequence releasing or discharging any other party to thisGuarantee or otherwise prejudicing or affecting your rights and remedies against any such otherparty.]7

11 InterpretationIn this Guarantee, where the context permits, the singular includes the plural and vice versa, andreferences to persons include references to companies.

[12 Governing law and jurisdictionThis Guarantee shall be governed by and construed in accordance with English law and alldisputes and questions arising from or relating to this Guarantee shall be subject to the exclusivejurisdiction of the English courts (or as appropriate).]

[514]

13 Property in the Guarantee to belong to the bankThe paper on which this Guarantee is written shall remain at all times the property of the Bank8.Dated:[AS (or) IN] WITNESS etc

(signature(s) or common seal(s) of the guarantor(s))

[I (or) We] acknowledge receipt of a copy of the above Guarantee9.

(signature(s) of or on behalf of the guarantor(s))

(annex a copy of the Agreement if necessary)

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[515]

1 As to the considerations to be taken into account when deciding which of Forms 12 [506]-14 [516] should be used seeForm 12 note 1 [507] ante.

This extended guarantee has been drafted for use where a specific obligation of the borrower is being guaranteed, and certainclauses appropriate in the case of a continuing guarantee are accordingly omitted, in particular, clauses limiting the amount ofthe borrower's indebtedness that is guaranteed (see Form 14 clause 1 proviso [516] post), and providing for notice to terminateby the guarantor (see Form 14 clause 4 [517] post).

Certain provisions in Form 14 [516] post that could also apply in the context of the specific guarantee contained in this Formhave been omitted from this Form on the ground that a bank may be willing to assume certain of the relatively remote riskscovered by Form 14 [516] post in the context of a specific guarantee relating only to specified obligations of the principal debtor.However, any of the clauses contained in Form 14 [516] post (except those appropriate only to a continuing guarantee, asmentioned above) may be adapted for use in this Form if in any particular circumstances it is considered desirable.

By adopting the relevant wording, this Form may be used for continuing obligations.

2 See Paragraphs 34 [249]-36 [253] ante.

3 Insert these words where the guarantor is situated outside the United Kingdom.

4 Use clauses 7.3 to 7.5 where the guarantor is situated outside the United Kingdom.

5 Insert clause 8 where foreign currency obligations are being guaranteed, or there is a real likelihood of recovery beingnecessary outside the jurisdiction of the English courts.

6 This clause is intended to prevent a party who undertakes obligations jointly and severally with another from arguing thathe should not be bound by those obligations because the other party proves not to be bound as a result of eg some defect inhis execution of the document.

7 Without this provision, there is a risk that release of one guarantor would discharge the others. See Paragraph 37 [255]ante.

8 Even after the guarantor's liability under the guarantee has ceased, it is normally the practice of a bank to retain thedischarged guarantee rather than hand it to the guarantor.

9 An acknowledgment that the guarantor has received a copy of the guarantee should be obtained as a matter of practice.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/C: GUARANTEES RELATING TO MONEY/14 Long guarantee to a bank covering continuingobligations

14

Long guarantee to a bank covering continuing obligations1

[516]

To: (name of bank)

of: (address of bank)

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LONG GUARANTEE: CONTINUING OBLIGATIONS

IN CONSIDERATION of your from time to time making or continuing loans or advances to or coming underliabilities or discounting bills for or otherwise giving credit or granting banking facilities or accommodation orgranting time to or on account of (name of principal debtor) of (address) ('the Principal')

NOW [I (or) WE] (name(s) of guarantor(s)) of: (address(es)) ('the Guarantor[s]') UNCONDITIONALLYGUARANTEE TO AND AGREE WITH YOU as follows:

1 Guarantor to pay on demandThe Guarantor[s] must pay to you on demand:

1.1 all money:1.1.1 that is now or shall at any time or times hereafter be due or owing to you from or

payable to you by the Principal under or in respect of any dealing, transaction orengagement whatsoever, either solely or jointly with any other person, firm or companyand whether as principal or guarantor, and whether upon current account or otherbanking account or accounts or otherwise or in respect of bills, drafts, notes or othernegotiable instruments made, drawn, accepted, advised, endorsed or paid by you or onyour account for the Principal, either solely or jointly as stated above, or

1.1.2 that you may from time to time become liable to pay in respect of any bills, drafts,notes or letters of credit or any other dealing, transaction or engagement on account ofor for the benefit or accommodation of the Principal, either solely or jointly as statedabove ('the Indebtedness'); together with

1.2 all interest, costs, commissions and other banking charges and expenses that you may in thecourse of your business as bankers charge against the Principal and all legal and other costs,charges and expenses that you may incur in enforcing or obtaining payment of any such moneyfrom the Principal, or attempting so to do;[PROVIDED that the total amount recoverable from the Guarantor[s] under this Guarantee shallnot exceed £ ... [together with a further sum for all interest, costs, commissions and other costs,charges and expenses as stated above as shall have accrued or shall accrue due to you at anytime before or at any time after the date of such demand as stated above] and PROVIDED that ifthe amount in this Paragraph is not completed, this Guarantee shall be interpreted as unlimited.]2

[517]

2 Continuing securityThis Guarantee shall be a continuing security (subject only to such notice as is mentioned below)and shall not be satisfied, discharged or affected by any intermediate payment or settlement ofaccount.

3 Effect of death of guarantorThis Guarantee shall not be determined or affected by the death of [the Guarantor (or) any one ormore of the persons constituting the Guarantors].

4 Notice to determine Guarantee3

4.1 [The Guarantor or his personal representatives (or) Any one or more of the Guarantors or anysurvivor or survivors of the Guarantors or the personal representatives of any deceased

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Guarantor] may at any time give you notice in writing to determine this Guarantee at a date notless than 3 calendar months after the receipt by you of the notice.

4.2 This Guarantee shall cease with respect to transactions after the date set by any notice servedunder clause 4.1 above PROVIDED that the Guarantor shall remain liable under this Guarantee:4.2.1 in respect of all obligations of the Principal to you outstanding at that date, with interest

on such obligations until actual payment at the rate charged by you against thePrincipal;

4.2.2 in respect of all money, interest, costs, commissions and other banking charges andexpenses that will or may become due to you from the Principal under or in respect ofany dealing, transaction or engagement effected or entered into either before that dateor on or after that date pursuant to any commitment, express or implied, assumed orundertaken by you to the Principal before that date4; and

4.2.3 for all legal and other costs, charges and expenses you may incur in respect of anymatters mentioned in clauses 4.2.1 or 4.2.2 above.

[518]

5 PaymentThe obligation of the Guarantor[s] under this Guarantee shall be to make payment to you [(whereobligations in currencies other than sterling are being guaranteed) in the currency in which theapplicable obligation ought to have been or ought to be discharged by the Principal] strictly inaccordance with the terms and provisions of any agreement or agreements, express or implied,between you and the Principal applicable to each respective obligation of the Principal, regardlessof any law, regulation or decree, now or hereafter in effect, that affects or might in any manneraffect any of those terms or provisions or your rights as against the Principal.

6 New accountIt shall be lawful for you at any time after notice to determine this Guarantee has been given orafter payment of the money guaranteed hereby has been demanded of the Guarantor[s] tocontinue any existing account or accounts or to open any new account or accounts with thePrincipal and no money subsequently paid into such account or accounts shall be appropriated indischarge of any money guaranteed hereby unless it has been expressly directed by the personpaying the same at the time of the payment to be so appropriated.

[519]

7 Effect of Principal's insolvency7.1 The bankruptcy, liquidation or insolvency of the Principal or the making of an application for an

administration order or the appointment of (or giving of notice to appoint) an administrator inrespect of the Principal in respect of the Principal or the making of any such order shall not affector determine the liability of the Guarantor[s] under this Guarantee.

7.2 All dividends, compositions and money received by you from the Principal or from any othercompany, person or estate capable of being applied by you in reduction of the Indebtedness shallbe regarded for all purposes as payments in gross and you shall be entitled to prove in thebankruptcy, liquidation or insolvency of the Principal in respect of the whole of the Indebtedness

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and without any right of the Guarantor[s] to be subrogated to you in respect of any such proof tothe intent that this Guarantee shall apply to and secure the whole of any ultimate balance thatshall remain due to you.

8 Proviso to settlement or dischargeAny settlement or discharge between you and the Guarantor[s] shall be subject to the conditionthat no security or payment to you by the Principal or any other person shall be avoided orreduced by virtue of any provisions or enactments relating to administration, bankruptcy,liquidation or insolvency for the time being in force and if any such security or payment shall be soavoided or reduced you shall be entitled to recover the value or amount of it from the Guarantor[s]subsequently just as if such settlement or discharge had not occurred.

9 Effect of other guarantees etcThis Guarantee and your rights under it shall be in addition to and shall not be in any wayprejudiced or affected by any one or more other securities or guarantees for the Principal that youmay now or subsequently hold whether from [the Guarantor (or) any of the Guarantors] or fromany other person.

[520]

10 Indulgence10.1 You may at any time and without reference to the Guarantor[s] refuse further credit to the

Principal.10.2 The liability of the Guarantor[s] under this Guarantee shall be unaffected by any arrangement you

may make with the Principal or with any other person that might (but for this provision) operate todiminish or discharge the liability of or otherwise provide a defence to a guarantor.

10.3 Without prejudice to the generality of the above you may at any time and without reference to theGuarantor[s]:10.3.1 give time for payment or grant any other indulgence5;10.3.2 give up, deal with, vary, exchange or abstain from perfecting or enforcing any other

securities or guarantees held by you at any time and discharge any party to them orany of them, and realise such securities or guarantees or any of them, as you think fit6;and

10.3.3 compound with, accept compositions from and make any other arrangements with thePrincipal7 (including the varying of the Principal's obligations under any dealing,transaction or engagement falling within clause 1.1 of this Guarantee) or any person orpersons liable on bills, notes or other securities or guarantees held or to be held by you

without affecting the [Guarantor's (or) Guarantors'] liability under this Guarantee.11 Resorting to other means of payment

You are to be at liberty but not bound to resort for your own benefit to any other means ofpayment at any time and in any order you think fit without in consequence diminishing the liabilityof the Guarantor[s] and you may enforce this Guarantee either for the payment of the ultimatebalance after resorting to other means of payment or for the balance due at any timenotwithstanding that other means of payment have not been resorted to and in the latter casewithout entitling the Guarantor[s] to any benefit from such other means of payment so long as anymoney remains due or owing or payable (whether actually or contingently) from or by the Principal

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to you.

[521]

12 No proof in competition with bank12.1 This Guarantee shall take effect as a guarantee of the whole and every part of the Indebtedness

and accordingly the Guarantor[s] shall not be entitled as against you:12.1.1 to any right of proof in the bankruptcy, liquidation or insolvency of the Principal or any

other guarantor; or12.1.2 to any other right of a guarantor (including any right of contribution from any other

guarantor) discharging, in whole or in part, his liability in respect of the Indebtedness;or

12.1.3 to share in any security held or money received by you on account of the obligations ofthe Principal or any other guarantor; or

12.1.4 to have or exercise any rights as guarantor (including any right of contribution from anyother guarantor) in competition with you

unless and until the whole of the Indebtedness shall have first been completely discharged andsatisfied.

12.2 Until the Indebtedness shall have been discharged and satisfied in full, the Guarantor[s] shall not,if any money shall have become payable or shall have been paid by [him (or) them] under thisGuarantee, take any step to enforce repayment or to exercise any other rights, claims or remediesof any kind that may accrue howsoever to [him (or) them] (including any right of contribution fromany other guarantor) in respect:12.2.1 of the amount so payable or so paid; or12.2.2 of any other money for the time being due to the Guarantor[s] from the Principal or any

other guarantorPROVIDED that in the event of the bankruptcy, liquidation or insolvency of the Principal or anyother guarantor the Guarantor[s] shall, if so directed by you but not otherwise, prove for the wholeor any part of the money due to the Guarantor[s] from the Principal or any other guarantormentioned in clauses 12.2.1 and 12.2.2 above on terms that the benefit of such proof and of allmoney to be received by the Guarantor[s] in respect thereof shall be held in trust for you andapplied in discharging the obligations of the Guarantor[s] to you under this Guarantee.

12.3 To enable you to sue the Principal or any other guarantor or prove in the bankruptcy, liquidationor insolvency of the Principal or any other guarantor for the whole of the money mentioned inclause 12.1 above, or to preserve intact the liability of any other party, you may at any time placeand keep, for such time as you may think prudent, any money received, or realised under thisGuarantee or under any other guarantee or security to the credit of the Guarantor[s] or any otherperson or transaction (if any) as you shall think fit, without any immediate obligation on your partto apply the same or any part of it in or towards the discharge of the Indebtedness, or anyimmediate right on the part of the Guarantor[s] to sue the Principal or any other guarantor or toprove in the bankruptcy, liquidation or insolvency of the Principal or any other guarantor incompetition with or so as to diminish any dividend or other advantage that would or might come toyou, or to treat the liability of the Principal or any other guarantor as diminished.

12.4 As used in this clause and clause 15 below, the expression 'any other guarantor' includes [any

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person constituting the Guarantors and] any party or person referred to in clause 10.3.3 above.

[522]

13 Evidence of amount dueFor all purposes including any legal proceedings a copy of any account of the Principal in yourbooks signed by any of your officers shall be accepted by the Guarantor[s] as conclusiveevidence of the state of such account.

14 Change in constitution of Principal or Guarantor[s]If the Principal or [the Guarantor (or) any of the Guarantors] is a partnership or a company, thisGuarantee shall remain in full force and effect notwithstanding any change in the constitution ofthe Principal or [the Guarantor (or) any of the Guarantors]8.

15 No security received by Guarantor[s]15.1 The Guarantor[s] declare[s] that no security has been received by [him (or) them] from the

Principal or any other guarantor for the giving of this Guarantee.15.2 The Guarantor[s] agree[s] that [he (or) they] will not, so long as this Guarantee remains in force,

take any security in respect of [his (or) their] liability under this Guarantee without first obtainingyour written consent.

16 Money not recoverable on footing of guaranteeAs a separate and independent stipulation it is agreed by the Guarantor[s] that any moneymentioned in clause 1 above that may not be recoverable on the footing of a guarantee, whetherby reason of any legal limitation, disability or incapacity on or of the Principal or any other fact orcircumstance, and whether known to you or the Guarantor[s] or not, shall nevertheless berecoverable from the Guarantor[s] as sole or principal debtor in respect of it and shall be paid bythe Guarantor[s] on demand.

[523]

17 Change in bank's constitution or its amalgamation etcThis Guarantee shall continue to bind the Guarantor[s] notwithstanding:

17.1 any amalgamation or merger that may be effected by you with any other company or companiesand/or

17.2 any reconstruction by you involving the formation of and transfer of the whole or any part of yourundertaking and assets to a new company and/or

17.3 the sale or transfer of the whole or any part of your undertaking and assets to another company,17.4 whether the company or companies with which you amalgamate or merge or the company or

companies to which you transfer the whole or any part of your undertaking and assets (either on areconstruction or sale or transfer as stated above) shall or shall not differ from you in their or itsobjects, character or constitution,it being the intent of the Guarantor[s] (a) that this Guarantee shall remain valid and effectual in allrespects in favour of and (b) that the benefit of this Guarantee and all rights conferred upon youby this Guarantee may be assigned to and enforced by, any such company or companies andproceeded on in the same manner to all intents and purposes as if such company or companieshad been named in this Guarantee instead of and/or in addition to you.

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[18 Other currenciesIf at the time any demand is made under this Guarantee, any amount shall be due or owing orpayable to you from the Principal in any currency or currencies other than that in which any limitcontained in the proviso to clause 1 above is expressed, then:

18.1 the obligation of the Guarantor[s] shall be to make payment in the currency or currencies in whichthe amount is due or owing or payable but you shall be entitled, at your discretion, to requirepayment either in that currency or those currencies or in the currency of such limit, or partly in oneway and partly in the other, and

18.2 such limit shall be treated as a limit expressed in such other currency or (if more than one suchother currency is involved) as a limit in the aggregate expressed in such other currencies and forthis purpose such limit shall be deemed to have been expressed in such other currency orcurrencies converted at the rate of respective rates of exchange to be determined in good faith byyou to be effective at the date of payment (or each respective payment) by the Guarantor[s]9.]

[524]

19 Payments by Guarantor[s]19.1 Each payment to be made by the Guarantor[s] under this Guarantee shall be made to you in the

appropriate currency in accordance with the terms of this Guarantee, to the credit of such accountwith such bank (located in the country of such currency), as shall be designated by you.

19.2 All such payments shall be made in full without set-off or counterclaim [and free and clear of andwithout deduction of or withholding for or on account of any tax of any nature now or subsequentlyimposed by any country or any subdivision or taxing authority of or in any country or anyfederation or organisation of which any country is a member]10.

[19.3 If any such payment shall be subject to any such tax or if the Guarantor[s] shall be required tomake any such deduction or withholding, the Guarantor[s] must pay such tax, ensure that suchpayment, deduction or withholding meets the legal liability for it and simultaneously pay to yousuch additional amount as may be necessary to enable you to receive, after all such payments,deductions and withholdings, a net amount equal to the full amount payable under this Guarantee.

19.4 If the Guarantor shall make any such payment, deduction or withholding the Guarantor shallwithin 30 days forward to you an official receipt or other official documentation evidencing suchpayment or the payment of such deduction or withholding.

19.5 As used in this clause the term 'tax' includes all levies, imposts, duties, charges, fees, deductions,withholdings, turnover tax, transaction tax, stamp tax and any restrictions or conditions resulting ina charge.]11

[525]

[20 Indemnity12

20.1 The Guarantor[s] agree that if any judgment or order is given or made for the payment of anyamount due under this Guarantee expressed in a currency other than that in which such amountis payable by the Guarantor[s] under this Guarantee, the Guarantor[s] will indemnify you againstany loss incurred by you as a result of any variation having occurred in rates of exchangebetween the date as at which the amount is converted into such other currency for the purpose of

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the judgment or order and the date of actual payment pursuant to it.20.2 This indemnity shall:

20.2.1 constitute a separate and independent obligation of the Guarantor[s];20.2.2 apply irrespective of any indulgence granted to the Guarantor[s] from time to time; and20.2.3 continue in full force and effect notwithstanding any such judgment or order as

mentioned above.]21 No waiver of rights under Guarantee21.1 No delay or omission on your part in exercising any right, power, privilege or remedy in respect of

this Guarantee shall impair such right, power, privilege or remedy or be construed as a waiver of itnor shall any single or partial exercise of any such right, power, privilege or remedy preclude anyfurther exercise of it or the exercise of any other right, power, privilege or remedy.

21.2 The rights, powers, privileges and remedies provided in this Guarantee are cumulative and notexclusive of any rights, powers, privileges or remedies provided by law.

[526]

[22 Joint and several liabilityWhere this Guarantee is signed as guarantor by more than one person or is signed by one personfor himself and on behalf of other persons (whether that person is signing on behalf of apartnership or otherwise):

22.1 the expression 'the Guarantors' shall include all such persons,22.2 the liability of the Guarantors under this Guarantee shall be the joint and several liability of such

persons and any demand for payment made by you to any one or more of the persons so jointlyand severally liable shall be deemed to be a demand made to all such persons, and

22.3 you are to be at liberty to release or discharge any one or more of such persons from liabilityunder this Guarantee or to compound with accept compositions from or make any otherarrangements with any of such persons without in consequence releasing or discharging anyother party to this Guarantee or otherwise prejudicing or affecting your rights and remediesagainst any such other party.]13

[23 Liability of signatoriesIf this Guarantee is signed by or on behalf of more than one person and any one or more of thosepersons is not bound by the provisions of this Guarantee (whether by reason of his or their lack ofcapacity, or improper execution of this Guarantee or for any other reason whatever), theremaining signatory or signatories shall continue to be bound by the provisions of this Guaranteeas if they had always been the only party or parties hereto. The fact that any intended signatoryshall not have signed the Guarantee shall not prejudice the application of the Guarantee to thosepersons that have signed the Guarantee.]14

24 Demands24.1 Any demand under this Guarantee shall be given by first class prepaid post, or fax addressed to

the Guarantor or to the person to or upon whom the demand is to be made at the registered orprincipal office or last known place of abode of the Guarantor or of such person, as the case maybe.

24.2 A demand shall be deemed to have been duly made:24.2.1 if left at the registered or principal office or last known place of abode, on the day it

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was so left, or24.2.2 if sent by first class prepaid post, 2 working days after the time when the demand was

put in the post (and in proving delivery it shall be sufficient to prove that the same wasproperly addressed and put in the post), or

24.2.3 if sent by fax, at the time of dispatch.

[527]

25 InterpretationIn this Guarantee, where the context permits, the singular includes the plural and vice versa, andreferences to persons include references to companies.

26 Governing law and jurisdictionThis Guarantee shall be governed by and construed in accordance with English law and anydisputes arising from or relating to this Guarantee shall be subject to the exclusive jurisdiction ofthe English courts (or as appropriate).

27 Property in the Guarantee to belong to the bankThe paper on which this Guarantee is written shall remain at all times the property of the Bank15.Dated:[AS (or) IN] WITNESS etc

(signature(s) or common seal(s) of the guarantor(s))

[I (or) WE] ACKNOWLEDGE receipt of a copy of the above Guarantee16.

(signature(s) of the guarantor(s))

[528]

1 As to the considerations to be taken into account when deciding which of Forms 12 [506]-14 [516] should be used seeForm 12 note 1 [507] ante.

This Form is drafted as a continuing guarantee; it therefore applies to all indebtedness of the principal debtor, present or future(subject only to any limit in amount agreed with the guarantor (see clause 1 proviso) and to the provision for termination bynotice (see clause 4) banks customarily include in their standard form continuing guarantees). These types of guarantees areoften known as 'all monies' guarantees'.

A continuing guarantee is normally appropriate as security for an overdraft facility, since the overdraft fluctuates in amount andoften continues for an indefinite period. As to continuing guarantees see Paragraph 19 [122] ante. If a long guarantee is neededfor a specific rather than a continuing obligation, the relevant wording in Form 13 [508] ante should be adopted.

2 This provision is for use where the guarantee is to be limited. The last proviso deals with the possibility of the provisionbeing included but the amount being left blank.

3 As to revocation of continuing guarantees see Paragraph 21 [126] ante.

4 This provision is designed:

(a) to ensure that the guarantor remains liable for indebtedness to the bank incurred by the principal debtorduring the period after notice to determine has been served, eg cheques drawn before service of the notice,but honoured after it; and

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(b) so that the guarantee continues to apply to advances made by the bank after termination pursuant to acommitment entered into before termination.

5 As to the giving of time see Paragraph 35 [251] ante.

6 As to release or loss of securities see Paragraph 36 [253] ante.

[529]

7 As to the possibility of discharge of the guarantor by variation of the principal agreement see Paragraph 34 [249] ante.

8 As to change of parties and constitution see Paragraph 37 [255] ante.

9 This clause is for use where obligations in currencies other than sterling are being guaranteed.

10 The words in square brackets may be used where the guarantor is situated outside the United Kingdom.

11 Clauses 19.3-19.5 are intended for use where the guarantor is situated outside the United Kingdom.

12 This indemnity may be advisable where obligations in currencies other than sterling are being guaranteed, and there is areal possibility of the guarantee being sued on in a foreign court.

13 Without this provision, there would be risk that the release of one guarantor would discharge the others: see Paragraph37 [255] ante.

14 This clause is intended to prevent a party who undertakes obligations jointly and severally with another from arguing thathe should not be bound by those obligations because that other party proves not to be bound as a result of eg some defect inhis execution of the document, and also to prevent any argument that a signatory is not bound because another person withwhom he was to have been jointly and severally liable does not in fact execute the guarantee.

15 Even after the guarantor's liability under the guarantee has ceased, it is normally the practice of a bank to retain thedischarged guarantee rather than hand it to the guarantor.

16 An acknowledgment that the guarantor has received a copy of the guarantee should be obtained as a matter of practice.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/C: GUARANTEES RELATING TO MONEY/15 Long form cross guarantee by companies in agroup

15

Long form cross guarantee by companies in a group1

[530]

THIS DEED OF GUARANTEE is made the ...... day of ...... ......

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BETWEEN:

(1) The several companies the names and registered offices of which are specified in the Schedule below(together called 'the Companies' which expression shall include each or any one or more of them severally)and

(2) (name of bank) of (address of bank) ('the Bank' which expression shall include its successors andassigns).

1 InterpretationIn this Deed:

1.1 'the Guarantors' means the Companies in so far as they covenant by this deed to pay money atany time due or owing or payable to the Bank from or by any other of the Companies and havenot been discharged or released by the Bank from their respective guarantees contained in thisDeed; and

1.2 'the Principals' means the Companies in so far only as money may at any time be due or owing orpayable from or by them to the Bank as mentioned below otherwise than as the Guarantors underthis Deed.

[531]

2 Joint and several guaranteeEach of the Companies unconditionally guarantees to and undertakes with the Bank, bothseverally and also jointly with each of the other Companies except, in each case, the Companywhose indebtedness is so guaranteed, that it will pay to the Bank on demand all money:

2.1 that now is or shall at any time or times hereafter be due or owing or payable to the Bank from orby any of the other companies under or in respect of any dealing, transaction or engagementwhatsoever, either solely or jointly with any other person, firm or company, and whether asprincipal or guarantor (other than as Guarantor under this Deed), and whether upon currentaccount or other banking account or accounts or otherwise or in respect of bills, drafts, notes orother negotiable instruments made, drawn, accepted, advised, endorsed or paid by or on accountof the Bank for any other of the Companies, either solely or jointly as stated above, or

2.2 that the Bank may from time to time become liable to pay in respect of any bills, drafts, notes,letters of credit or any other dealing, transaction or engagement on account of or for the benefit oraccommodation of any other of the Companies, either solely or jointly as stated above,together with all interest, costs, commissions and other banking charges and expenses that theBank may in the course of its business as bankers charge against any other of the Companiesand all legal and other costs, charges and expenses that the Bank may incur in enforcing orobtaining payment of the sums of money due to it from any other of the Companies, either solelyor jointly as stated above, or attempting to do so2.

3 Continuing security3

The guarantee on the part of each of the Guarantors contained in this Deed shall be a continuingsecurity (subject only to such notice as is mentioned below) and shall not be satisfied, dischargedor affected by any intermediate payment or settlement of account by, with or in relation to theliabilities of all or any of the Principals.

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[532]

4 Notice to determine guarantee4

Any of the Guarantors may at any time give the Bank notice in writing to determine the guaranteeon its part contained in this Deed at a date ('the Cessation Date') not less than 3 calendar monthsafter the receipt by the Bank of such notice and such guarantee shall cease with respect to allfuture transactions after the Cessation Date PROVIDED that such Guarantor shall remain liableunder this Deed:

4.1 in respect of all obligations of each of the Principals to the Bank outstanding at the CessationDate, with interest on such obligations until actual payment at the rate charged by the Bankagainst such Principal, and

4.2 in respect of all money, interest, costs, commissions and other banking charges and expensesthat will or may become due to the Bank from any of the Principals under or in respect of anydealing, transaction or engagement effected or entered into either prior to the Cessation Date oron or after the Cessation Date pursuant to any commitment, express or implied, assumed orundertaken by the Bank to such Principal prior to the Cessation Date5, and

4.3 for all legal and other costs, charges and expenses that the Bank may incur as stated above.

[533]

5 Payment to the bankThe obligations of each of the Guarantors under this Deed shall be to make payment to the Bank[(where currencies other than sterling are being guaranteed) in the currency in which theapplicable obligation ought to have been or ought to be discharged by the Principal concerned,]strictly in accordance with the terms and provisions of any agreement or agreements, express orimplied, between the Bank and the Principal concerned applicable to each respective obligation ofsuch Principal, regardless of any law, regulation or decree, now or hereafter in effect, that affectsor might in any manner affect any of such terms or provisions or the rights of the Bank as againstsuch Principal.

6 New accountIt shall be lawful for the Bank at any time after notice to determine any guarantee contained in thisDeed has been given or after payment of the money guaranteed by this Deed has beendemanded of any of the Guarantors to continue any existing account or to open any new accountor accounts with the Principals or any of them and no money subsequently paid into such accountor accounts shall be appropriated in discharge of any money guaranteed by this Deed unless it isexpressly directed by the person paying the same at the time of such payment to be soappropriated.

[534]

7 Effect of Principals' insolvency7.1 The bankruptcy, liquidation or insolvency of any of the Principals, or the making of an application

for an administration order in respect of any of the Principals, or the making of such an order, orthe appointment of (or giving of notice to appoint) an administrator of any of the Principals, shall

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not affect or determine the liability of the Guarantors under this guarantee.7.2 All dividends, compositions and money received by the Bank from any of the Principals or from

any other company, person or estate capable of being applied by the Bank in reduction of theindebtedness of any of the Principals shall (unless the Bank otherwise expressly elects in writing)not be treated as having been so applied, such that the Bank shall be entitled to prove in thebankruptcy, liquidation or insolvency of any of the Principals in respect of the whole of suchPrincipal's indebtedness to the Bank and without any right on the part of any of the Guarantors tobe subrogated to the Bank in respect of any such proof to the intent that each of the guaranteescontained in this Deed shall apply to and secure the whole of any ultimate balance that shallremain due to the Bank from each of the Principals.

8 Proviso to settlement or dischargeAny settlement or discharge between the Bank and any of the Guarantors shall be subject to thecondition that no security or payment to the Bank by any of the Principals or any other personshall be avoided or reduced by virtue of any provisions or enactments relating to bankruptcy,liquidation or insolvency for the time being in force and if any such security or payment shall be soavoided or reduced the Bank shall be entitled to recover the value or amount of it from suchGuarantor subsequently just as if such discharge had not occurred.

9 Effect of other guarantees etcThis guarantee and the rights of the Bank under it shall be in addition to and shall not be in anyway prejudiced or affected by any one or more other securities or guarantees for any of thePrincipals that the Bank may now or subsequently hold whether from any of the Guarantors orfrom any other person.

[535]

10 Indulgence10.1 The Bank may at any time and without reference to any of the Guarantors refuse further credit to

the Principals or any of them.10.2 The guarantee on the part of each of the Guarantors contained in this Deed and the rights of the

Bank under it shall be unaffected by any arrangement the Bank may make with any of thePrincipals6 (including any variation of any contractual arrangements between the Bank and any ofthe Principals) or any of the other Guarantors or with any other person that (but for this provision)might operate to diminish or discharge the liability of or otherwise provide a defence to aguarantor.

10.3 Without prejudice to the generality of the above the Bank may at any time and without referenceto any of the Guarantors:10.3.1 give time for payment or grant any other indulgence7;10.3.2 give up, deal with, vary, exchange or abstain from perfecting or enforcing any other

securities or guarantees held by the Bank at any time (including the guarantees on thepart of each of the other Guarantors contained in this Deed) and discharge any partythereto, and realise such securities or guarantees or any of them, as the Bank shallthink fit8; and

10.3.3 compound with, accept compositions from and make any other arrangements with anyof the Principals or any of the other Guarantors or any person or persons liable on bills,

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notes or other securities or guarantees held or to be held by the Bank without affectingthe liability of any of the Guarantors under this Deed.

11 Resorting to other means of paymentThe Bank shall be at liberty (but not obliged) to resort for its own benefit to any other means ofpayment at any time and in any order it thinks fit without in consequence diminishing the liability ofany of the Guarantors and the Bank may enforce any of the guarantees contained in this Deedeither for the payment of the ultimate balance or balances after resorting to other means ofpayment (including any of such other guarantees) or for the balance or balances due at any timenotwithstanding that any such other means of payment have not been resorted to and in eachcase without entitling any of the Guarantors to any benefit from such other means of payment solong as any money remains due or owing or payable (whether actually or contingently) from or byany of the Principals to the Bank.

[536]

12 No proof in competition with bank12.1 Each of the guarantees contained in this Deed shall take effect as a guarantee of the whole and

every part of the money due or owing or payable and to become due or owing or payable from orby each of the Principals as stated above and accordingly none of the Guarantors shall be entitledas against the Bank to any right of proof in the bankruptcy, liquidation or insolvency of any of thePrincipals or any other guarantor or other right of a guarantor (including any right of contributionfrom any other guarantor) discharging, in whole or in part, its liability in respect of the principaldebt or to share in any security held or money received by the Bank on account of the obligationsof such Principal or any other guarantor or to have or exercise any rights as guarantor (includingany such right of contribution as stated above) in competition with the Bank unless and until thewhole of such money shall have first been completely discharged and satisfied.

12.2 Furthermore, until such money shall have been discharged and satisfied in full none of theGuarantors shall, if any money shall have become payable or shall have been paid by any of theGuarantors under any of the guarantees contained in this Deed, take any step to enforcerepayment or to exercise any other rights, claims or remedies of any kind that may accruehowsoever to any such Guarantor in respect either of the amount so payable or so paid (includingany such right of contribution from any other Guarantor) or of any other money for the time beingdue to any such Guarantor from the Principal concerned or any other guarantor PROVIDED thatin the event of the bankruptcy, liquidation or insolvency of any of the Principals or any otherguarantor each of the Guarantors shall, if so directed by the Bank but not otherwise, prove for thewhole or any part of the money due to that Guarantor from such Principal or any other guarantoras stated above on terms that the benefit of such proof and of all money to be received by theGuarantor in respect of it shall be held in trust for the Bank and applied in discharging theobligations of the Guarantor to the Bank under this Deed.

[537]

12.3 To enable the Bank to sue any of the Principals or any other guarantor or to prove in thebankruptcy, liquidation or insolvency of any of the Principals or any other guarantor for the whole

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of such money as stated above, or to preserve intact the liability of any other party, the Bank mayat any time place and keep, for such time as it may think prudent, any sums received, or realisedon account of the obligations of such Principal or under any other guarantee or security to thecredit, either of such Guarantor, or such other person or transaction (if any) as the Bank may thinkfit, without any immediate obligation on the part of the Bank to apply the same or any part of it inor towards the discharge of the money as stated above, or any immediate right on the part of suchGuarantor to sue such Principal or any other guarantor or to prove in the bankruptcy, liquidation orinsolvency of such Principal or any other guarantor in competition with or so as to diminish anydividend or other advantage that would or might come to the Bank, or to treat the liability of suchPrincipal or any other guarantor as diminished.

12.4 As used in this clause and clause 15 below, the expression 'any other guarantor' includes [anyperson constituting the Guarantors and] any party or person referred to in clause 10.3.3 above.

[538]

13 Evidence of amount dueFor all purposes including any legal proceedings a copy of any account of any of the Principals inthe Bank's books signed by any of the Bank's officers shall be accepted by each of theGuarantors as conclusive evidence of the state of such account.

14 Change in constitution of Principals or GuarantorsEach of the guarantees contained in this deed shall remain in full force and effect notwithstandingany change in the constitution of any of the Principals or any of the Guarantors9.

15 No security received by GuarantorsIt is declared by each of the Guarantors that no security has been received by it from any of thePrincipals or any other guarantor for the giving of the guarantee on its part contained in this Deedand each of the Guarantors agrees that it will not, so long as such guarantee remains in force,take any security in respect of its liability under this Deed without first obtaining the writtenconsent of the Bank.

16 Money not recoverable on footing of guaranteeAs a separate and independent stipulation each of the Guarantors agrees, both severally and alsojointly with every other Guarantor, that any money mentioned in clause 2 above that may not berecoverable on the footing of a guarantee, whether by reason of any legal limitation, disability orincapacity on or of any of the Principals or any other fact or circumstance, and whether known tothe Bank or any of the Guarantors or not, shall nevertheless be recoverable from the Guarantorsas though the same had been incurred by the Guarantors and the Guarantors were jointly andseverally liable as sole or principal debtors in respect of it, and shall be paid by the Guarantors ondemand.

[539]

17 Change in bank's constitution or amalgamation etcThis guarantee shall continue to bind the Guarantors notwithstanding:

17.1 any amalgamation or merger that may be effected by the Bank with any other company orcompanies and/or

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17.2 any reconstruction by the Bank involving the formation of and transfer of the whole or any part ofits undertaking and assets to a new company and/or

17.3 the sale or transfer of the whole or any part of the undertaking and assets of the Bank to anothercompany,

17.4 whether the company or companies with which the Bank may amalgamate or merge or thecompany to which the Bank may transfer the whole or any part of its undertaking and assets(either on a reconstruction or sale or transfer as stated above) shall or shall not differ from theBank in their or its objects, character or constitution,it being the intent of each of the Guarantors (a) that the guarantee on its part contained in thisDeed shall remain valid and effectual in all respects in favour of and (b) that the benefit of theguarantee and all rights conferred upon the Bank by this Deed may be assigned to and enforcedby, any such company or companies and proceeded on in the same manner to all intents andpurposes as if such company or companies had been named in this Deed instead of and/or inaddition to the Bank.

[540]

18 Payments by guarantors18.1 Each payment to be made by any of the Guarantors under this deed shall be made to the Bank,

in the appropriate currency in accordance with the terms of this Deed, to the credit of suchaccount with such bank (located in the country of such currency), as shall be designated by theBank.

18.2 All such payments shall be made in full without set-off or counterclaim [and free and clear of andwithout deduction of or withholding for or on account of any tax of any nature now or subsequentlyimposed by any country or any subdivision or taxing authority of or in such country or anyfederation or organisation of which such country is a member]10.

[18.3 If any such payment shall be subject to any such tax or if any of the Guarantors shall be requiredto make any such deduction or withholding, such Guarantor must pay the tax, ensure that suchpayment, deduction or withholding meets the legal liability for it, and simultaneously pay to theBank such additional amount as may be necessary to enable the Bank to receive, after all suchpayments, deductions and withholdings, a net amount equal to the full amount payable under thisDeed.

18.4 If any of the Guarantors shall make any such payment, deduction or withholding such Guarantorshall within 30 days forward to the Bank an official receipt or other official documentationevidencing such payment or the payment of such deduction or withholding.

18.5 As used in this clause the term 'tax' includes all levies, imposts, duties, charges, fees, deductions,withholdings, turnover tax, transaction tax, stamp tax and any restrictions or conditions resulting ina charge.]11

[541]

[19 Indemnity12

19.1 It is further agreed by each of the Guarantors, both severally and also jointly with every otherGuarantor, that if any judgment or order is given or made for the payment of any amount due

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under this Deed and is expressed in a currency other than that in which such amount is payableby the Guarantors under this Deed the Guarantors will indemnify the Bank against any lossincurred as a result of any variation having occurred in rates of exchange between the date as atwhich such amount is converted into such other currency for the purposes of such judgment ororder and the date of actual payment pursuant to such judgment or order.

19.2 This indemnity shall constitute a separate and independent obligation of the Guarantors and shallapply irrespective of any indulgence granted to any of the Guarantors from time to time and shallcontinue in full force and effect notwithstanding any such judgment or order as stated above.]

20 No waiver of rights under guarantee20.1 Each of the Guarantors declares that no delay or omission on the part of the Bank in exercising

any right, power, privilege or remedy in respect of any of the guarantees contained in this Deedshall impair such right, power, privilege or remedy or be construed as a waiver of it nor shall anysingle or partial exercise of any such right, power, privilege or remedy preclude any furtherexercise of it or the exercise of any other right, power, privilege or remedy.

20.2 The rights, powers, privileges and remedies provided in this Deed are cumulative and notexclusive of any rights, powers, privileges or remedies provided by law.

[542]

21 Demands21.1 Any demand made by the Bank under this Deed shall be addressed to the Guarantor upon whom

the demand is to be made and left at, or sent by first class prepaid post, or fax to, the registered orprincipal office of such Guarantor.

21.2 A demand so made shall be deemed to have been duly made, if left at such address, on the dayit was so left or, if sent by first class prepaid post, 2 working days after the time when the demandwas put in the post and in proving delivery it shall be sufficient to prove that the same wasproperly addressed and put in the post.

21.3 Any such demand sent by fax shall be deemed to have been duly made at the time of dispatch.22 Interpretation

In this Deed, where the context permits, the singular includes the plural and vice versa, andreferences to persons include references to companies.

[543]

[23 Governing law and jurisdictionThis Deed shall be governed by and construed in accordance with English law and all disputesarising from or relating to this Deed shall be subject to the exclusive jurisdiction of the Englishcourts (or as appropriate)]

24 Property in the Guarantee to belong to the BankThe paper on which this Guarantee is written shall remain at all times the property of the Bank13.IN WITNESS etc

SCHEDULE

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Names of Companies and re-gistered numbers

Addresses of registered offices Date of board resolutions au-thorising execution

(full and correct name and re-gistered number of each com-pany)

(address of registered office ofeach company)

(date)

(signatures for (or common seals of) the Companies)

WE ACKNOWLEDGE receipt of a copy of the above guarantee14.

(signatures of authorised signatories on behalf of the Companies)

[544]

1 This Form has been drafted as a continuing guarantee since it is in the context of overdraft facilities that such a guaranteeis most commonly used in practice. However, the Form can be adapted for a guarantee of specific obligations.

2 The provision for a limit upon the amounts guaranteed contained in Form 14 clause 1 proviso [516] ante is omitted fromthis Form since it is often inappropriate in the context of an intra-group cross guarantee.

3 As to continuing guarantees see Paragraph 19 [122] ante.

4 As to revocation of continuing guarantees see Paragraph 21 [126] ante.

5 This provision is designed:

(a) to ensure that the guarantor remains liable for indebtedness to the bank incurred by the principal debtorduring the period after notice to determine has been served, eg cheques drawn before service of notice by theguarantor but honoured after it, and

(b) so that the guarantee continues to apply to advances made by the bank after termination pursuant to acommitment entered into before termination.

[545]

6 As to the possibility of discharge by variation of the principal agreement see Paragraph 34 [249] ante.

7 As to the giving of time see Paragraph 35 [251] ante.

8 As to release of securities see Paragraph 36 [253] ante.

9 As to changes in parties and their constitution see Paragraph 37 [255] ante.

10 The words in square brackets are for use where the guarantor is situated outside the United Kingdom.

11 Clauses 18.3-18.5 ante are intended for use where the guarantor is situated outside the United Kingdom.

12 This indemnity may be advisable where foreign currency obligations are to be guaranteed and there is a real possibility ofthe guarantee being sued on in a foreign court.

13 Even after the guarantor's liability under the guarantee has ceased, it is normally the practice of a bank to retain the

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discharged guarantee rather than hand it to the guarantor.

14 An acknowledgment that the guarantor has received a copy of the guarantee should be obtained as a matter of practice.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/C: GUARANTEES RELATING TO MONEY/16 Minutes of board meeting authorising guaranteeetc

16

Minutes of board meeting authorising guarantee etc1

[546]

MINUTES of a Meeting of the Board of Directors of the Company held at (address where meeting held) on(date of meeting) at (time of meeting)

PRESENT: (names of persons present)

IN ATTENDANCE: (names of persons in attendance)

Reports to the CompanyIt was reported that it would be in the interests of the Company to be able to guarantee theliabilities, undertakings and obligations of its [parent company (name of parent company) of(address of registered office), and of its fellow subsidiaries (or) subsidiary (name of subsidiary) of(address of registered office) and of its other subsidiaries] because of the reliance by theCompany on the financial support of [the other companies in the group (or) its parent company].[(if the company does not already have power to give the guarantee so that the Memorandum ofAssociation must be altered--)To this end it was proposed that the Memorandum of Association of the Company with respect tothe objects of the Company be altered by the insertion of a new clause empowering the Companyto guarantee the obligations of its associated companies.It was further reported that such action necessitated the passing by the Company in anExtraordinary General Meeting of an appropriate Special Resolution2 and accordingly there wastabled a Notice convening an Extraordinary General Meeting with Consent to Short Noticeattached for that purpose.

[547]

ResolutionsThe Notice convening the Extraordinary General Meeting was considered and it was resolved:

1 That the Directors recommend to the Shareholders the proposed alteration of the Memorandumof Association of the Company, and

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2 That the Notice and Consent to Short Notice convening the Meeting be and is hereby approved,that the Secretary be and is authorised and directed to issue the same to all persons entitled toreceive it and that subject to the necessary Consents to the Meeting being held at Short Noticesuch Meeting be held immediately.Adjournment of MeetingThe Meeting was then adjourned until after the Extraordinary General Meeting had been held.Passing of Special ResolutionUpon the Meeting being reconvened it was reported that the Special Resolution set out in theNotice of Meeting referred to above had been duly passed at the Extraordinary General Meeting.

[548]

Filing of documentsThe Secretary of the Company was instructed to arrange for the filing of the following documentswith the appropriate Registrar of Companies:

1 A signed copy of the Special Resolution passed at the Extraordinary General Meeting of theCompany held today.

2 A printed copy of the Memorandum of Association of the Company as altered.](in all cases)Issue of [Guarantee (or) other instrument]There was produced a draft of (specify instrument into which parent or subsidiary company is toenter) proposed to be entered into by the Company's [parent (or) subsidiary] company inconnection with [the Guarantee (or) (as appropriate)]. The matter having been considered, theBoard was of the opinion that it was to the advantage and for the benefit of the Company tosecure (specify relevant obligations) of the [parent (or) subsidiary] company by giving theproposed [Guarantee (or) (as appropriate)] having regard to the financial interdependence andmutual reliance between the Company and its [parent (or) subsidiary] company and in particularbecause of (specify advantages to the Company).Production of final draft documentThere was produced to the meeting a final draft of the [Guarantee (or) (as appropriate)] it wasproposed that the Company should enter into.ResolutionIt was resolved that the [Guarantee (or) (as appropriate)] be approved and that [(name of director)be and is authorised to sign the same on behalf of the Company (or) the Common Seal of theCompany be affixed to the [Guarantee (or) (as appropriate)]].Closing of MeetingThere being no further business the Meeting was then closed.

[549]

1 A problem may arise where the directors of a company are to approve the execution by thecompany of a guarantee of the obligations of a third party where the commercial benefit to thecompany giving the guarantee is not immediately apparent. This situation arises frequently whena company guarantees the obligations of another member or members of the same group of

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companies, or where the companies concerned have common shareholders. If the company'smemorandum of association does not confer power upon the company to give such a guarantee,a member of the company may bring proceedings to restrain it: Companies Act 1985 s 35(2) assubstituted by the Companies Act 1989 s 108(1). However, no such proceedings may be broughtin respect of an act to be done in fulfilment of an existing legal obligation: Companies Act 1985 s35(2) as substituted (see above) and, in any event, once the guarantee has been executed, thebank will be protected if it dealt with the company in good faith: Companies Act 1985 s 35A(1) asinserted by the Companies Act 1989 s 108(1). The Companies Act 1985 s 35 and s 35A arerepealed as from 1 October 2009, but the position will be the same under the Companies Act2006 s 39 and s 40, which will be brought into force on the same date. Companies incorporatedunder the Companies Act 2006 (when Part 2 of that Act is brought into force on 1 October 2009)will have unlimited objects unless their Articles provide otherwise, and so this issue will be lesslikely to arise: see the Companies Act 2006 s 31 (also in force as from 1 October 2009). Asregards existing companies, provisions of the memorandum will be deemed to be provisions ofthe articles from that time: see note 2 below.Where there is no general power to give guarantees,and particularly when using the inter-company cross guarantee (for which see Form 15 [530]ante), a bank may, for its absolute protection, wish to satisfy itself that the memorandum ofassociation of each guaranteeing company contains words clearly establishing that that companypossesses the necessary power to give such guarantees: for this purpose, words such as 'to givesuch guarantees as may be expedient' are not entirely satisfactory, and the more specificlanguage set out in the Resolution (for which see Form 17 [550] post) is preferred.If thecompany's memorandum of association already contains adequate language, the parts of thisForm dealing with the holding of an extraordinary general meeting to amend the memorandum arenot required. The bank should insist upon being furnished with a certified copy of the boardresolution. The passing of such a resolution will concentrate the minds of the directors of therelevant company upon the question of whether the proposed guarantee is in the best interests ofthat company. As a general rule, there should be no difficulty in the directors reaching aconclusion that the guarantee is in the company's best interests where the company is part of anormal financially stable group of companies that can truly be said to be mutually reliant andfinancially interdependent. However, there may be factors that may alter the position; for example,if in the particular circumstances there is a high probability that the guarantee will be called.Further, the bank should follow up any indication from the text of the resolution itself that thecommercial justification for the giving of the guarantee is somewhat flimsy. If it fails to do so, itmay subsequently be held to have had notice of an abuse of power by the directors.2 See theCompanies Act 1985 s 4 as substituted by the Companies Act 1989 s 110(2). For the form ofspecial resolution see Form 17 [550] post. The Companies Act 1985 s 4 will be repealed as from 1October 2009. Under the Companies Act 2006 s 31 (in force from 1 October 2009), the objects ofa company incorporated under that Act will be unrestricted unless restrictions are contained in thearticles. Provisions of an existing company's memorandum will be treated as provisions of thecompany's articles from that time (see the Companies Act 2006 s 28, in force as from 1 October2009). Amendment of a company's articles will require a special resolution (see the CompaniesAct 2006 s 21, in force as from 1 October 2009).

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Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/C: GUARANTEES RELATING TO MONEY/17 Special resolution of company authorisingguarantee etc

17

Special resolution of company authorising guarantee etc

[550]

SPECIAL RESOLUTION

THAT the Memorandum of Association of the Company with respect to the objects of the Company bealtered by the addition of the following paragraph to be numbered ... after paragraph ... of clause ... andre-lettering the succeeding paragraphs ... to ... seriatim:

0 'To enter into any guarantee, contract of indemnity or suretyship and in particular (withoutprejudice to the generality of the above) to guarantee, support or secure, with or withoutconsideration, whether by personal obligation or by mortgaging or charging all or any part of theundertaking, property and assets (present and future) and uncalled capital of the Company or byboth such methods or in any other manner, the performance of any obligations or commitmentsof, and the repayment or payment of the principal amounts of and any premiums interestdividends and other money payable on or in respect of any securities or liabilities of, any person,including (without prejudice to the generality of the above) any company which is for the timebeing a subsidiary or a holding company of the Company or another subsidiary of a holdingcompany of the Company or otherwise associated with the Company'.

Dated:

BY ORDER OF THE BOARD

(signature of secretary)

SECRETARY

Registered Office:

[551]-[580]

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/D: GUARANTEES RELATING TO PAYMENTS BY COMPANIES/18 Guarantee of debenturescontained in a trust deed for the benefit of debenture holders

D: GUARANTEES RELATING TO PAYMENTS BY COMPANIES

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18

Guarantee of debentures contained in a trust deed for the benefit of debenture holders1

[581]

0 Guarantee of debenturesIn consideration of the sum of £ ... paid to them by the Company on or before the execution of thisDeed, receipt of which is acknowledged, the Guarantors covenant with the Trustees and agree asfollows:

0.1 If the Company makes default for more than ...... days in the payment of any principal money orinterest due under or secured by the debentures or any of them the Guarantors will pay theamount due to the Trustees or to the person or persons respectively entitled to it not later than...... days after a written demand for it has been made to the Guarantors by or on behalf of theTrustees.

0.2 All money received by the Trustees from the Guarantors must be applied by them for the benefitof the debenture holders in satisfaction and discharge of the money due to them as such.

0.3 Any default by the Company in respect of what is due to one or more of the debenture holdersshall without further proof entitle the Trustees to sue upon this covenant for the benefit of all thedebenture holders and to recover from the Guarantors the sums secured by this guarantee.

0.4 The Trustees shall be at liberty without the consent or knowledge of the Guarantors and withoutdischarging them:0.4.1 to give time or other indulgence to the Company2;0.4.2 to exercise the discretions devolving upon them as Trustees; and0.4.3 to assent to any compromises compositions or arrangements with the Company

altering the terms of the debentures and postponing or accelerating the periods ofpayment and increasing or diminishing the amounts due and secured3.

[582]

0.5 The Trustees shall be at liberty to enter into compromises with the Guarantors in respect of theclaims against them under this covenant and guarantee and to bind the debenture holders bysuch compromises.

0.6 This covenant and guarantee shall be a continuing4 security and it shall remain in operation untilthe redemption of the debentures unless previously determined and revoked with the consent ofall parties to this guarantee.

0.7 This covenant and guarantee is made for the benefit of the debenture holders, to each of whomdue notice of it must be given by the Company and the Trustees.

0.8 On the fulfilment and discharge by the Guarantors of their liabilities as such the Trustees shall (ifso required by the Guarantors) exercise for the benefit of the latter all trusts and powers containedin this guarantee as if the Guarantors were themselves the holders of the debentures and as if thisDeed had been entered into and executed for their exclusive benefit5.

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[583]

1 This Form is designed to form a clause in a trust deed, therefore the expressions 'theGuarantors', 'the Company', 'the Trustees', etc should be altered as necessary to match thedefined terms being used in the trust deed.2 As to the effect of the giving of time or otherindulgence to the principal debtor in the absence of such a clause see Paragraph 35 [251]ante.3 This clause is intended to avoid the possibility of discharging the guarantors by virtue ofvariations in the principal agreement, as to which see Paragraph 34 [249] ante.4 As tocontinuing guarantees see Paragraph 19 [122] ante.5 As to rights of subrogation seeParagraph 23 [161] ante.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/D: GUARANTEES RELATING TO PAYMENTS BY COMPANIES/19 Guarantee of payment ofdividends on shares

19

Guarantee of payment of dividends on shares1

[584]

To: (name of shareholder)

of: (address of shareholder)

GUARANTEE OF PAYMENT OF DIVIDENDS

IN CONSIDERATION of your having at my request applied for and having been allotted (number)[preference] shares Nos ...... to ...... (both inclusive) in (name of company) ('the Company') and having paidthe full nominal amount for them in cash

NOW I, (name of guarantor) of (address), AGREE WITH YOU as follows:

1 I undertake that in the event of the company paying in any one year no dividend on the shares ora dividend at a rate less than ......% a year I will within [21] days after the annual general meetingof the Company pay to you a dividend at the rate of ......% a year or so much of it as the Companyshall not pay

2 This Guarantee is to continue in force for [5] years and no longer and in the event of theCompany being wound up or going into liquidation within [5] years from the date of this GuaranteeI undertake to pay to you during the remainder of the period of [5] years a sum equal to ......% ayear upon the nominal amount of the shares less any sums you may have received in the windingup or liquidation in respect of dividends on the shares the payment to be made by me on (date) ineach year

Dated:

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(signature of guarantor)

[585]

1 The only right the guarantor has in respect of sums paid under the terms of this guarantee is a right to be subrogated tothe preference shareholders. He does not have a claim as a creditor of the company: see Re Walters' Deed of Guarantee,Walters' 'Palm' Toffee Ltd v Walters [1933] Ch 321.

Such a guarantee may in certain circumstances (and depending on the identity of the guarantor) fall within the ambit of theCompanies Act 1985 s 151 which makes it unlawful for a company to give financial assistance in the acquisition of its shares, orshares in its holding company. The Companies Act 1985 s 151 is repealed as from 1 October 2009, following which theprovisions of the Companies Act 2006 Part 18 Chapter 2 (s 677 et seq) will need to be considered.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/D: GUARANTEES RELATING TO PAYMENTS BY COMPANIES/20 Guarantee by bank for thebenefit of creditors of a company which is reducing its share capital

20

Guarantee by bank for the benefit of creditors of a company which is reducing its share capital

[586]

THIS AGREEMENT is made the ...... day of ...... ......

BETWEEN:

(1) (name of bank) the registered office of which is at (address) ('the Bank') and

(2) (name of company) the registered office of which is at (address) and the company registration number ofwhich is (number) ('the Company').

WHEREAS

(1) The Company has presented a petition to the High Court of Justice Chancery DivisionCompanies Court for the confirmation of a reduction of the Company's share capital set out in theresolution passed on (date) and scheduled to this Agreement.

(2) With a view to obtaining a direction of the Court pursuant to the Companies Act 1985 Section136(6)1 that the provisions of that section shall not apply as regards the creditors of the Companyat the date of this Agreement, the Bank has agreed at the request of the Company to give theguarantee in respect of the Company's liabilities set out below.

[587]

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NOW IT IS AGREED as follows:

1 In consideration of the payment to the Bank by the Company of the sum of £ ... (receipt of whichthe Bank acknowledges) the Bank undertakes that if the Company fails to pay or satisfy any debtor claim outstanding at the date of this Agreement that would, if that same date were thecommencement of the winding up of the company, be admissible in proof against the Company,the Bank will pay or satisfy such debt or claim.

2 If pursuant to the provisions of clause 1 above the Bank pays or satisfies any debt or claim of theCompany, the resulting debt or claim of the Bank against the Company shall be postponed toevery other debt or claim against the Company of the nature mentioned in clause 1 above, andaccordingly the Bank shall not be entitled to any right of proof on a winding up of the Company inrespect of any debt or claim paid or satisfied by the Bank under this Agreement until all otherdebts or claims as aforesaid have been fully paid or satisfied.

3 The provisions of clauses 1 and 2 above shall enure for the benefit of every person who is acreditor of the Company in respect of any such debt or claim as is mentioned in clause 1 and shallbe enforceable against the Bank by any such creditor as mentioned above2.

4 The Bank as a creditor or contingent creditor of the Company now consents to the reduction ofthe Company's share capital referred to in the said Petition.

5 The liability of the Bank under this Agreement shall be limited to the sum of £ ...

AS WITNESS etc

[588]

SCHEDULE3

Resolutions of the Company

1 That the capital of the Company be reduced from [£60,000] divided into [60,000] ordinary sharesof [£1] each (all of which have been issued and are fully paid up), to [£6,000] divided into [60,000]ordinary shares of [10p] each and that such reduction be effected by returning to the holders ofthe said shares paid up capital to the extent of [90p] per share and by reducing the nominalamount of each of the said shares from [£1] to [10p].

2 That immediately and contingently upon such reduction of capital taking effect:2.1 the [60,000] fully paid ordinary shares of [10p] each resulting from such resolution be

consolidated in such manner that every [10] of the said shares shall constitute one fullypaid ordinary share of [£1];

2.2 the capital of the Company be increased to its former amount of [£60,000] by thecreation of [54,000] ordinary shares of [£1] each;

2.3 the sum of [£24,000] being part of the amount standing to the credit of the generalreserve of the Company be capitalised and accordingly that such sum be set free fordistribution amongst the members of the Company who would have been entitled to it ifdistributed by way of dividend and in the same proportions on condition that the samebe not paid in cash but be applied in paying up in full [£24,000] of the unissued

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ordinary shares of [£1] each in the capital of the company to be allotted and distributedcredited as fully paid up to and amongst such members in the proportions aforesaid.

(signatures on behalf of the Bank and the Company)

[589]

1 The Companies Act 1985 s 136 is repealed as from 1 October 2009, but the equivalent application will then be possibleunder the Companies Act 2006 s 645, which comes into force on the same date.

2 Accordingly, any such creditor will be able to bring proceedings against the bank to enforce the guarantee, notwithstandingthat it is not privy to the contract, by virtue of the Contracts (Rights of Third Parties) Act 1999 s 1.

3 This Schedule provides for a reduction in capital by repayment of cash, but may be adapted for use on a reduction ofcapital by substitution of loan capital for preference shares.

[590]-[620]

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/E: GUARANTEES RELATING TO BUILDING SOCIETIES/21 Deposit of money or security byborrower with building society by way of collateral security

E: GUARANTEES RELATING TO BUILDING SOCIETIES

21

Deposit of money or security by borrower with building society by way of collateral security1

[621]

THIS AGREEMENT is made the ... day of ...... ......

BETWEEN:

(1) (name of borrower) of (address) ('the Borrower') and

(2) (name of building society) the principal office of which is at (address) ('the Society')

WHEREAS

(1) The Society has advanced to the Borrower the principal sum of £ ... ('the Advance') repayablewith interest in ...... years by ...... instalments of £ ... upon the security of a mortgage ('theMortgage') of [freehold (or) leasehold] property of the Borrower known as (address or descriptionof property) ('the Property').

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(2) Part of the arrangement with the Borrower for the Advance was that the Borrower should give acharge upon money deposited by the Borrower with the Society as set out below.

[622]

NOW IT IS AGREED as follows:

1 On the signing of this Agreement the Borrower must deposit with the Society the sum of £ ... ('theDeposit') upon which the Society must allow not less than the current rate of interest from time totime payable on deposits with the Society in accordance with its practice subject as providedbelow.

2 The Deposit shall remain on deposit with and not be repayable by the Society until the happeningof the event described in the Schedule to this Agreement ('the Relevant Event') after which,subject to the rules of the Society, the Deposit shall upon request in writing be repayable to theBorrower PROVIDED that the Society shall not be bound to repay the Deposit until the expirationof one month after the delivery of the written request.

3 If the Society's power of sale shall become exercisable prior to the happening of the RelevantEvent, payment of interest to the Borrower shall cease and the Deposit may be transferred by theSociety to the credit of the repayment account relating to the Mortgage.

[623]

4 The Borrower agrees that the Society may make to any person who may be an assignee of theProperty but subject to the mortgage an advance of the whole or part of such sum as may benecessary to enable payment to be made of a single premium in respect of a policy of lifeassurance for such person.

5 The consent of the Borrower shall not at any time be required in respect of nor shall his liability beavoided by the exercise by the Society of any rights or powers contained in the Mortgage or therules of the Society and the Society may release or make any arrangements regarding any othersecurity held by the Society from the Borrower.

6 Upon all questions of accounts the books of the Society shall without question be accepted asfinal and conclusive saving manifest errors only.

7 If, by virtue of any document to which the Borrower and the Society shall be parties, the Depositor any part of it may be liable to be transferred by the Society, then notwithstanding clause 1 ofthis Agreement the Deposit shall only be repayable to the Borrower subject to the provisions ofthat other document.

8 The Society's powers set out in this document or in any other document shall have priority to theinterest of the Borrower or any person claiming through him.

[624]

9 The Borrower waives all right to participate in the proceeds of the Property, or any securityacquired by the Society for the Advance or any part of it after the date of this Agreement, or in anyother money that may be received by the Society whether from the Borrower or from any othersource in or towards satisfaction of the Advance unless and until all principal money interest fines

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and costs payable under the Mortgage have been received by the Society in full.10 No assignment or transfer by the Borrower of the Property subject to the Mortgage shall be

deemed without express reference to transfer the Deposit, nor shall any such assignment ortransfer (notwithstanding that the Society may have expressed its consent to the transfer orassignment) release or modify the agreements on the part of the Borrower or the provisionscontained in this Agreement.

11 The expression 'the Borrower' as to the Property and also as to the Deposit includes the personalrepresentatives and assigns of the Borrower and any other person who has succeeded to any ofhis rights or liabilities.

[625]

AS WITNESS etc

SCHEDULE

The Relevant Event

(describe the event upon which the Deposit is repayable: eg, the reduction of the principal sum to 2/3 of thepurchase price to defray which the advance was made, or as may be required by the building society)

(signature of the borrower)

(signature of duly authorised officer of the building society)

By order of the Board of Directors

1 A guarantee may also be required. For a Form see Form 24 [632] post.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/E: GUARANTEES RELATING TO BUILDING SOCIETIES/22 Guarantee to accompany depositof money or securities with building society by a third party

22

Guarantee to accompany deposit of money or securities with building society by a third party

[626]

THIS AGREEMENT is made the ...... day of ...... ...... BETWEEN:

(1) (name of guarantor) of (address) ('the Guarantor')

(2) (name of borrower) of (address) ('the Borrower') and

(3) (name of building society) the principal office of which is at (address) ('the Society')

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WHEREAS

(1) The Society has advanced to the Borrower the principal sum of £ ... ('the Advance') repayablewith interest in ...... years by ...... instalments of £ ... upon the security of a mortgage ('theMortgage') (with the terms of which the Guarantor is familiar) of [freehold (or) leasehold] propertyof the Borrower known as (address or description of property) ('the Property')

(2) Part of the arrangement for the Advance was that the Guarantor should with the written consentof the Borrower deposit money with the Society as set out below

[627]

NOW IT IS AGREED as follows:

1 On the signing of this Agreement the Guarantor shall deposit with the Society £ ... ('the Deposit')upon which the Society shall allow not less than the current rate of interest from time to timepayable on deposits with the Society in accordance with its practice subject as provided below.

2 The Deposit shall remain on deposit with and not be repayable by the Society until the happeningof the event mentioned in the Schedule to this Agreement ('the Relevant Event') after which,subject to the rules of the Society, the Deposit shall upon written request be repayable to theGuarantor, PROVIDED that the Society shall not be bound to repay the Deposit until theexpiration of one month from the date of the request.

3 If the Society's power of sale shall become exercisable prior to the happening of the RelevantEvent then:3.1 payment of interest to the Guarantor shall cease;3.2 the Deposit may be transferred by the Society to the credit of the repayment account

relating to the Mortgage; and3.3 the Guarantor shall, if required, at the option of the Society either

3.3.1 purchase the Property at a price equal to the aggregate amount of theprincipal, interest, fines, costs and other charges due to the Society at thedate of the completion of the sale or at the best price that can reasonably beobtained whichever is the greater; or

3.3.2 accept a transfer of the Mortgage, paying to the Society a sum equal to theaggregate amount of the principal, interest, fines, costs and other chargesdue to the Society at the date of the transfer.

[628]

4 The Guarantor agrees that the Society, with or at any time after the Advance, may make by wayof addition to it a further advance of the whole or part of such sum as may be necessary to enablepayment to be made of a single premium payable in respect of a policy of life assurance to beeffected for such person.

5 Nothing contained in this Agreement shall prevent or is intended to prevent the Borrower fromtransferring the mortgaged property in such manner as he may desire or the Society fromexpressing its consent to and concurrence in any such transfer, and the consent of the Guarantor

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shall not be required to nor shall his liability be avoided by any such transfer or by the exercise bythe Society of any rights or powers contained in this Agreement or in the Mortgage or the rules ofthe Society and the Society may as and if it thinks fit release or make any arrangements regardingany other security held by the Society from the Borrower.

6 Upon all questions of accounts the books of the Society shall without question be accepted asfinal and conclusive saving manifest errors only.

7 If, by virtue of any other document to which the Guarantor and the Society shall be parties, theDeposit or any part of it may be liable to be transferred by the Society then, notwithstandingclause 1 of this Agreement, the Deposit shall only be repayable to the Guarantor subject to theprovisions of that other document.

[629]

8 The Society's powers stated in this Agreement or in any other document shall have priority to theinterest of the Guarantor or any person claiming through him.

9 The Guarantor waives all right to participate in the proceeds of the mortgaged property or anysecurity to be acquired by the Society after the date of this Agreement for the Advance or any partof it or in any other money that may be received by the Society whether from the Borrower or fromany other source in or towards satisfaction of the Advance unless and until all principal moneyinterest fines and costs payable under the Mortgage have been received by the Society in full.

10 The Guarantor shall not be discharged by the Society giving time or other indulgence to theBorrower, and the Guarantor shall also not be discharged by the Society agreeing with theBorrower (without the Guarantor's consent) to vary any terms relating to the Advance or theMortgage.

11 References in this Agreement to the Guarantor or the Borrower include their respective personalrepresentatives and assigns and a person who has succeeded to any of the rights or liabilities ofthe Guarantor or the Borrower respectively.

AS WITNESS etc

[630]

SCHEDULE

The Relevant Event

(describe the event upon which the Deposit is repayable: eg, the reduction of the principal sum to 2/3 of thepurchase price to defray which the advance was made, or as may be required by the building society)

(signature of guarantor)

(signature of duly authorised officer on behalf of building society)

By order of the Board of Directors

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Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/E: GUARANTEES RELATING TO BUILDING SOCIETIES/23 Guarantee of the first year'srepayments under a building society mortgage

23

Guarantee of the first year's repayments under a building society mortgage

[631]

THIS AGREEMENT is made the ...... day of ...... ......

BETWEEN:

(1) (name of guarantor) of (address) ('the Guarantor') and

(2) (name of building society) the principal office of which is at (address) ('the Society')

WHEREAS the Society has at the request of the Guarantor agreed to lend to (name of borrower) ('theBorrower') the sum of £ ... upon the security of a mortgage of even date with this Agreement, made between(1) the Borrower and (2) the Society upon the [freehold (or) leasehold] premises known as (address ordescription of property), which provides that the principal sum and the interest on it shall be repaid to theSociety by equal [monthly] instalments of £ ... each.

NOW THE GUARANTOR AGREES with the Society that if any part of the first [12] of such [monthly]instalments is in arrear and unpaid for the space of [14] days the Guarantor will upon the request of theSociety immediately pay the amount due.

(signatures of all parties)

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/E: GUARANTEES RELATING TO BUILDING SOCIETIES/24 Guarantee of a mortgage debtsupported by collateral deposit

24

Guarantee of a mortgage debt supported by collateral deposit1

[632]

THIS AGREEMENT is made the ...... day of ...... ......

BETWEEN:

(1) (names of guarantors) of (addresses) ('the Guarantors')

(2) (name of building society) the principal office of which is at (address) ('the Society') and

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(3) (depositor) of (address) ('the Depositor')

WHEREAS

(1) The Society at the request of the Guarantors agreed to lend to (names of borrowers) of(addresses) ('the Borrowers') the sum of £ ... ('the Advance') upon the security of a mortgage ('theMortgage') of the same date as this Agreement, made between (1) the Borrowers and (2) theSociety upon premises known as (address or description of property) ('the Property'), by which itwas provided that the Advance and the interest on it should be repaid to the Society by equalmonthly payments of £ ....

(2) The Guarantors have agreed to enter into the covenants contained in this Agreement and theDepositor has agreed to deposit with the Society the sum of £ ... ('the Deposit') by way of furtheradditional security for the Advance to the intent that the same shall stand charged to and be heldby the Society in pledge as a collateral security for the payment of the monthly instalmentspayable under the Mortgage.

[633]

NOW IT IS AGREED as follows:

1 The Depositor will deposit the Deposit with the Society in connection with the Mortgage and theDeposit shall, subject to clause 4 below, stand charged with the payment to the Society of allsums that are now or shall become payable by the Borrowers or under the covenants on the partof the Guarantors contained in this Agreement.

2 The Society shall pay to the Depositor interest on all money deposited as set out above or on somuch of it as shall from time to time be standing to the credit of the Depositor at the rate of ......%per year or at the current rate of interest allowed by the Society to individual depositors from timeto time, whichever shall be the [higher (or) lower], subject in each case to the deduction of theapplicable rate of tax, such payments of interest to be made [half yearly (or) as appropriate].

3 If and whenever default is made by the Borrowers or their personal representatives or successorsin title in payment to the Society of any part of the monthly payments due under the Mortgage thathave been in arrear for [14] days, the Society shall be entitled and is empowered to deduct fromthe Deposit so much as shall be required to satisfy any part of the monthly payments, fines, costsand other money secured by the Mortgage.

[634]

4 Once the amount of the Advance and other outstanding money secured by the Mortgage hasbeen reduced to £ ..., the Deposit shall be repayable by the Society upon the written request ofthe Depositor provided that the Society shall not be bound to repay the Deposit until one monthafter the date of receiving the written request.

5 The Guarantors jointly and severally covenant with the Society:5.1 that they will pay to the Society on demand any instalments or other sums of money

remaining unpaid;

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5.2 that if the Society shall become entitled to exercise its power of sale before theDeposit shall have been repaid by the Society then they will, if required by the Society,at the option of the Society either5.2.1 pay to the Society all principal, interest, fines, costs and other money then

due from the Borrowers or their personal representatives or successors intitle under or by virtue of the Mortgage, or

5.2.2 pay the monthly instalments of £ ... secured by the Mortgage, or5.2.3 purchase the Property at a sum sufficient to repay the Society the amount

due for principal, interest, fines, costs and other expenses or at the bestprice that can reasonably be obtained whichever is the greater; and

5.3 that in case the Property shall at any time be sold by the Society under its powers forthat purpose and the proceeds of sale be insufficient to cover all principal, interest,fines, costs and other money then due from the Borrowers or their personalrepresentatives or successors in title under or by virtue of the Mortgage then thedeficiency shall immediately on demand be paid by the Guarantors to the Society.

[635]

6 The Deposit shall not be released from the payment of the money secured by this Agreement orany part of it, and the Guarantors shall not be released from their obligations under thisAgreement, by any of the following, namely:6.1 any giving of time for payment of the principal money or interest or any other money

payable under the Mortgage or the rules for the time being of the Society; or6.2 the substitution of any new covenant to pay; or6.3 consolidation of the Mortgage or any security given for a further advance; or6.4 any mortgage or sale or other dealing with the equity of redemption; or6.5 any other arrangements between the Society and the Borrowers or the persons

deriving title under them respectively in reference to the Property; or6.6 any omission on the part of the Society or the persons deriving title under it to enforce

any covenant or stipulation contained in the Mortgage or in the rules for the time beingof the Society and on the part of the Borrowers to be observed and performed; or

6.7 any other act or thing or omission or means by which the liability of the Guarantorswould not have been discharged if they had been principal debtors; or

6.8 any other dealing between the Society and the Borrowers or their successors in title2.7 The Guarantors shall be released from all liability whatsoever under the covenants contained in

this agreement when and so soon as the total amount secured by the Mortgage shall have beenreduced to £ ... (same figure as in clause 4) PROVIDED that all the covenants and conditions tobe observed and performed on the part of the Borrowers in the Mortgage and on the part of theGuarantors in this Agreement have been duly observed and performed up to that date.

[636]

IN WITNESS etc

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(signatures of the Guarantors and the Depositor)

(signatures of witnesses)

(signature of duly authorised officer on behalf of building society)

By order of the Board of Directors

[637]

1 For a form of deposit by way of collateral security see Form 21 [621] ante. A guarantee is often also required. This Form isdrafted on the basis that the guarantor and depositor are different persons, but can be adapted for use where the person givingthe guarantee also makes the deposit.

2 As to the effect on the liability of the guarantors of the giving of time or other indulgence, or the variation of the terms of theagreement with the principal debtor in the absence of a clause of this type see Paragraph 35 [251] ante.

[638]-[670]

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/F: GUARANTEES RELATING TO FACTORING/25 Guarantee and indemnity relating to afactoring agreement--long form

F: GUARANTEES RELATING TO FACTORING

25

Guarantee and indemnity relating to a factoring agreement--long form1

[671]

To: (name of factor)

GUARANTEE AND INDEMNITY

IN CONSIDERATION of your agreeing to conclude an agreement with (name of supplier) of (address) ('theSupplier'), in the terms or substantially in the terms of the document annexed hereto ('the Agreement'), forthe purchase by you of debts owed or to become owing to the Supplier

NOW [I (or) WE] (name(s) of indemnifier(s)) of (address(es)) ('the Indemnifier[s]') AGREE:

1 [I (or) We] will at all times fully and effectually indemnify, and keep indemnified, you and yoursuccessors in title and assigns and all persons claiming through or under you or them against allactions, proceedings, losses, costs, claims, demands or expenses whatsoever that may be taken

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or made against or become payable by you or them by reason of any breach on the part of theSupplier of any of the warranties obligations or undertakings on his part contained in theAgreement.

[672]

2 A certificate in writing by the auditors for the time being of you or your successors in title orassigns, or any person claiming through or under you or them, of the cost of any actions orproceedings and of the amount of any losses, costs, claims, demands or expenses suffered orincurred by you or them shall be conclusive evidence of that cost or amount in any legalproceedings against [me (or) us] (save for manifest error).

3 [I (or) We] guarantee the due and punctual performance by the Supplier of all the undertakingsand obligations contained in the Agreement on his part and the due and punctual payment to youof all sums that are now or shall at any time be payable to you by the Supplier under theAgreement subject to the following:3.1 notice in writing of any default on the part of the Supplier is to be given by you to us

and within (number) days from its receipt payment shall be made by [me (or) us] underthis Guarantee;

3.2 the giving of time to the Supplier or the neglect or forbearance by you in requiring orenforcing payment of the above-mentioned sums or any other indulgence shall not inany way prejudice or affect [my (or) our] liability under this Guarantee2;

3.3 [I (or) we] will be liable as principal in respect of all payments that are not recoverablefrom the Supplier by reason of any legal limitation disability or incapacity on or of theSupplier or for any other reason;

3.4 a certificate by any of your officers, or any of the officers of your successors in title orassigns, as to the money and liabilities covered by the terms of this guarantee shall beconclusive and binding against [me (or) us] (save for manifest error);

3.5 [I (or) we] may not seek to rely on any set-off or counterclaim so as to extinguish orreduce [my (or) our] liability under this Guarantee.

4 This Guarantee shall be a continuing3 one and shall remain in force until due payment is made bythe Supplier of all sums payable by him under the Agreement.

[673]

5 Any notice under this Guarantee shall be deemed to have been sufficiently given if sent by firstclass prepaid post to [my (or) our] [registered office (or) last known address].

6 In proving that any notice has been delivered it shall be sufficient to prove that the envelopecontaining the same was duly addressed, stamped and posted.

7 Any notice shall be deemed to be delivered at the expiration of 48 hours from the time of posting.8 This Guarantee and Indemnity and [my (or) our] obligations under it shall be construed according

to English law.9 In the event of there being more than one signatory to this Guarantee and Indemnity, our

obligations and liabilities shall be construed and have effect as joint and several obligations andliabilities4.

10 The Guarantee and Indemnity shall be binding upon [my (or) our] executors or administrators and

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upon any committee receiver or other person lawfully acting on [my (or) our] behalf, and shallenure for the benefit of and be enforceable by your successors in title and assigns.

Dated:

(signatures of indemnifiers)

(annex form of Agreement for purchase of debts)

[674]

1 As to factoring generally see Paragraph 46 [331] et seq ante.

2 As to the effect of the giving of time or other indulgence to the principal in the absence of a clause of this type seeParagraph 35 [251] ante.

3 As to continuing guarantees see Paragraph 19 [122] ante.

4 As to a guarantor's rights against his co-guarantors see Paragraph 25 [168] ante.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/F: GUARANTEES RELATING TO FACTORING/26 Indemnity against breach of warranties andundertakings under a factoring agreement

26

Indemnity against breach of warranties and undertakings under a factoring agreement1

[675]

To: (name of factor)

INDEMNITY

Re: (name of company) ('the Company')

IN CONSIDERATION of your entering into a disclosed invoice discounting agreement with the Company orapproving any invoice offered for sale to you

NOW [I (or) We], (name(s) of indemnifier(s)) of (addresses) AGREE WITH YOU as follows:

1 [I (or) We jointly and severally] indemnify you against all costs, losses, damages, claims andinterest that you may suffer or incur by reason of any breach of any warranties, covenants andundertakings contained in clauses (numbers) of the Declaration of Trust contained in clause(number) of the Standard Terms and Conditions.

2 This Indemnity may be terminated by [me (or) us] on [6 months'] written notice to you but this

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shall not affect any liability on our part arising directly or indirectly out of transactions effected orobligations entered into prior to the date of such determination.

(signatures of indemnifiers)

1 As to factoring generally see Paragraph 46 [331] et seq ante.

[676]-[700]

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/G: GUARANTEES RELATING TO PERFORMANCE OF CONTRACTS/27 Guarantee for theperformance of a contract--general form

G: GUARANTEES RELATING TO PERFORMANCE OF CONTRACTS

27

Guarantee for the performance of a contract--general form1

[701]

THIS AGREEMENT is made the ...... day of ...... ...... BETWEEN:

(1) (name of guarantor) of (address) ('the Guarantor') and

(2) (name of person in whose favour guarantee is given) of (address) ('the Employer')

WHEREAS

(1) This Agreement is supplemental to a contract ('the Contract'), dated (date) and made between (1)(name of contractors) ('the Contractors') and (2) the Employer, by which the Contractors agreedand undertook to (describe nature of works or other obligation undertaken) for the sum of £ ...

(2) The Guarantor has agreed to guarantee the due performance of the Contract

[702]

NOW IT IS AGREED as follows:

1 If the Contractors (unless relieved from the performance by any clause of the Contract or bystatute or by the decision of a tribunal of competent jurisdiction) in any respect fail to execute theContract or commit any breach of their obligations under it, the Guarantor will indemnify theEmployer and his personal representatives against all losses, damages, costs and expenses thatmay be incurred by him by reason of any default on the part of the Contractors in performing and

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observing the agreements and provisions on their part contained in the Contract.[2 If any question or dispute arises as to the amount of any such losses, damages, costs and

expenses then:2.1 the amount in question shall be determined by (details of an architect, engineer or

trade expert or as the case may be according to the nature of the contract) whosedecision shall be final; and

2.2 the fees of the [architect (or) engineer (or) trade expert (or as the case may be)] (whoshall be deemed to be acting as an expert and not as an arbitrator) shall be [sharedequally between the Employer and the Guarantor (or) borne by the Guarantor (or asthe case may be)]2]

[703]

3 The Guarantor shall not be discharged or released from this Guarantee by any arrangementmade between the Contractors and the Employer without the assent of the Guarantor or by analteration in the obligations undertaken by the Contractors or by any forbearance whether as topayment time performance or otherwise3.

AS WITNESS etc

(signatures of both parties)

[704]

1 Guarantees are usually required for the performance of a building contract and this Form, although of a general character,is suited to that purpose, but may be adapted for any description of contract.

2 If disputes are to be determined by arbitration, insert an arbitration clause: see generally vol 3(1) (1999 Reissue)ARBITRATION AND ALTERNATIVE DISPUTE RESOLUTION.

3 As to the effect of the variation of the terms of the agreement, or the giving of time or other indulgence to the principal inthe absence of a clause of this type see Paragraph 35 [251] ante. Note that this clause may not protect the employer where theemployer and the contractor enter into a new contract, replacing the contract which is being guaranteed, as opposed to merelyvarying or amending it: Triodos Bank NV v Dobbs [2005] EWCA Civ 630, (2005) Times, 30 May, CA.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/G: GUARANTEES RELATING TO PERFORMANCE OF CONTRACTS/28 Guarantee for theperformance by a new partner of covenants contained in a partnership deed

28

Guarantee for the performance by a new partner of covenants contained in a partnership deed1

[705]

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THIS DEED OF GUARANTEE is made the ...... day of ...... ......

BETWEEN

(1) (name of guarantor) of (address) ('the Guarantor') and

(2) (names of existing partners) of (addresses) ('the Existing Partners')

WHEREAS:

(1) By a deed ('the Partnership Deed') dated (date of partnership deed) and made between (1)(name of new partner) of (address) ('the New Partner') and (2) the Existing Partners, the NewPartner and the Existing Partners agreed:(a) to become partners in the trade or business of (details of trade or business) from (date

new partner joins) for the term of ...... years determinable as provided, the business tobe carried on as mentioned in the Partnership Deed at (address of business premises)under the partnership name of (partnership name) ('the Partnership'); and

(b) that each of them should contribute in certain prescribed proportions towardsmaintaining the working capital of the partnership at a stated sum; and

(c) that the partnership business should in all respects be managed and carried on underthe terms of the Partnership Deed.

(2) Prior to the execution of the Partnership Deed the Guarantor agreed with the Existing Partners toenter into and execute this guarantee.

[706]

NOW IT IS AGREED that the Guarantor is bound to the Existing Partners and to each of them as follows:

1 The Guarantor or his personal representatives shall at all times keep the Existing Partners andeach of them and their personal representatives indemnified against all losses, costs, charges andexpenses any of them may be put to or sustain by reason of the failure of the New Partner toperform and observe the terms of the Partnership Deed, so that the sum paid by the Guarantor infulfilment of this condition shall at least equal the amount that he would have been liable to pay ifhis own name appeared throughout the Partnership Deed in the place of that of the New Partnerand the Guarantor had failed to perform and observe the terms required by the Partnership Deedto be observed and performed by the New Partner.

2 This guarantee shall not be discharged by any variation of the obligations of the New Partnerunder the terms of the Partnership Deed, and it shall also not be discharged by the giving of timeor any other indulgence to the New Partner.

3 This guarantee shall not be revoked by any change in the constitution of the Partnership2.4 The maximum aggregate sum recoverable from the Guarantor shall be £..., but subject to that

maximum this guarantee shall extend to the whole debt and liability of the New Partner.5 The Guarantor may determine this guarantee by giving (number) days' notice to the Partnership

(as constituted under the Deed of Partnership or as it may from time to time be constitutedfollowing any changes in its constitution), provided that (a) such notice may not expire prior to(date) and (b) the Guarantor shall remain liable for all losses, costs, charges and expenses that

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any of the Existing Partners may be put to or sustain by reason of any failure of the New Partnerto perform and observe the terms of the Partnership Deed that has occurred prior to the expiry ofthe notice.

IN WITNESS etc

(signature (or common seal) of guarantor)

(signatures of witnesses)

[707]

1 As no consideration is contemplated, this guarantee should be executed as a deed.

2 See Paragraph 37 [255] ante. Although this provision provides that the guarantee shall not be discharged by any change inthe constitution of the firm, the liability of the guarantor will continue to be to the named Existing Partners only, and will notextend in favour of those joining after the New Partner.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/G: GUARANTEES RELATING TO PERFORMANCE OF CONTRACTS/29 Guarantee forpayment of rent and observance of terms of tenancy agreement by a tenant

29

Guarantee for payment of rent and observance of terms of tenancy agreement by a tenant

[708]

To: (name of landlord)

of: (address)

GUARANTEE

IN CONSIDERATION of your having agreed at my request to accept (name of tenant) ('the Tenant') as thetenant of your house (address of property) upon the terms of an agreement dated (date of tenancyagreement) ('the Tenancy Agreement') at the rent of £ ... a year ('the Rent') payable by quarterly paymentson the usual quarter days,

NOW I, (name of guarantor) of (address), GUARANTEE the payment by the tenant to you of the Rent andthe performance and observance by him of the terms of the Tenancy Agreement upon the followingconditions:

1 If the Tenant defaults in the payment of the Rent for the space of one month, I will upon a written

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request by you pay you the quarter's rent that is in arrear1.2 If the Tenant defaults in the performance or observance of any of the provisions on his part

contained in the Tenancy Agreement, I will pay to you all losses, damages, expenses and coststhat you shall be entitled to recover by reason of his default, to the extent to which you are unableto recover them from the Tenant.

[709]

3 This Guarantee shall continue only for ...... years from the date hereof and extend to the acts anddefaults of the Tenant during that period, but during that period it shall not be revocable ordischarged by my death or by the death or bankruptcy of the Tenant.

4 Without prejudice to clause 3 above this Guarantee shall not be discharged by your giving theTenant time in which to meet his rent or other indulgence in respect of his obligations under theTenancy Agreement2.

5 If the Tenancy Agreement is assigned with your consent or is terminated by agreement or byre-entry or disclaimer or otherwise, all future liability on my part shall cease3.

Dated:

(signature of guarantor)

[710]

1 As to conditions precedent to liability of the guarantor see Paragraph 26 [191] ante.

2 As to the effect of the giving of time or other indulgence to the principal in the absence of a clause of this type seeParagraph 35 [251] ante.

3 The guarantor will otherwise not be discharged if, upon the bankruptcy of the tenant, the trustee disclaims the lease:Hindcastle Ltd v Barbara Attenborough Associates Ltd [1997] AC 70, [1996] 1 All ER 737, HL.

[711]-[740]

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/H: GUARANTEES RELATING TO LEASING OF CHATTELS/30 Guarantee and indemnityrelating to lease of an aircraft

H: GUARANTEES RELATING TO LEASING OF CHATTELS

30

Guarantee and indemnity relating to lease of an aircraft

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[741]

THIS GUARANTEE AND INDEMNITY is made the ...... day of ...... ......

BETWEEN:

(1) (name of guarantor) of (address), a Company incorporated under the laws of (state country ofincorporation), ('the Guarantor') and

(2) (name of owner) of (address), a Company incorporated under the laws of (state country of incorporation),('the Owner')

WHEREAS

(1) By an agreement in writing dated (date of agreement for sale) and made between (1) the Ownerand (2) (name of hirer) ('the Hirer') the Hirer sold the entire legal and beneficial ownership of anaircraft model number ...... with manufacturer's serial number ...... and registration mark number...... ('the Aircraft').

(2) By an agreement in writing dated (date of lease) ('the Lease'), the Owner let the Aircraft to theHirer for a period of (period) from (date of commencement of hire).

(3) The Hirer being a wholly owned subsidiary of the Guarantor, the Guarantor has agreed toguarantee to the Owner the due performance by the Hirer of all the Hirer's obligations under theLease.

[742]

NOW IT IS AGREED as follows:

1 The Guarantor warrants that:[1.1 it does not hold and will not without the Owner's written consent take or hold any

security from the Principal in relation to this Guarantee. Any security so taken will beheld on trust for the Owner and the Guarantor undertakes to deposit assign orotherwise transfer such security with or to the Owner as soon as possible, there beingno obligation on the Owner to make any demand with regard thereto.

1.2 its entry into this Guarantee does not contravene any law or statute, and that it haspower to enter this Agreement [and has obtained all necessary approvals to do so].

1.3 since the date of its last filed accounts (a copy of which has been provided to theOwner) there has not been any material change (nor is any such change expected) inthe position or prospects of the Guarantor (in particular but without prejudice to thegenerality of the foregoing the position regarding its assets and liabilities) as comparedwith the position in those accounts.]1

2 In consideration of the Owner agreeing to enter into the Lease, the Guarantor irrevocably andunconditionally undertakes with the Owner that:2.1 the Hirer shall duly and promptly pay, free of any deductions or withholdings or set-offs

of whatever kind, all amounts from time to time payable by the Hirer under the Lease;2.2 the Hirer shall duly perform, observe and honour all the provisions, obligations,

warranties and undertakings on its part contained in the Lease; and

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2.3 in case of default by the Hirer in making any such payment or in the performance,observance or honouring of any such provisions, obligations, warranties andundertakings, the Guarantor will pay and make good to the Owner on demand beingmade in writing all such payments and all losses, costs, damages and expenses arisingor incurred by the Owner as a result of such default.

[743]

3 The Guarantor irrevocably and unconditionally indemnifies and agrees to indemnify and holdharmless the Owner against any loss the Owner may suffer in consequence of any order that maybe made under the Insolvency Act 1986 in respect of the said purchase of the Aircraft by theOwner from the Hirer in whatever manner occurring.

4 In addition to its obligations under clauses 2 and 3 above, the Guarantor undertakes to pay to theOwner, free from any deductions or withholdings or set-offs of whatever kind, any and all interestbefore or after judgment on the amount or any part of it for the time being unpaid and due to theOwner under this Guarantee and Indemnity at the rate of ......% a year, together with all legal andother costs, charges and expenses (on a full indemnity basis) incurred by the Owner in enforcingthe payment of any money due under this Guarantee and Indemnity.

5 Should any amounts or obligations referred to in clause 2 above not be recoverable from orenforceable against the Hirer on account of:5.1 any legal disability or incapacity of the Hirer, or5.2 any irregularity or defect in respect of the incurring of the liability to pay such amounts,

or5.3 the invalidity of any assurance, security or payment for any reason whatsoever, or5.4 any other legal limitation, disability, incapacity or any defect or circumstance, including

(without prejudice to the generality of the foregoing) the fact that any liability of theHirer is rendered void by virtue of any statute,

then such money, liability or liabilities together with any further sums due and owing under clauses3 and 4 above shall remain recoverable from the Guarantor as an indemnity against the losssuffered by the Owner in consequence thereof and as though the Guarantor was a principalobligor and the same shall be paid by the Guarantor forthwith on demand.

[744]

6 This Guarantee and Indemnity shall be a continuing security irrespective of any change in name,constitution, or construction or otherwise of the Hirer and shall remain binding upon the Guarantoruntil all the obligations of the Hirer have been satisfied or enforced.

7 The liability of the Guarantor shall not be affected nor shall this Guarantee and Indemnity bedischarged or diminished by reason of:7.1 any renewal, variation or determination of the lease2;7.2 any renewal, modification, release, or abstention from the perfection or enforcement of

any security or guarantee on the part of the Owner with regard to any security orguarantee now or hereafter held from the Hirer or any other person, including theGuarantor, in respect of the Lease3;

7.3 the granting of time or of any indulgence to or the compounding with the Hirer or any

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other person or guarantor on the part of the Owner4; and/or7.4 the doing or the omitting to do anything on the part of the Owner that but for this

provision might operate to exonerate or discharge the Guarantor from any of itsobligations under this Guarantee and Indemnity,

and this guarantee and indemnity shall not be discharged or affected by anything that would nothave discharged or affected the Guarantor's liability if the Guarantor had been a principal debtorto the Owner instead of a guarantor.

[745]

8 Any money received in connection with this Guarantee and Indemnity may be placed to the creditof a suspense account for as long as the Owner thinks fit, without any obligation to apply any parttowards reducing the amount for the time being unpaid and due to the Owner.

9 The Owner may retain any security held in respect of the Guarantor's liability under thisGuarantee and Indemnity for a period (being one month plus any statutory period during whichany allowance or security or payment or other arrangement involving the Guarantor or the Hirermay be avoided) after payment of all sums that are or may become due to the Owner from theHirer notwithstanding any release, settlement, discharge or arrangement given or made by theOwner.

10 Until all money and liabilities due or incurred by the Hirer to the Owner shall have been paid ordischarged in full, irrespective of any part payment of all sums due under this Guarantee andIndemnity and of any purported release or cancellation of this Guarantee and Indemnity, theGuarantor is not entitled to claim or rely upon any set-off or counterclaim as against the Hirer inrespect of any liability on the part of the Guarantor to the Hirer nor is the Guarantor entitled toprove in the insolvency of the Hirer in competition with the Owner whether in respect of anypayment by the Guarantor under this Guarantee and Indemnity or otherwise.

11 This Guarantee and Indemnity is in addition to and is not to prejudice or be prejudiced by anyother guarantee or security for the obligations of the Hirer that is or may be held by the Owner.

[746]

12 All payments by the Guarantor under this Guarantee and Indemnity shall be made in the currencyapplicable to the Hirer's obligations without set-off or counterclaim and without deduction for anytax, duties, charges, fees, deductions or withholdings or restrictions whatever and if the Guarantoris obliged by law to make any such deduction or deductions, the amount due from the Guarantorshall be increased to the extent necessary to ensure that after the making of such deduction ordeductions, the Owner receives a net amount equal to the amount it would have received had nosuch deduction been required to be made.

13 This Guarantee and Indemnity shall be binding on the Guarantor and its successors and shallenure to the benefit of and be enforceable by the Owner and its successors and assigns but theGuarantor may not assign or transfer any of its rights or obligations under this Guarantee andIndemnity.

14 The Guarantor covenants with the Owner that, so long as it remains under any liability under thisGuarantee and Indemnity, it will continue to own beneficially and exercise voting control over theHirer and ensure that the Hirer retains sufficient working capital to enable it to pay promptly when

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due all its present and future indebtedness under the Lease.15 Any notice or demand for payment by the Owner under this Guarantee and Indemnity shall be

made in writing addressed to the relevant party, and without prejudice to any other effective modeof service the same shall be deemed to have been properly served on the Guarantor if served onany one of the directors or on the secretary of the Guarantor or delivered or sent by first classletter post to the Guarantor at its registered office or any of its principal places of business.

16 This Guarantee and Indemnity shall be governed by and construed in accordance with Englishlaw.

AS WITNESS etc

(signatures (or common seals) of the parties)

(signatures of witnesses)

[747]

1 The warranties given in clauses 1.1-1.3 are examples and should be adapted as appropriate.

2 This provision is necessary to prevent discharge of the guarantor by reason of any variation in the principal contract (ie thelease). See Paragraph 34 [249] ante.

3 As to release of securities see Paragraph 36 [253] ante.

4 As to the giving of time see Paragraph 35 [251] ante.

[748]-[780]

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/I: NOTICES UNDER GUARANTEES/31 Notice of revocation of a guarantee where no power ofrevocation is reserved

I: NOTICES UNDER GUARANTEES

31

Notice of revocation of a guarantee where no power of revocation is reserved1

[781]

To: (name(s) of person(s) to whom guarantee is given)

of: (address(es))

NOTICE OF REVOCATION

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TAKE NOTICE that I, (name of guarantor) of (address), the undersigned now revoke and determine from andafter the date of this notice the [agreement (or) guarantee (or) bond] dated (date of agreement or guaranteeor bond) under which I became guarantor for (name of principal debtor) of (address)

AND I DECLARE that all liability whatever on my part under that [agreement (or) guarantee (or) bond] shallnow wholly cease and determine [except as to any liability existing at the time of the receipt by you of thisnotice]2.

Dated:

(signature of guarantor)

[782]

1 If no power to determine the guarantee is expressly reserved, the nature of the consideration for the guarantee determinesin each case whether it is revocable by notice. If the consideration is entire, as where the guarantee is for the performance ofcovenants in a lease, it is irrevocable: Lloyd's v Harper (1880) 16 Ch D 290 at 319, CA. Where, on the other hand, it isfragmentary, ie supplied from time to time, as in the case of a guarantee given to secure the balance of a running account forgoods supplied, it is revocable, unless the contrary is provided: Bastow v Bennett (1812) 3 Camp 220. Though formerly adifferent view prevailed (see Hassell v Long (1814) 2 M & S 363 at 369), it seems now to be clear that even when a guaranteeis executed as a deed, it is capable of being revoked by notice: Burgess v Eve (1872) LR 13 Eq 450; Lloyd's v Harper (1880) 16Ch D 290, unless it is from its very nature irrevocable.

Subject to the terms of the guarantee, the revocation of a joint and several guarantee by one guarantor will probably notdischarge the rest, by analogy with Beckett v Addyman (1882) 9 QBD 783, CA.

As to revocation see Paragraphs 21 [126] and 38 [257] ante.

2 The words in square brackets can be included for the protection of the person guaranteed. In any event, the revocation willonly prevent further liability accruing in the future (after expiry of the notice), and will not prevent liability for any sums incurredby the principal debtor up to the expiry of the notice period: Coulthart v Clementson (1879) 5 QBD 42 and National WestminsterBank plc v Hardman [1988] FLR 302, CA.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/I: NOTICES UNDER GUARANTEES/32 Notice of revocation of a guarantee where a power ofrevocation is reserved

32

Notice of revocation of a guarantee where a power of revocation is reserved1

[783]

To: (name(s) of person(s) to whom guarantee is given)

of: (address(es))

NOTICE OF REVOCATION

WHEREAS by a written agreement of guarantee dated (date of guarantee) I, (name of guarantor) of

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(address), the undersigned, became guarantor to you for (name of principal debtor) of (address).

NOW I GIVE YOU NOTICE THAT in pursuance of a power for that purpose reserved and contained in thatAgreement I revoke and determine the Agreement from (date revocation to take effect) next ensuing anddeclare that my liability under it shall from and after that date wholly cease and be determined.

Dated:

(signature of guarantor)

[784]

1 Where power to revoke a guarantee is expressly reserved, the notice of revocation should conform to the terms of thepower in all material respects, and especially with regard to the length of time prescribed for the notice. As to revocation seeParagraphs 21 [126] and 38 [257] ante.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/I: NOTICES UNDER GUARANTEES/33 Notice to guarantor that principal debtor has madedefault and requiring payment

33

Notice to guarantor that principal debtor has made default and requiring payment1

[785]

To: (name of guarantor)

of: (address)

NOTICE OF DEFAULT

TAKE NOTICE THAT (name of principal debtor) of (address), for whom you became and are guarantor to[me (or) us] (name(s) of creditor(s)) under an agreement of guarantee ('the Agreement') in writing dated(date of guarantee), has made default in payment of the sum of £ ... due to [me (or) us] in respect of [goodssupplied (or) advances made] to him and secured by the Agreement and that the sum is still unpaid and dueand owing to [me (or) us].

AND TAKE NOTICE THAT [I (or) WE] REQUIRE YOU [immediately (or) as provided by the Agreement] topay or cause to be paid to us that sum [together with interest thereon as provided for by the Agreement]2 onor before (date) and by payment (in such manner as shall result in cleared funds being received on or beforethat date) to the following account (set out account details) otherwise legal proceedings to enforce andrecover payment will be taken against you at the expiration of [one week (or insert the period if any fixed bythe Agreement)] from the date of this notice.

Dated:

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(signature(s) of creditor(s))

[786]

1 Strictly speaking, the guarantor is not entitled to notice of the principal debtor's default: see generally Paragraph 26 [191]ante.

2 The words in square brackets should be used where the guarantee provides for interest on sums due.

[787]-[820]

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/J: AGREEMENTS BETWEEN OR RELATING TO GUARANTORS/34 Agreement settlingcontribution rights between co-guarantors

J: AGREEMENTS BETWEEN OR RELATING TO GUARANTORS

34

Agreement settling contribution rights between co-guarantors1

[821]

THIS AGREEMENT is made the ...... day of ...... ......

BETWEEN:

(1) (name of first guarantor) of (address) ('the First Guarantor');

(2) (name of second guarantor) of (address) ('the Second Guarantor'); and

(3) (name of third guarantor) of (address) ('the Third Guarantor').

WHEREAS the First Second and Third Guarantors ('the Guarantors') are jointly and severally liable asguarantors (but in unequal shares and proportions) under a guarantee in writing dated (date of guarantee)('the Guarantee') for the payment by (name of principal debtor) of (address) ('the Principal Debtor') to (namesand addresses of creditors) ('the Creditors') of all sums that shall from time to time be advanced by theCreditors to the Principal Debtor but subject to a limitation of ultimate aggregate liability under the Guaranteeon the part of the Guarantors to the sum of £ ... ('the Common Suretyship Liability')

[822]

NOW IT IS AGREED as follows:

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1 Each of the Guarantors enters into this Agreement with the object and intention of regulating anddetermining the respective and mutual suretyship rights and liabilities under and arising out of theGuarantee.

2 Each of the Guarantors agrees with each of the others that he will, to the full extent of hisprescribed individual liability under the Guarantee but no further save in the events provided for byclause 4 below, pay and make contribution in respect of any sum paid or payable by andrecoverable from any one or more of them under the Guarantee, and will claim contribution forany amount exceeding his prescribed share of the Common Suretyship Liability.

3 The proportion payable by each of the Guarantors by way of contribution towards the CommonSuretyship Liability shall in all cases be regulated and determined by the amount of his individualliability under the Guarantee.

4 In the event of any one or more of the Guarantors becoming insolvent or otherwise unable tosatisfy in full his or their share of the Common Suretyship Liability, the amount of contributionpayable by the others shall be regulated by the number of solvent Guarantors and shall be in strictproportion to the amount of each Guarantor's individual liability PROVIDED that except in thecircumstances mentioned in this clause, no Guarantor shall be liable to contribute more than hisindividual liability under the Guarantee.

[823]

5 The sums payable under this Agreement by way of contribution shall be paid to the Guarantor orGuarantors entitled to them on their giving satisfactory proof that they have discharged bypayment the Common Suretyship Liability.

6 Should contribution be demanded before actual payment is made to the Creditors of the sumsclaimed by them, the Guarantor called upon to contribute may pay the sum due from him either tothe co-guarantor calling on him to contribute or to the Creditors2.

7 If any one or more of the Guarantors shall take and receive from the Creditors or from thePrincipal Debtor or from any other person or persons whomsoever any security or securities formoney whether satisfied or not3 or any sum or sums of money by way of full or partial dischargeor indemnity from or on account of liability under the Guarantee, he or they shall hold the securityor securities or sum or sums of money as trustee or trustees for such one or more of theGuarantors as shall by law be entitled to it or them or to the benefit of it or them.

8 Nothing contained in this Agreement shall operate to deprive any one or more of the Guarantorsof any right or rights that he or they or any of them shall by law possess or be entitled to againstone another as co-guarantors under the Guarantee4 save in so far as any such right or rights areexpressly or impliedly excluded by the terms of this Agreement.

9 This Agreement shall not be affected or impaired in any way by the express or implied dischargefrom liability under the Guarantee of any one or more of the Guarantors.

10 Save where the context renders it absurd or impossible each and every reference to theGuarantors or any one or more of them made in this Agreement shall be deemed to comprisetheir or his personal representatives, by and against whom this Agreement shall be enforceableas if they had been originally named as parties.

AS WITNESS etc

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(signatures of guarantors)

[824]

1 As to the rights of co-guarantors see Paragraph 25 [168] ante.

The right of contribution amongst guarantors is not founded in contract, but is the result of a general equity on the ground ofequality of burden and benefit. It exists whether the guarantors are bound jointly, or jointly and severally, and is quiteirrespective of their knowledge of the existence of co-guarantors for the same debt or liability. Where guarantors are liable inunequal shares for a common debt, their contributions between themselves are unequal, and are determined by the prescribedindividual liability of each under his guarantee: Pendlebury v Walker (1841) 4 Y & C Ex 424 at 441. See also Ellesmere BreweryCo v Cooper [1896] 1 QB 75 but see Commercial Union Assurance Co Ltd v Hayden [1977] QB 804, [1977] 1 All ER 441, CA.

Property charged by one guarantor is not equitably charged to a co-guarantor to cover any money the latter may be required topay under the guarantee: Pratt's Trustee in Bankruptcy v Pratt [1936] 3 All ER 901.

2 Although the right of contribution is usually exercised after payment has actually been made by one guarantor in excess ofhis share of the common liability, it is sometimes invoked before payment: Wolmershausen v Gullick [1893] 2 Ch 514 at 520.

3 The right of a guarantor under the Mercantile Law Amendment Act 1856 s 5 who has satisfied a judgment obtained by thecreditor against the principal debtor or his guarantors, to stand in the place of the judgment creditor is not affected by thecircumstance that such guarantor has not obtained actual assignment of the judgment: Re M'Myn, Lightbown v M'Myn (1886)33 Ch D 575.

4 As to the rights of co-guarantors against each other see Paragraph 25 [168] ante.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/J: AGREEMENTS BETWEEN OR RELATING TO GUARANTORS/35 Agreement converting onejoint obligor into a guarantor for the other

35

Agreement converting one joint obligor into a guarantor for the other1

[825]

THIS AGREEMENT is made the ...... day of ...... ......

BETWEEN:

(1) (name of first joint obligor of a bond) of (address) ('the First Obligor'); and

(2) (name of second joint obligor of the bond) of (address) ('the Second Obligor').

WHEREAS

(1) By a bond ('the Bond') dated (date) and given by the First and Second Obligors ('the Obligors')the Obligors became jointly bound to (name of obligee) ('the Obligee') in a penal sum, but subjectto a condition making the obligation void on payment by them to the Obligee of the sum of £ ...with interest thereon at the rate of ......% per year on (date sum to be paid)

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(2) The Obligors for various reasons wish and intend to establish between themselves the relation ofprincipal and guarantor under the Bond by converting the Second Obligor into a guarantor for theFirst Obligor

[826]

NOW IT IS AGREED as follows:

1 In consideration of the sum of £ ... paid by the First Obligor to the Second Obligor, receipt ofwhich is now acknowledged, the First Obligor agrees to become the principal debtor under theBond to the Obligee and to remain and become primarily liable to him in respect of all sumssecured by the Bond.

2 The First Obligor now agrees with the Second Obligor:2.1 to make punctual payment to the Obligee of all sums secured by the Bond;2.2 to fulfil in all respects the conditions of the Bond; and2.3 to keep the Second Obligor indemnified against all actions suits claims and demands

whatsoever that shall be brought or made respectively by or on behalf of the Obligeeas obligee of the Bond or by his personal representatives or assigns.

3 The First Obligor also undertakes and agrees that he will within one week from the date of thisagreement give to the Obligee written notice of this Agreement and of its true meaning and effect.

AS WITNESS etc

(signatures of both parties)

[827]

1 An agreement between co-guarantors that one is to be primarily liable has been held not to create an equitable charge infavour of the guarantor secondarily liable on property of the guarantor previously liable which was charged to the creditor:Pratt's Trustee in Bankruptcy v Pratt [1936] 3 All ER 901.

As to co-guarantors see Paragraph 25 [168] ante.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/J: AGREEMENTS BETWEEN OR RELATING TO GUARANTORS/36 Deed of release ofguarantor from past, present and future liability under his guarantee

36

Deed of release of guarantor from past, present and future liability under his guarantee

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[828]

THIS RELEASE is made the ...... day of ...... ......

BY:

(name(s) and address(es) of creditor(s))

WHEREAS

(1) (name of guarantor) of (address of guarantor) ('the Guarantor') by a guarantee in writing ('theGuarantee'), dated (date) and signed by him, became guarantor to [me (or) us] for the duepayment by (name of principal debtor) of (address) ('the Principal') for all goods to be supplied by[me (or) us] to the Principal in the way of his trade or business as a (details of trade or business)during a period of ...... years from (date guarantee commenced) but with a limitation of the liabilityof the Guarantor under the Guarantee to the sum of £ ....

(2) Relying on and in pursuance of the Guarantee, [I (or) we] have from time to time since (dateguarantee commenced) at the request of the Principal supplied him with goods on credit for histrade or business and he is now indebted to [me (or) us] in respect and on account of them in thesum of £ ... (amount of debt), which the Principal professes to be unable to pay and has not paid.

(3) At the request of the Guarantor [I (or) we] have agreed:(a) to release and discharge him from all past present and future liability under his

guarantee in consideration of his having paid to [me (or) us] previous to the executionof this release the sum of £ ... (amount paid by guarantor), and

(b) to cancel in his presence the Guarantee and then to surrender and deliver it up to him.

[829]

NOW THIS DEED WITNESSES that:

1 In pursuance of the above and in consideration of the sum of £ ... (amount paid by guarantor),receipt of which [I (or) we] acknowledge, [I (or) we jointly and severally] release and discharge theGuarantor his personal representatives and his and their estates and effects from all past presentand future liability to [me (or) us] under the Guarantee and also from all actions, suits, accounts,claims and demands whatsoever for upon account or in respect of the Guarantee.

2 [I (or) We] undertake and agree at the Guarantor's request to cancel the Guarantee in hispresence and then to surrender and deliver up the same to him1.

[3 [I (or) We] hereby reserve all our rights under the Guarantee against the other guarantorsthereunder.]2

IN WITNESS etc

(signature(s) or common seal(s) of creditor(s))

(signatures of witnesses)

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[830]

1 Where the guarantee provides that the right of the guarantor to prove in the bankruptcy, insolvency or liquidation of theprincipal debtor is postponed until such time as the creditor is paid in full, this advantage may be preserved by a suitable clause,but in this event, the creditor should not surrender the guarantee, which should be retained attached to the creditor's copy of therelease.

2 Where there is more than one guarantor and it is desired to release only one, it is advisable expressly to reserve thecreditor's rights against the other guarantors to ensure that those guarantors are not discharged: see Paragraph 37 [255] ante.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/J: AGREEMENTS BETWEEN OR RELATING TO GUARANTORS/37 Agreement for substitutionof guarantor

37

Agreement for substitution of guarantor1

[831]

THIS AGREEMENT is made the ...... day of ...... ......

BETWEEN:

(1) (name of debtor) of (address) ('the Debtor')

(2) (name of retiring guarantor) of (address) ('the Retiring Guarantor')

(3) (name of new guarantor) of (address) ('the New Guarantor') and

(4) (name of creditor) of (address) ('the Creditor')

WHEREAS

(1) The Debtor is indebted to the Creditor in the sum of £ ....(2) By an agreement dated (date of guarantee) ('the Agreement'), and made between (1) the Debtor

(2) the Retiring Guarantor and (3) the Creditor, the payment of the sum of £ ... (amountguaranteed) was guaranteed to the Creditor by the Retiring Guarantor.

(3) The Retiring Guarantor desires to be released and discharged from his liability under theAgreement and the Creditor has at the request of the Debtor, the Retiring Guarantor and the NewGuarantor agreed to release and discharge the Retiring Guarantor upon the New Guarantorguaranteeing the payment to the Creditor of the sum of £ ... (amount guaranteed) in the place ofthe Retiring Guarantor.

[832]

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NOW IT IS AGREED as follows:

1 The New Guarantor guarantees the payment of the sum of £ ... to the Creditor upon the sameterms and conditions as are contained in the Agreement as if the New Guarantor were a party tothe Agreement and his name were inserted in it in place of the name of the Retiring Guarantor.

2 The creditor accepts the liability and guarantee of the New Guarantor and releases anddischarges the Retiring Guarantor from all claims and demands whatsoever in respect of theAgreement and the liability and guarantee of the Retiring Guarantor.

AS WITNESS etc

(signatures of all parties)

[833]

1 In the case of a guarantee to a bank, it is likely that, instead of an agreement in this form being executed, a new guaranteewould be taken from the substituted guarantor and a letter of discharge written to the retiring guarantor, with the return of the oldguarantee, as to which see Form 36 [828] ante.

[834]-[860]

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/K: INDEMNITIES/38 Indemnity by seller of house to buyer in respect of lost or missing titledeeds

K: INDEMNITIES

38

Indemnity by seller of house to buyer in respect of lost or missing title deeds1

[861]

THIS DEED OF INDEMNITY is made the ...... day of ...... ......

BETWEEN:

(1) (name of seller) of (address) ('the Seller') and

(2) (name of buyer) of (address) ('the Buyer')

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WHEREAS

(1) The Seller agreed to sell to the Buyer the dwellinghouse known as (address of property) and by aconveyance of even date with, but executed before, this deed and made between (1) the Sellerand (2) the Buyer, the Seller conveyed that dwellinghouse to the Buyer in fee simple

(2) The Seller delivered an abstract of title to the Buyer but was unable to produce or cause to beproduced to the Buyer certain of the abstracted deeds ('the Missing Deeds'), particulars of whichare contained in the Schedule below

(3) The Buyer agreed to complete the purchase upon the Seller undertaking to enter into thecovenant set out below

[862]

NOW THIS DEED WITNESSES that:

1 The Seller covenants with the Buyer and his successors in title, in pursuance of the aboveagreement, that the Seller and his personal representatives will at all times keep the Buyer andhis successors in title and all persons claiming through or under him or them fully indemnifiedagainst all losses costs charges and expenses that he they or any of them may suffer by reasonof the fact that he or they have not the custody of the Missing Deeds or any of them or the benefitof any covenant or acknowledgment for their production.

2 The Seller covenants with the Buyer and his successors in title to notify the Buyer or the relevantsuccessor in title of any and every change in [his or her] address from time to time within 14 daysof such change occurring.

3 In the event of the Missing Deeds coming into the Seller's possession:3.1 the Seller acknowledges the right of the Buyer to production of them and to delivery of

copies of them;3.2 the Seller undertakes for the safe custody of them; and3.3 the Seller undertakes immediately to inform the Buyer that they are in his possession.

IN WITNESS etc

SCHEDULE

The Missing Deeds

(particulars)

(signature (or common seal) of Seller)

(signatures of witnesses)

[863]

1 The reference to lost or missing deeds indicates that the land is unregistered. In that case, the conveyance or transfer oncompletion of the sale will trigger first registration. However, if there are lost or missing title deeds, it could be difficult to obtainregistration with absolute title. Much will depend on what evidence is available as to the circumstances of the loss and as to thecontents of the missing deeds.

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On the one hand, if the missing deeds were clearly lost as the result of a particular event where the deeds were not known to beheld by way of security (eg loss in a fire at the office of the solicitor for the estate owner who can say the deeds were only heldfor safe keeping), and examined copies are available so as to prove the contents of the deeds, then the difficulties may beminimal. On the other hand, if there is only a vague statement (eg by executors of a deceased person who is claimed to havebeen the estate owner) that deeds were believed to have been held at some time, but cannot now be found, and there is noavailable evidence as to what the deeds (if any) may have contained, then it is unlikely that, if any registered title can begranted, it will be absolute title.

For this reason a prudent intending buyer will normally wish to have the seller apply for first registration of the title voluntarily incircumstances where deeds are missing, either before a binding contract is entered into or under the terms of a contract that isconditional upon a satisfactory registered title being obtained. The buyer can then make a final decision about the purchase inthe light of whether a registered title is granted and, if so, whether the title is less than absolute or is the subject of protectiveentries. If an absolute title without protective entries is granted, then the purchase can be completed without the need for anyindemnity. However, if, say, a possessory title is granted, or an absolute title is granted subject to a protective entry referring tosuch restrictive covenants and/or easements as may affect the land (likely where the title is basically sound but the missingdeeds might have disclosed burdens of this kind) then the indemnity can be tailored to the circumstances and/or a defective titleindemnity policy considered, the burden of paying the premium being a matter of bargain between the parties.

[864]

The advantage of a defective title indemnity policy issued by a reputable insurer is that the buyer can be reasonably sure ofhaving someone to deal with should the indemnity need to be called upon later. If there is an underlying difficulty behind thelack of particular title deeds, it could be many years before the problem surfaces, by which time the seller may be difficult totrace and/or may have died and his or her estate long since wound up, so that the seller's indemnity becomes illusory inpractice. A covenant on the part of the seller to keep the buyer advised of any address changes may go some way towardsmaking the whereabouts of the seller more traceable. However, the effectiveness of such a covenant depends in practice uponthe seller remembering to comply with it whenever there is a change of address, the likelihood of which may diminish over time.

From the seller's point of view, if voluntary registration does not precede the sale, the seller needs to consider whether heshould give the usual covenants for title implied by selling with full or limited title guarantee and if so, whether these should bemodified so as to exclude liability in connection with his inability to produce the missing deed. In particular, the Law of Property(Miscellaneous Provisions) Act 1994 s 2(2)(b) provides for the seller to give 'all reasonable assistance fully to establish to thesatisfaction of the Chief Land Registrar the right of the person to whom the disposition is made to registration as proprietor'.Although this does not specify registration with absolute title, the seller should consider a suitable modification if there is anyrisk that no title will be granted.

As to indemnities see Paragraphs 40 [281]-44 [287] ante; and as to the distinction between guarantees and indemnities seeParagraphs 1 [1] and 4 [11] ante.

For a deed of assignment of such an indemnity see Form 39 [865] post.

For a form of counter-indemnity in respect of lost or destroyed documents see Form 50 [910] post.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/K: INDEMNITIES/39 Assignment of an indemnity against lost deeds

39

Assignment of an indemnity against lost deeds1

[865]

THIS DEED OF ASSIGNMENT is made the ...... day of ...... ......

BETWEEN:

(1) (name of assignor) of (address) ('the Assignor') and

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(2) (name of assignee) of (address) ('the Transferee')

WHEREAS

(1) On the purchase of the property described in Schedule 1 below ('the Property') (name of seller)('the Seller'), the then seller of the Property, by a deed of indemnity ('the Deed of Indemnity')dated (date) made between (1) the Seller and (2) the Assignor, covenanted that he and hispersonal representatives would at all times keep the Assignor and his successors in title and allpersons claiming through or under him or them fully indemnified against all losses, costs, chargesor expenses he or they or any of them might suffer by reason of the fact that he or they have notthe custody of the missing deeds set out in Schedule 2 below ('the Missing Deeds') or any of themor the benefit of any acknowledgment for their production

(2) By a conveyance of even date with this deed the Assignor has conveyed the Property to theTransferee

(3) It was a term of the contract of sale of the Property that the Assignor would assign to theTransferee all the benefit of the Deed of Indemnity

[866]

NOW THIS DEED WITNESSES that in consideration of the Transferee completing the sale the Assignor[with [full (or) limited] title guarantee] assigns to the Transferee all the benefit and interest of the Assignor inor under the Deed of Indemnity, together with the right so far as may be necessary to demand performanceof, sue for and enforce the same in the name of the Assignor, to hold the same unto the Transfereeabsolutely.

IN WITNESS etc

SCHEDULE 1

The Property

(description of property)

SCHEDULE 2

The Missing Deeds

(particulars of missing deeds)

(signature (or common seal) of assignor)

(signatures of witnesses)

[867]

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1 See Form 38 note 1 [863] ante.

This assignment can, if convenient, be endorsed on the deed of indemnity (for which see Form 38 [861] ante), in which case therecitals will not be necessary. Alternatively, it can be included in the conveyance. Notice in writing of the assignment should begiven to the person liable on the indemnity: see the Law of Property Act 1925 s 136 as amended.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/K: INDEMNITIES/40 Indemnity to trustees of a marriage settlement in respect of an unauthorisedinvestment with charge on the interests of the beneficiaries

40

Indemnity to trustees of a marriage settlement in respect of an unauthorised investment with chargeon the interests of the beneficiaries1

[868]

THIS DEED OF INDEMNITY is made the ...... day of ...... ......

BETWEEN2:

(1) (name of tenant for life) of (address) ('the Husband')

(2) (name of reversionary tenant for life) of (address) ('the Wife') and

(3) (names and addresses of trustees) ('the Trustees')

(and the Husband and the Wife are together called 'the Spouses')

WHEREAS

(1) Under a settlement ('the Settlement'), dated (date) and made between (parties to settlement),certain trust funds were directed to be held by the Trustees in trust:(a) to pay the income to the Husband during his life, and(b) on his death to pay the income to the Wife (if surviving) during the remainder of her

life, and(c) subject to these trusts, for the children of the Spouses and otherwise as declared and

expressed in the Settlement.(2) The Spouses have requested the Trustees to invest the sum of £ ... forming part of the said trust

funds in the purchase of (details) ('the Investment'), which is not authorised by the Settlement3.(3) The Trustees have agreed to make the Investment upon the terms that the Spouses should

indemnify them as provided below.

[869]

NOW THIS DEED WITNESSES as follows:

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1 The Spouses jointly and severally covenant with the Trustees and each of them that they or oneof them or their or his or her personal representatives will at all times indemnify the Trustees andeach of them and each of their personal representatives against all actions, proceedings, claims,demands, costs and expenses whatsoever in respect of the investment of the sum of £ ... in thepurchase of the Investment.

2 The Spouses charge their respective interests (whether in possession or reversion) under theSettlement with the payment of all money they or either of them or their respective personalrepresentatives may be or become liable to pay under the covenant contained in clause 1 above.

IN WITNESS etc

(signatures of Husband and Wife)

(signatures of witnesses)

[870]

1 The manner in which a trustee can invest trust money is primarily determined by the instrument creating the trust, and thestatutory powers of investment (contained principally in the Trustee Act 2000), which are exercisable only in so far as a contraryintention is not expressed in the trust instrument or by any enactment. The Trustee Act 2000 introduced wide powers ofinvestment and so the need for indemnities of this type will diminish.

2 The agreement as to investment contained in this Form is not binding on beneficiaries under the settlement other than thehusband and the wife: any other beneficiaries who are sui juris should be made parties.

3 As to the power of the court to make a beneficiary indemnify trustees for a breach of trust that he has requested seeParagraph 41 note 2 [283] ante.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/K: INDEMNITIES/41 Indemnity to executors in respect of the retention of unauthorisedinvestments

41

Indemnity to executors in respect of the retention of unauthorised investments1

[871]

THIS DEED OF INDEMNITY is made the ...... day of ...... ......

BETWEEN:

(1) (name of tenant for life) of (address) ('the Tenant for Life')

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(2) (names and addresses of remaindermen) ('the Remaindermen') and

(3) (names and addresses of executors) ('the Executors', which expression includes their successors in title).

WHEREAS

(1) By his will dated (date) (name of testator) late of (address) ('the Testator') appointed theExecutors to be the executors of his will and gave all his real and personal property to them upontrust [for sale and conversion into money] with power [at their discretion to sell all or any part orparts of such property when they think fit (or) to postpone the sale and conversion2] and, afterpayment of his funeral and testamentary expenses and debts and certain pecuniary legacies, tohold the remainder and income thereof ('the Trust Fund') upon trust to invest the Trust Fund in orupon any of the investments authorised by his will and to pay the income from such investmentsto the Tenant for Life during his life and from and after his death to hold the trust fund in trust forthe Remaindermen as tenants in common in equal shares.

(2) The Testator died on (date) and his will was proved by the Executors on (date) in the [Principal(or) (name) District] Probate Registry of the Family Division of the High Court.

(3) Part of the Testator's personal estate consists of the investments specified in the Schedule below('the Investments') which are not of a nature authorised by the will, but the Tenant for Life andRemaindermen desire that the Investments shall be retained and the income from them be paid tothe Tenant for Life and that the rule in Howe v Earl of Dartmouth shall not be applied to them3.

[872]

NOW THIS DEED WITNESSES as follows:

1 The Tenant for Life and Remaindermen jointly and severally covenant with the Executors andeach of them that subject to clauses 2 and 3 below they will at all times indemnify and keepindemnified the Executors and each of them and their respective personal representatives andestates and effects from and against all actions, proceedings, claims, demands, costs andexpenses whatsoever in respect of the postponement of the sale and conversion into moneyand/or re-investment of the Investments or any of the Investments and the payment of the wholeincome from them to the Tenant for Life, so that the rule in Howe v Earl of Dartmouth is notapplied to the Investments, as long as the Executors and each of them in their absolute discretionmay deem fit.

2 It shall be a condition of the validity of the foregoing indemnity that the Executors shall not lessthan once in every ...... months consult a member of the London Stock Exchange concerning theinvestments held in the Testator's personal estate at that time.

3 The Tenant for Life or any of the Remaindermen may as regards himself or herself determine thisindemnity as to the future by giving the Executors [3 months'] notice in writing to determine [butsuch determination shall not affect any part of the income from the Investments received aftersuch determination in respect of a period wholly or in part preceding such determination].

IN WITNESS etc

SCHEDULE

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The Investments

(describe the unauthorised investments)

(signatures of tenant for life and remaindermen)

(signatures of witnesses)

[873]

1 The general rule is that a year from the date of death is a reasonable time within which a personal representative shouldrealise investments which it is not proper to retain: Hiddingh (Heirs) v De Villiers Denyssen, Hiddingh v Denyssen, Denyssen vHiddingh (1887) 12 App Cas 624 at 631, PC. Where executors are given an absolute discretion under the will as to the retentionor the postponement of conversion of the testator's existing securities, they are not bound to convert the property within theyear and are not liable, in the absence of mala fides, for loss arising from the non-conversion: see Re Norrington, Brindley vPartridge (1879) 13 Ch D 654, CA; Re Schneider, Kirby v Schneider (1906) 22 TLR 223.

In view of the wide range of investments now authorised by the Trustee Act 2000, an indemnity in respect of the retention of anunauthorised investment is not likely to be required so frequently as was formerly the case.

2 The second alternative should be used where an express trust for sale was created.

3 The rule in Howe v Earl of Dartmouth (1802) 7 Ves 137 by virtue of which, in the case of unconverted unauthorisedsecurities, the tenant for life of residuary personal estate is entitled only to fixed interest, normally at 4%, upon their ascertainedvalue and the remainder of the income is capitalised, is not rendered inapplicable by the fact that the will contains a power topostpone conversion: Re Berry deceased, Lloyd's Bank Ltd v Berry [1962] Ch 97, [1961] 1 All ER 529.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/K: INDEMNITIES/42 Indemnity supported by a charge where property has been purchased inbreach of trust

42

Indemnity supported by a charge where property has been purchased in breach of trust1

[874]

THIS DEED OF INDEMNITY is made the ...... day of ...... ......

BETWEEN:

(1) (names and addresses of beneficiaries of full age) ('the Beneficiaries') and

(2) (names and addresses of trustees) ('the Trustees')

[WHEREAS

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(1) [By a settlement ('the Settlement') dated (date) and made between (parties) a certain fund ('theFund') was settled upon the trusts declared in that deed but the Settlement [provided that theTrustees should have no power to invest in land (or) contained no power for the Trustees to investin land]2

(or)By his will ('the Will') dated (date) and duly proved by the executors named in it on (date) in the[Principal (or) (name) District] Probate Registry of the Family Division of the High Court (name oftestator) late of (address) settled a certain fund ('the Fund') upon the trusts declared by the Willbut the Will [provided that the Trustees should not invest in land (or) contained no power for theTrustees to invest in land]]

(2) The Trustees are the present trustees of the [Settlement (or) Will](3) By a [conveyance ('the Conveyance') (or) transfer ('the Transfer')] dated (date) made between (1)

(seller) and (2) the Trustees the land described in the [Conveyance (or) Transfer] ('the Land') wasconveyed to the Trustees in fee simple

(4) The consideration for the [Conveyance (or) Transfer] was provided out of funds subject to the[Settlement (or) Will]

(5) By a declaration of trust ('the Declaration of Trust') dated (date) the Trustees declared that theyheld the Land upon the trusts declared by the [Settlement (or) Will] and applicable to the Fund sofar as the same were still subsisting and capable of taking effect

(6) The Beneficiaries have agreed to give to the Trustees the indemnity contained in this deed inrespect of the breach of trust committed by the Trustees in purchasing the Land and in respect ofthe transaction effected by the [Conveyance (or) Transfer] and Declaration of Trust]3

[875]

NOW THIS DEED WITNESSES that the Beneficiaries and each of them being sui juris jointly and severallycovenant with the Trustees and each of them as follows:

1 If the land or funds that now are or shall become subject to the trusts of the [Settlement (or) Will]shall suffer loss or be diminished in consequence of the execution of the [Conveyance (or)Transfer] and the Declaration of Trust or either of them then neither the Beneficiaries nor any ofthem nor their respective personal representatives or assigns will require the Trustees to makegood such loss or diminution.

2 The Beneficiaries and each of them or the personal representatives of them and each of them willindemnify the Trustees against all such loss or diminution as mentioned above and against anyclaim made by any person requiring the Trustees or one of them or their or his personalrepresentatives to make good any such loss or diminution as aforesaid or consequent upon anyaction brought in order to enforce any claim based upon any such loss or diminution.

3 The interests and shares of the Beneficiaries and the interest and share of each of them in thelands and funds that now are or may become subject to the trusts of the [Settlement (or) Will] andthe income from those lands and funds respectively shall if and whenever any such claim shall bemade stand charged and be a security to the Trustees and each of them to the intent that they orhe or their or his personal representatives and their or his estates and effects may have thebenefit of the charge made by way of security for the covenants contained in this deed.

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IN WITNESS etc

(signatures of the beneficiaries)

(signatures of witnesses)

[876]

1 The purpose of this Form is to deal with those cases in which eg the trustees of a settled fund have at the instance of theadult beneficiaries purchased land, although there was no power for the trustees to invest in land. Such circumstances will beincreasingly rare as the Trustee Act 2000 confers a general power to invest in land, subject to any restrictions contained in thetrust instrument or in any enactment.

2 Subject to any restrictions or exclusions imposed by the instrument creating the trust or by a relevant statutory provision,the trustees will have power to invest in land by virtue of the Trustee Act 2000 ss 8, 9, whenever the trust was created (s 10(2)).The Trustee Act 2000 ss 8-10 do not apply to trustees of a settlement under the Settled Land Act 1925, but it has not beenpossible to create any new settlement under the Settled Land Act 1925 since the coming into force on 1 January 1997 of theTrusts of Land and Appointment of Trustees Act 1996: see the Trusts of Land and Appointment of Trustees Act 1996 s 2(1).

3 Instead of reciting the stages to the transaction, this deed may be made supplemental to the conveyance or transfer to thetrustees, and to the declaration of trust executed by them in relation to the land.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/K: INDEMNITIES/43 Agreement to give time and indemnity where debt owed to a testator'sestate

43

Agreement to give time and indemnity where debt owed to a testator's estate1

[877]

THIS DEED OF INDEMNITY is made the ...... day of ...... ......

BETWEEN:

(1) (name of debtor) of (address) ('the Debtor') and

(2) (name of executor) of (address) ('the Executor')

WHEREAS

(1) (name of testator) late of (address) ('the Testator') by his will ('the Will') dated (date of will)appointed the Executor to be the executor of the Will

(2) The Testator died on (date) and the Will was proved by the Executor in the [Principal (or) (name)

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District] Probate Registry on (date)(3) The Debtor was indebted to the Testator in the sum of £ ... ('the Debt') and still remains indebted

to the Testator's estate in that sum together with interest on it at the rate of ......% per year from(date) (as the Debtor acknowledges)

(4) The Debtor has requested time for payment of the Debt and the interest on it and the Executorhas agreed to give the Debtor time on the terms set out below

[878]

NOW THIS DEED WITNESSES as follows:

1 The Executor agrees, subject to the provisions set out below, that he will not take anyproceedings against the Debtor to recover the Debt or any part of it so long as the Debtor on thefirst day of every month commencing with the first day of (month) pays to the Executor the sum of£ ... in part payment of the Debt and also pays interest at the rate mentioned above on so much ofthe Debt as shall from time to time remain unpaid PROVIDED that if the Debtor defaults in thepunctual payment of any such instalment or any such interest or if the Debtor commits any act ofbankruptcy or dies or has any execution levied on his goods or any judgment recovered againsthim the Executor may immediately take such proceedings as he may think fit for the recovery ofthe Debt or the unpaid part of it and the interest on it.

2 The Debtor covenants with the Executor that the Debtor or his personal representatives willindemnify the Executor and his personal representatives against all actions proceedings claimsdamages costs and expenses whatever that the Executor or his personal representatives may beliable to or incur by reason of the Executor giving time to the Debtor to pay the Debt and nottaking proceedings to recover it.

IN WITNESS etc

(signatures of both parties)

(signatures of witnesses)

[879]

1 A personal representative has, apart from statute, a duty to get in as speedily as possible all money owed to the testatorand outstanding upon personal security only. By statute however, a personal representative may, if and as he thinks fit, allowany time for payment of any debt, and for this purpose may enter into such agreements and do such other things as to himseem expedient, without being responsible for any loss occasioned by any act or thing done by him as long as he hasdischarged the duty of care set out in the Trustee Act 2000 s 1: Trustee Act 1925 s 15 as amended by the Trustee Act 2000.

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44

Indemnity by principal debtor to a guarantor liable under a guarantee1

[880]

THIS DEED OF INDEMNITY is made the ...... day of ...... ......

BETWEEN:

(1) (name of principal debtor) of (address) ('the Principal') and

(2) (name of guarantor) of (address) ('the Guarantor')

WHEREAS

(1) This deed is intended to be supplemental to a guarantee ('the Guarantee') of even date herewithand made between (1) the Guarantor and (2) (name of other party) by which the Guarantorguaranteed (description of guarantee)

(2) The Principal in consideration of the Guarantor having entered into the Guarantee has agreed toenter into the covenant set out below

NOW THIS DEED WITNESSES that, in pursuance of the above Agreement and in consideration of theGuarantor having entered into the Guarantee, the Principal covenants with the Guarantor that he or hispersonal representatives will at all times keep the Guarantor and his personal representatives and his andtheir estate and effects indemnified against all actions, proceedings, liability, claims, damages, costs andexpenses in relation to or arising out of the Guarantee.

IN WITNESS etc

(signature of principal debtor)

(signatures of witnesses)

[881]

1 As to a guarantor's right to be indemnified by his principal see Badeley v Consolidated Bank (1886) 34 Ch D 536 at 556(on appeal (1888) 38 Ch D 238, CA); and see Paragraph 24 [164] ante.

Many guarantees, especially bank guarantees, bind the guarantor not to accept security of any kind whatsoever from theprincipal debtor and provide that where this is done, the security or right shall enure for the benefit of the creditor.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/K: INDEMNITIES/45 Indemnity granted by company to guarantors and secured by anassignment of book debts

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45

Indemnity granted by company to guarantors and secured by an assignment of book debts1

[882]

THIS DEED OF INDEMNITY is made the ...... day of ...... ......

BETWEEN:

(1) (name of company) the registered office of which is at (address) ('the Company')

(2) (names and addresses of guarantors) ('the Guarantors') and

(3) (trustee for guarantors) of (address) ('the Trustee')

WHEREAS the Guarantors have at the request of the Company by a guarantee ('the Guarantee') dated(date) guaranteed to (name) ('the Bank') the payment, up to the sum of £ ..., of any overdraft due to the Bankby the Company and the Company have agreed to enter into this deed

NOW THIS DEED WITNESSES as follows:

1 The Company covenants to keep the Guarantors indemnified against all liability under theGuarantee.

2 The Company assigns to the Trustee [with [full (or) limited] title guarantee and] at the request ofthe Guarantors all the book and other debts now due or owing to the Company and all book andother debts that may at any time during the continuance of this security become due or owing tothe Company together with the full benefit of all securities for them to the Trustee to hold in trustfor the Guarantors in proportion to their respective liabilities under the Guarantee PROVIDED thatwhen the Guarantors have been released and discharged from all liability under the Guaranteethe Trustee shall upon the request and at the cost of the Company reassign the book debts to theCompany.

3 The Trustee and the Guarantors by themselves or their agents shall have the right at all times toinspect the books of the Company and to take copies or extracts from them.

4 The Company shall on the first day of every month commencing with the first day of (month)inform the Trustee and the Guarantors of the amount of the Company's overdraft at the Bank.

[883]

5 The Trustee may at any time at his discretion and shall if so requested by any of the Guarantorsgive notice of this deed to the debtors for the time being of the Company.

6 It shall not be incumbent on the Trustee to take any proceedings to enforce any of the assigneddebts unless so requested by any of the Guarantors who shall provide or give sufficient securityfor any costs the Trustee may incur in connection with any such proceedings.

7 The Trustee shall not be liable or responsible for permitting the Company to receive any bookdebts or other debts.

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8 The Guarantors may appoint any other person or persons to be a Trustee for the Guarantors inplace of the Trustee and upon such appointment the benefit of this security shall be assigned tosuch new or new and continuing trustees.

9 Except where otherwise expressly stated the expression 'the Trustee' includes his personalrepresentatives and the trustees or trustee for the time being of this deed and the expression 'theGuarantors' includes each of them and each of their personal representatives.

IN WITNESS etc

(signatures of all parties)

(signatures of witnesses)

[884]

1 There is a risk that an assignment of book debts will be held to be a charge, notwithstanding the provisions for assignmentand re-assignment: see 7(1) Halsbury's Laws (4th Edn 2004 Reissue) para 1584 note 9. Accordingly the security must beentered in the company's register of charges, and the necessary particulars of it must be sent to the Registrar of Companiesotherwise it will be void, in the event of winding up, against the liquidator and the creditors.

The company's power to charge its property should be checked. Where the memorandum of association of a company containsthe necessary authority, the company can charge or mortgage all its property of whatever nature, including book debts not yetdue: Bloomer v Union Coal and Iron Co (1873) LR 16 Eq 383.

Most bank guarantees embody a clause prohibiting the taking of such security as this by a guarantor, and operating so that ineffect such security becomes additional security available to the creditor: see Forms 12 [506]-17 [550] ante.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/K: INDEMNITIES/46 Indemnity by company secured by assignment of book debts to guarantorswho have requested discharge from guarantee

46

Indemnity by company secured by assignment of book debts to guarantors who have requesteddischarge from guarantee1

[885]

THIS DEED OF INDEMNITY is made the ...... day of ...... ......

BETWEEN:

(1) (name of company) the registered office of which is at (address) ('the Company')

(2) (name of trustee for the guarantors) of (address) ('the Trustee') and

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(3) (names and addresses of guarantors) ('the Guarantors')

WHEREAS

(1) The Guarantors at the request of the Company by an agreement in writing dated (date) ('theGuarantee') guaranteed to (bank) ('the Bank') the payment, up to the sum of £ ..., of any overdraftdue to the Bank from the Company.

(2) The Guarantors have requested the Company to discharge them from all further liability under theGuarantee but at the express request of the Company have agreed with the Company to withdrawsuch request for the time being and not to take any immediate steps to procure their dischargefrom liability under the Guarantee in consideration of their receiving from the Company theindemnity and security described below.

[886]

NOW THIS DEED WITNESSES as follows:

1 The Company covenants and undertakes, in pursuance of the above agreement, to indemnify theGuarantors and each of them from all further liability under the Guarantee.

2 The Company assigns to the Trustee, by way of additional security, [with [full (or) limited] titleguarantee] all the book and other debts now owing to the Company and also all the book andother debts that may at any time during the continuance of this security become owing to theCompany (but not including uncalled capital of the Company) and the full benefit of all thesecurities for the said present and future book and other debts, to the Trustee to hold in trust forthe Guarantors in proportion to the amounts of their respective liabilities under the Guarantee butsubject to redemption on discharge of the Guarantors from all liability under or on account of theGuarantee.

3 The Trustee shall at any time if requested to do so in writing [by the Guarantors or any one ofthem (or) by the majority in number of the Guarantors] immediately give notice of this deed to thedebtors for the time being of the Company PROVIDED that it shall not be obligatory or incumbenton the Trustee to give any notice of this deed to any of the present or future debtors of theCompany or to enforce any of the debts or to take any steps or proceedings for that purposeunless and until so requested by the Guarantors and in the absence of any such request theTrustee shall not be answerable or responsible for any loss occasioned to the Guarantors by anydelay or omission in any such respect.

[887]

4 The Trustee may if he shall in his discretion think fit give notice of this present assignment to allor any of the present or future debtors of the Company (without having been previously requestedto do so by the Guarantors) and at his discretion may receive such debts or appoint a receiver ofthem.

5 The statutory power of sale shall be exercisable at any time by the Trustee without further notice.6 The Trustee shall not nor shall the Guarantors respectively or their respective personal

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representatives or any of them be answerable for or in any way chargeable on account ofpermitting or authorising the Company to receive all or any such debts or to deal with the same orthe proceeds of them as if they were not subject to this deed and to the mortgage created by thisDeed.

7 The statutory power of appointing new trustees of this Deed shall be exercisable by theGuarantors and the survivors or survivor of them.

8 The expression 'the Trustee' includes the trustee for the time being of this Deed.

IN WITNESS etc

(signatures of all parties)

(signatures of witnesses)

[888]

1 Most bank guarantees embody a clause precluding the taking of such security as this by a guarantor, and operating so thatin effect, such security becomes additional security available to the creditor: see Forms 12 [506]-17 [550] ante.

Encyclopaedia of Forms and Precedents/GUARANTEES AND INDEMNITIES vol 17(3) 2009/(C) Forms andPrecedents/K: INDEMNITIES/47 Specific counter-indemnity--long form

47

Specific counter-indemnity--long form1

[889]

To: (name of bank)

of: (address)

COUNTER-INDEMNITY

IN CONSIDERATION of your entering into or otherwise accepting liability under an instrument in the formattached approved and initialled by [me (or) us] ('the Undertaking')

NOW [I (or) we], (name(s) of person(s) giving indemnity) of (address(es)), AGREE WITH YOU as follows:

1 [I (or) We] shall indemnify you and keep you indemnified against all demands, claims, liabilities,losses, costs and expenses whatsoever (including all legal and other costs, charges andexpenses that you may incur in connection with the Undertaking, or in enforcing, or attempting toenforce, your rights under this indemnity) arising in relation to or out of the Undertaking or as a

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result of your having issued it2.

[890]

2 [I (or) We] shall pay and reimburse such sums as mentioned above to you on demand, togetherwith interest on them (as well after as before judgment), from the date when they were first paid orincurred by you until payment of them by [me (or) us] in full, at the rate of ......% a year above thecost to you (as conclusively determined by you) of acquiring any necessary funds in suchcurrency and manner as you may from time to time decide3. [I (or) We] shall not seek to rely uponany set-off or counterclaim whatsoever so as to in any way extinguish or reduce [my (or) our]liability to you under this Indemnity.

3 [I (or) We] irrevocably authorise you, without prejudice to any other right or remedy, to debit suchpayment or reimbursement to any account that [I (or) we] may have with you4.

[4 [I (or) We] agree that:4.1 if any judgment or order is given or made for the payment of any amount due under

this Indemnity and is expressed in a currency other than that in which such amount ispayable by [me (or) us] under this Indemnity, [I (or) we] shall Indemnify you againstany loss incurred by you as a result of any variation having occurred in rates ofexchange between the date as of which such amount is converted into such othercurrency for the purpose of such judgment or order and the date of actual paymentpursuant to it;

4.2 this Indemnity shall constitute a separate and independent obligation on [my (or) our]part and shall continue in full force and effect notwithstanding any such judgment ororder as stated above.]

[891]

5 [I (or) We]:5.1 irrevocably authorise5 you to make any payments or to comply with any demands that

appear or purport to be claimed or made under the Undertaking, without any referenceto or further authority from [me (or) us], without inquiry into the justification for them orinto the validity, genuineness or accuracy of any statement or certificate received byyou with respect to or under the Undertaking and despite any contestation on [my (or)our] part, and

5.2 agree that any such claim or demand shall be binding on [me (or) us] and shall, asbetween you and [me (or) us], be accepted by [me (or) us] as conclusive evidence thatyou were liable to pay or comply with it.

6 Any notice, demand or communication given to [me (or) us] under this Indemnity shall be inwriting and shall be deemed to be duly served if left at or sent by registered first class mail (or byairmail if overseas) to or, if sent by fax, received at: (address(es), and fax number(s) of person(s)giving the indemnity)

7 [I (or) We] agree that any notice, demand or communication shall be deemed to be given:7.1 if sent by registered first class mail, 2 business days after posting (or 5 business days

in the case of airmail), or

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7.2 if sent by fax and received by the other party, at the moment of dispatch, or7.3 if left at the above address, at the time of delivery;PROVIDED that if, in the case of notices, demands or communications made or given by fax ordelivery, the moment of dispatch or as the case may be the time of delivery does not occur on aday that is a business day at the place where the notice, demand or communication is received,such notice demand or communication shall not be deemed to have been given until the firstbusiness day afterwards at such place of receipt.

[892]

8 Your rights under this Indemnity shall be in addition to and shall not be in any way prejudiced oraffected by any one or more other indemnities, guarantees, securities or other obligations youmay now or subsequently hold whether from [me (or) us] or from any other person6.

9 You may at any time and without reference to [me (or) us] give time for payment or grant anyother indulgence and give up, deal with, vary, exchange or abstain from perfecting or enforcingany other indemnities, guarantees, securities or other obligations held by you at any time anddischarge any party to them or any of them, and realise them or any of them, and compound with,accept compositions from and make any other arrangements with the beneficiary of theUndertaking or any person or persons, as you think fit, without affecting [my (or) our] liabilityunder this Indemnity.

10 You are to be at liberty but not bound to resort for your own benefit to any other means ofpayment at any time and in any order you think fit without in consequence diminishing [my (or)our] liability and you may enforce your rights under this Indemnity either for the payment of theultimate balance after resorting to other means of payment or for the balance due at any timenotwithstanding that other means of payment have not been resorted to and in the latter casewithout entitling [me (or) us] to any benefit from such other means of payment so long as anymoney remains due or owing or payable (whether actually or contingently) from or by [me (or) us]to you.

[893]

11 The Undertaking may from time to time be modified, amended, renewed or extended, either inaccordance with its original terms, or upon [my (or) our] request and the agreement thereto of youand the beneficiary of the Undertaking and [my (or) our] liability under this Indemnity shallcontinue to apply to the Undertaking as so modified, amended, renewed or extended from time totime7.

12 Where the signatory to this Indemnity or any of the signatories to it is a partnership or otherwiseconsists of more than one person:12.1 the liability of the signatory or that signatory under this Indemnity shall be deemed to

be the joint and several liability of the partners or of the persons comprising thesignatory and any demand for payment made by you to any one or more of the personsso jointly and severally liable shall be deemed to be a demand made to all suchpersons; and

12.2 you may release or discharge any one or more of the persons jointly and severally

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liable under this Indemnity from liability under this Indemnity or compound with, acceptcompositions from or make any other arrangements with any of such persons withoutin consequence releasing or affecting your rights and remedies against any such otherparty.

[894]

13 If this Indemnity is signed by or on behalf of more than one person and any one or more of thosepersons is not bound by the provisions of this indemnity (whether by reason of his or their lack ofcapacity, or improper execution of this Indemnity or for any other reason whatever), the remainingsignatory or signatories shall continue to be bound by the provisions of this Indemnity as if theyhad always been the only party or parties hereto.

14 No delay or omission on your part in exercising any right, power, privilege or remedy in respect ofthis Indemnity shall impair such right, power, privilege or remedy, or be construed as a waiver ofit, nor shall any single or partial exercise of any such right, power, privilege or remedy precludeany further exercise of it or the exercise of any other right, power, privilege or remedy.

15 The rights, powers, privileges and remedies provided in this Indemnity are cumulative and notexclusive of any rights, powers, privileges or remedies provided by law.

16 This Indemnity shall be governed by and construed in accordance with English law and alldisputes arising from or relating to this Indemnity shall be subject to the exclusive jurisdiction ofthe English courts.

Dated:

AS WITNESS etc

(signature(s) of the person(s) giving indemnity)

(annex the approved and initialled form of Undertaking)8

[895]

1 This Form is designed to cover liabilities arising out of a single document or transaction.

2 Notwithstanding the broad wording of this clause, it will not necessarily provide adequate protection to the bank if theundertaking itself fails to specify clearly the circumstances in which the bank is required to pay. If it is intended that stamp dutyis to be indemnified, (eg in circumstances where the indemnity is to be used in relation to unstamped shares or securities orland and the indemnity is intended to cover the unpaid duty itself), to reduce the risk of that part of the counter-indemnity beingvoid under the Stamp Act 1891 s 117, it should be drafted to refer to 'an amount equal to the stamp duty'.

3 The interest rate provision contained in this clause is necessary for the bank's protection, because between the time itmakes a payment under the undertaking and the time it receives reimbursement from its customer, it will be bearing the cost offunding the payment and if there is no contractual interest provision, an English court merely has a discretion as to whether itwill award interest on a debt. Also, in the absence of a specified contractual rate, interest may be awarded at the statutory rate,which may not cover the bank's cost of funds.

[896]

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4 This clause:

(a) reduces the prospect of any dispute as to the appropriateness of a set-off against a particular depositaccount, and

(b) permits the bank to debit a current account, which may then incur interest at the applicable overdraftrate: it is important that the bank is not limited to the remedy of debiting an account, because eg the customermay be in financial difficulties and the current account may already have been called, or the bank may beadvised not to debit the account for one reason or another, or the required currency of indemnity orreimbursement may not match the currency of the existing account.

5 This authorisation is intended to provide, and to appear to provide, the widest possible authority to pay, regardless of anyallegations of unfair conduct on the part of the beneficiary of an undertaking. No clause will protect the bank in allcircumstances: if the bank pays in response to a request or demand that to its knowledge is made fraudulently in circumstanceswhere there is no right to payment (see Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159, [1978]1 All ER 976, CA) or if the bank is negligent in its handling of the request or demand to pay, or otherwise deviates from itsinstructions, it may lose its right to reimbursement.

6 Clauses 8-10 are useful if any undertaking is secured or supported by another indemnity or guarantee, such as acontinuing guarantee from a parent company, or there is any possibility that the bank might wish to take security.

[897]

7 Since many undertakings are subject to requests for extension, it is desirable to cover this point in the wording of theoriginal indemnity by providing explicitly that the indemnity applies to the original undertaking and all alterations. For example, inthe case of a performance bond for a construction project where the original expiry provision of the instrument reflects theoriginal work schedule, when the original work schedule cannot be met, there may be extensive negotiations between thecontractor (the bank's customer) and the beneficiary up to the last minute, and the bank may then receive only a simple, urgentfax from the customer requesting an extension or change to the undertaking, without referring to the indemnity's coverage of theamendment.

8 Instead of referring to a particular undertaking as eg a standby letter of credit when it might subsequently be classified by acourt as a guarantee, or vice versa, the approach followed in this Form is to attach to the counter-indemnity a copy of theparticular undertaking, initialled by the customer who, it is expected, would then be under an obligation to indemnify the bankregardless of how a court might subsequently characterise the undertaking. It is important that the approved and initialledundertaking is attached to a form containing a specific indemnity because the bank's, and therefore the customer's, liabilitydepends upon the precise wording of the undertaking actually issued, and the attachment of the actual text precludes thecustomer from arguing that the undertaking issued by the bank differed from his understanding of what would be issued.

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[898]

To: (name of bank)

of: (address)

COUNTER-INDEMNITY

IN CONSIDERATION of your entering into or otherwise accepting liability under an instrument in the formattached, which [I (or) we] have approved and initialled, ('the Undertaking'),

NOW [I (or) WE], (name(s) of person(s) giving the guarantee) of (address(es)), AGREE WITH YOU asfollows:

1 [I (or) We] shall indemnify you and keep you indemnified against all demands, claims, liabilities,losses, costs and expenses whatsoever (including all legal and other costs, charges andexpenses you may incur in connection with the Undertaking, or in enforcing, or attempting toenforce, your rights under this Indemnity) arising in relation to or out of the Undertaking or as aresult of your having issued it1.

2 [I (or) We] shall pay and reimburse such sums as mentioned above to you on demand, togetherwith interest on them (as well after as before judgment), from the date when they were first paid orincurred by you until payment of them by [me (or) us] in full, at the rate of ......% per year abovethe cost to you (as conclusively determined by you) of acquiring any necessary funds in suchcurrency and manner as you may from time to time decide2. [I (or) We] shall not seek to rely uponany set-off or counterclaim whatsoever so as to in any way extinguish or reduce [my (or) our]liability to you under this Indemnity.

3 [I (or) We] irrevocably authorise you, without prejudice to any other right or remedy, to debit suchpayment or reimbursement to any account that [I (or) we] may have with you3.

[4 [I (or) We] agree that:4.1 if any judgment or order is given or made for the payment of any amount due under

this Indemnity and is expressed in a currency other than that in which such amount ispayable by [me (or) us] under this Indemnity, [I (or) we] shall indemnify you againstany loss incurred by you as a result of any variation having occurred in rates ofexchange between the date as of which such amount is converted into such othercurrency for the purpose of such judgment or order and the date of actual paymentpursuant to it, and

4.2 this Indemnity shall constitute a separate and independent obligation on [my (or) our]part and shall continue in full force and effect notwithstanding any such judgment ororder as stated above.]

[899]

5 [I (or) We] irrevocably authorise you to make any payments or to comply with any demands thatappear or purport to be claimed or made under the Undertaking, and [I (or) we] agree that anysuch claim or demand shall be binding on [me (or) us] and shall, as between you and [me (or)us], be accepted by [me (or) us] as conclusive evidence that you were liable to pay or comply with

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it4.6 Any notice, demand or communication given to [me (or) us] under this Indemnity shall be in

writing and shall be deemed to be duly served if left at or sent by registered first class mail (or byairmail if overseas) to or, if sent by fax, received at: (address(es), fax number(s) of person(s)giving the indemnity).

7 [I (or) We] agree that any notice, demand or communication shall be deemed to be given:7.1 if sent by registered first class mail, 2 business days after posting (or 5 business days

in the case of airmail), or7.2 if sent by fax and received by the other party, at the moment of dispatch, or7.3 if left at the above address, at the time of delivery;PROVIDED that if, in the case of notices, demands or communications made or given by fax ordelivery, the moment of dispatch or as the case may be the time of delivery does not occur on aday that is a business day at the place where the notice, demand or communication is received,such notice demand or communication shall not be deemed to have been given until the firstbusiness day afterwards at such place of receipt.

[900]

8 Where [the (or) any] signatory to this Indemnity is a partnership or otherwise consists of morethan one person:8.1 the liability of [the (or) that] signatory under this Indemnity shall be deemed to be the

joint and several liability of the partners or of such persons as stated above and anydemand for payment made by you to any one or more of the persons so jointly andseverally liable shall be deemed to be a demand made to all such persons, and

8.2 you may release or discharge any one or more of such persons from liability under thisIndemnity or compound with, accept compositions from or make any otherarrangements with any of such persons without thereby releasing or affecting yourrights and remedies against any other such party.

9 If this Indemnity is signed by or on behalf of more than one person and any one or more of thosepersons is not bound by the provisions of this Indemnity (whether by reason of his or their lack ofcapacity, or improper execution of this Indemnity or for any other reason whatever), the remainingsignatory or signatories shall continue to be bound by the provisions of this Indemnity as if theyhad always been the only party or parties hereto.

[10 This Indemnity shall be governed by and construed in accordance with English law and alldisputes arising from or relating to this Indemnity shall be subject to the exclusive jurisdiction ofthe English courts.]

Dated:

AS WITNESS etc

(signature(s) of the person(s) giving indemnity)

(annex the approved and initialled form of Undertaking)5

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[901]

1 Notwithstanding the broad wording of this clause, it will not necessarily provide adequate protection to the bank if theundertaking itself fails to specify clearly the circumstances in which the bank is required to pay. If it is intended that stamp dutyis to be indemnified, (eg in circumstances where the indemnity is to be used in relation to unstamped shares or securities orland and the indemnity is intended to cover the unpaid duty itself), to reduce the risk of that part of the counter-indemnity beingvoid under the Stamp Act 1891 s 117, it should be drafted to refer to 'an amount equal to the stamp duty'.

2 This provision is necessary for the bank's protection, because between the time it makes a payment under the undertakingand the time it receives reimbursement from its customer, it will be bearing the cost of funding such payment: if there is nocontractual interest provision, an English court merely has a discretion as to whether it will award interest on a debt, and in theabsence of a specified contractual rate, interest may be awarded at the statutory rate, which may not cover the bank's cost offunds.

3 This clause:

(a) reduces the prospect of any dispute as to the appropriateness of a set-off against a particular depositaccount, and

(b) permits the bank to debit a current account, which may then incur interest at the applicable overdraftrate: it is important that the bank is not limited to the remedy of debiting an account, because eg the customermay be in financial difficulties and the current account may already have been called, or the bank may beadvised not to debit the account for one reason or another, or the required currency of indemnity orreimbursement may not match the currency of the existing account.

[902]

4 The degree of protection conferred upon the bank by this clause in relation to payments made by it and subsequentlydisputed by its customer is less than that conferred by Form 47 clause 5 [891] ante.

5 Instead of referring to a particular undertaking as eg a standby letter of credit when it might subsequently be classified by acourt as a guarantee, or vice versa, the approach followed in this Form is to attach to the counter-indemnity a copy of theparticular undertaking, initialled by the customer who, it is expected, would then be under an obligation to indemnify the bankregardless of how a court might subsequently characterise the undertaking. It is important that the approved and initialledundertaking is attached to a form containing a specific indemnity because the bank's, and therefore the customer's, liabilitydepends upon the precise wording of the undertaking actually issued, and the attachment of the actual text precludes thecustomer from arguing that the undertaking issued by the bank differed from his understanding of what would be issued.

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[903]

To: (name of bank)

of: (address)

GENERAL COUNTER-INDEMNITY

IN CONSIDERATION of your from time to time at our request entering into or otherwise accepting any formof liability under any indemnity, guarantee, bond, letter of credit or other form of undertaking ('anyUndertaking')

NOW [I (or) WE], (name(s) of person(s) giving the indemnity) of (address(es)), AGREE with you as follows:

1 [I (or) We] shall indemnify you and keep you indemnified against all demands, claims, liabilities,losses, costs and expenses whatsoever (including all legal and other costs, charges andexpenses you may incur in connection with any Undertaking, or in enforcing, or attempting toenforce, your rights under this indemnity) arising in relation to or out of any Undertaking or as aresult of your having issued it1.

2 [I (or) We] shall pay and reimburse such sums as mentioned above to you on demand, togetherwith interest on them (as well after as before judgment), from the date when they were first paid orincurred by you until payment of them by [me (or) us] in full, at the rate of ......% per year abovethe cost to you (as conclusively determined by you) of acquiring any necessary funds in suchcurrency and manner as you may from time to time decide2. [I (or) We] shall not seek to rely onany set-off or counterclaim whatsoever so as to in any way extinguish or reduce [my (or) our]liability to you under this Indemnity.

3 [I (or) We] irrevocably authorise you, without prejudice to any right or remedy, to debit suchpayment or reimbursement to any account that [I (or) we] may have with you3.

[904]

[4 [I (or) We] agree that:4.1 if any judgment or order is given or made for the payment of any amount due under

this Indemnity and is expressed in a currency other than that in which such amount ispayable by [me (or) us] under this Indemnity, [I (or) we] shall indemnify you againstany loss incurred by you as a result of any variation having occurred in rates ofexchange between the date as of which such amount is converted into such othercurrency for the purpose of such judgment or order and the date of actual paymentpursuant to it, and

4.2 this Indemnity shall constitute a separate and independent obligation on [my (or) our]part and shall continue in full force and effect notwithstanding any such judgment ororder as stated above.]

5 [I (or) We] irrevocably authorise you to make any payments or to comply with any demands thatappear or purport to be claimed or made under any Undertaking, without any reference to orfurther authority from [me (or) us], without inquiry into the justification for them or into the validity,genuineness or accuracy of any statement or certificate received by you with respect to or under

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any Undertaking and despite any contestation on [my (or) our] part, and [I (or) we] agree that anysuch claim or demand shall be binding on [me (or) us] and shall, as between you and [me (or)us], be accepted by [me (or) us] as conclusive evidence that you were liable to pay or comply withit4.

6 Any notice, demand or communication given to [me (or) us] under this Indemnity shall be inwriting and shall be deemed to be duly served if left at or sent by registered first class mail (or byairmail if overseas) to or, if sent by fax, received at (address(es), and/or fax number(s) ofperson(s) giving the indemnity).

[905]

7 [I (or) We] agree that any notice, demand or communication shall be deemed to be given:7.1 if sent by registered first class mail, 2 business days after posting (or 5 business days

in the case of airmail), or7.2 if sent by fax and received by the other party, at the moment of dispatch, or7.3 if left at the above address, at the time of delivery;PROVIDED that if, in the case of notices, demands or communications made or given by fax ordelivery, the moment of dispatch, or as the case may be, the time of delivery does not occur on aday that is a business day at the place where the notice, demand or communication is received,such notice demand or communication shall not be deemed to have been given until the firstbusiness day afterwards at such place of receipt.

8 Your rights under this Indemnity shall be in addition to and shall not be in any way prejudiced oraffected by any one or more other indemnities, guarantees, securities or other obligations youmay now or subsequently hold whether from [me (or) us] or from any other person5.

9 You may at any time and without reference to [me (or) us] give time for payment or grant anyother indulgence and give up, deal with, vary, exchange or abstain from perfecting or enforcingany other indemnities, guarantees, securities or other obligations held by you at any time anddischarge any party to them or any of them and realise them or any of them, and compound with,accept compositions from and make any other arrangements with the beneficiary or beneficiariesof any Undertaking or any person or persons, as you think fit, without affecting [my (or) our]liability under this Indemnity.

[906]

10 You are to be at liberty but not bound to resort for your own benefit to any other means ofpayment at any time and in any order you think fit without in consequence diminishing [my (or)our] liability and you may enforce your rights under this Indemnity either for the payment of theultimate balance after resorting to other means of payments or for the balance due at any timenotwithstanding that other means of payment have not been resorted to and in the latter casewithout entitling [me (or) us] to any benefit from such other means of payments so long as moneyremains due or owing or payable (whether actually or contingently) from or by [me (or) us] to you.

11 Any Undertaking may from time to time be modified, amended, renewed or extended, either inaccordance with its original terms or upon [my (or) our] request and the agreement of you and thebeneficiary of such Undertaking AND [my (or) our] liability under this indemnity shall continue to

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apply to any such Undertaking as so modified, amended, renewed or extended from time to time6.12 Where [the (or) any] signatory to this Indemnity is a partnership or otherwise consists of more

than one person:12.1 the liability of [the (or) that] signatory under this Indemnity shall be deemed to be the

joint and several liability of the partners or of such persons as stated above and anydemand for payment made by you to any one or more of the persons so jointly andseverally liable shall be deemed to be a demand made to all such persons, and

12.2 you may release or discharge any one or more of such persons from liability under thisIndemnity or compound with, accept compositions from or make any otherarrangements with any of such persons without in consequence releasing or affectingyour rights and remedies against any other such party.

[907]

13 If this Indemnity is signed by or on behalf of more than one person and any one or more of thosepersons is not bound by the provisions of this Indemnity (whether by reason of his or their lack ofcapacity, or improper execution of this Indemnity or for any other reason whatever), the remainingsignatory or signatories shall continue to be bound by the provisions of this indemnity as if theyhad always been the only party or parties hereto.

14 No delay or omission on your part in exercising any right, power, privilege or remedy in respect ofthis Indemnity shall impair such right, power, privilege or remedy, or be construed as a waiver ofit, nor shall any single or partial exercise of any such right, power, privilege or remedy precludeany further exercise of it or the exercise of any other right, power, privilege or remedy.

15 The rights, powers, privileges and remedies provided in this Indemnity are cumulative and notexclusive of any rights, powers, privileges or remedies provided by law.

[16 This Indemnity shall be governed by and construed in accordance with English law and alldisputes arising from or relating to this Indemnity shall be subject to the exclusive jurisdiction ofthe English courts.]

Dated:

AS WITNESS etc

(signature(s) of the person(s) giving indemnity)

[908]

1 Notwithstanding the broad wording of this clause, it will not necessarily provide adequate protection to the bank if anyundertaking itself fails to specify clearly the circumstances in which the bank is required to pay. If it is intended that stamp dutyis to be indemnified, (eg in circumstances where the indemnity is to be used in relation to unstamped shares or securities orland and the indemnity is intended to cover the unpaid duty itself), to reduce the risk of that part of the counter-indemnity beingvoid under the Stamp Act 1891 s 117, it should be drafted to refer to 'an amount equal to the stamp duty'.

2 This provision is necessary for the bank's protection, since between the time it makes a payment under any undertakingand the time it receives reimbursement from its customer, it will be bearing the cost of funding such payment. If there is no

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contractual interest provision, an English court merely has a discretion as to whether it will award interest on a debt, and in theabsence of a specified contractual rate, interest may be awarded at the statutory rate, which may not cover the bank's cost offunds particularly in some inflationary currencies.

3 This clause:

(a) reduces the prospect of any dispute as to the appropriateness of a set-off against a particular depositaccount, and

(b) permits the bank to debit a current account, which may then incur interest at the applicable overdraftrate. It is important that the bank is not limited to the remedy of debiting an account, because eg the customermay be in financial difficulties and the current account may already have been called, or the bank may beadvised not to debit the account for one reason or another, or the required currency of indemnity orreimbursement may not match the currency of the existing account.

[909]

4 This clause is intended to provide, and to appear to provide, the widest possible authority to pay, regardless of anyallegations of unfair conduct on the part of the beneficiary of any undertaking. No clause will protect the bank in allcircumstances. If the bank pays in response to a request or demand that to its knowledge is made fraudulently in circumstanceswhere there is no right to payment (see Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159, [1978]1 All ER 976, CA), or if the bank is negligent in its handling of the request or demand to pay, or otherwise deviates from itsinstructions, it may lose its right to reimbursement.

5 Clauses 8-10 are useful if any undertaking is secured or supported by another indemnity or guarantee, such as acontinuing guarantee from a parent company, or there is any possibility that the bank might wish to take security.

6 As many undertakings are subject to numerous requests for extension, it is desirable to cover this point in the wording ofthe indemnity, by providing explicitly that the indemnity applies to the original undertaking and all alterations. For example, inthe case of a performance bond for a construction project where the original expiry provision of the instrument reflects theoriginal work schedule, when the original work schedule cannot be met there may be extensive negotiations between thecontractor (the bank's customer) and the beneficiary up to the last minute, and the bank may then receive only a simple, urgentfax from the customer requesting an extension or change to the undertaking, without referring to the indemnity's coverage of theamendment.

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[910]

To: (name of bank/other indemnifier under main indemnity)

of: (address)

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COUNTER-INDEMNITY FOR [LOST (or) DESTROYED] DOCUMENTS

IN CONSIDERATION of your [joining with [me (or) us] in]2 entering into an indemnity ('the Indemnity') infavour of (name of beneficiary) in the form of the instrument attached and initialled by the parties to thisIndemnity in respect of (description of lost or destroyed document) that has been [lost (or) destroyed]

NOW [I (or) WE], (name(s) of customer(s)) of (address(es)), AGREE WITH YOU as follows:

1 [I (or) We] shall indemnify you and keep you indemnified against all demands, claims, liabilities,losses, costs and expenses whatsoever (including all legal and other costs, charges andexpenses you may incur in connection with the Indemnity, or in enforcing, or attempting toenforce, your rights under this Counter Indemnity) arising in relation to or out of the Indemnity oras a result of your having issued it.

2 [I (or) We] shall pay and reimburse such demands, claims, liabilities, losses, costs and expensesto you on demand, together with interest on them (as well after as before judgment), from the datewhen they were first paid or incurred by you until payment of them by [me (or) us] in full, at therate of ......% per year above your base rate from time to time.

3 [I (or) We] irrevocably authorise you, without prejudice to any other right or remedy, to debit suchpayment or reimbursement to any account that [I (or) we] may have with you, together with allcosts, commissions and other banking charges and expenses you may charge against [me (or)us].

[911]

4 [I (or) We] irrevocably authorise you to make any payments or to comply with any demands thatappear or purport to be claimed or made under the Indemnity, without any reference to or furtherauthority from [me (or) us], without inquiry into the justification for it or the validity, genuineness oraccuracy of any statement or certificate received by you with respect to or under the Indemnityand despite any contestation on [my (or) our] part, and [I (or) we] agree that any such claim ordemand shall be binding on [me (or) us] and shall, as between you and [me (or) us], be acceptedby [me (or) us] as conclusive evidence that you were liable to pay or comply with it.

5 [I (or) We] undertake if and when the above-mentioned document comes into [my (or) our]possession to procure your release from the Indemnity and to return the Indemnity to you.

6 Any notice, demand or communication given to [me (or) us] under this Counter Indemnity shall bein writing and shall be deemed to be duly served if left at or sent by registered first class mail (orby airmail if overseas) to or, if sent by fax, received at: (address(es), and/or fax number(s) ofperson(s) giving the indemnity).

[912]

7 [I (or) We] agree that any notice, demand or communication shall be deemed to be given:7.1 if sent by registered first class mail, 2 business days after posting (or 5 business days

in the case of airmail), or7.2 if sent by fax and received by the other party, at the moment of dispatch, or7.3 if left at the above address, at the time of delivery;

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PROVIDED that if, in the case of notices, demands or communications made or given by fax ordelivery, the moment of dispatch or as the case may be the time of delivery does not occur on aday that is a business day at the place where the notice, demand or communication is received,such notice demand or communication shall not be deemed to have been given until the firstbusiness day afterwards at such place of receipt.

[913]

8 Where [the (or) any] signatory to this Counter Indemnity is a partnership or otherwise consists ofmore than one person the liability of [the (or) that] signatory to this Counter Indemnity under thisCounter Indemnity shall be deemed to be the joint and several liability of the partners or of suchpersons and any demand for payment made by you to any one or more of the persons so jointlyand severally liable shall be deemed to be a demand made to all such persons.

9 You may release or discharge any one or more of the persons mentioned in clause 8 above fromliability under this Counter Indemnity or compound with, accept compositions from or make anyother arrangements with any of such persons without thereby releasing or affecting your rightsand remedies against any such other party.

10 If this Counter Indemnity is signed by or on behalf of more than one person and any one or moreof those persons is not bound by the provisions of this Counter Indemnity (whether by reason ofhis or their lack of capacity, or improper execution of this Indemnity or for any other reasonwhatever), the remaining signatory or signatories shall continue to be bound by the provisions ofthis Counter Indemnity as if they had always been the only party or parties hereto.

Dated:

AS WITNESS etc

(signature(s) of customer(s))

(annex the form of the Indemnity, initialled by the parties)

[914]

1 This Form omits certain provisions usually contained in a specific counter-indemnity (see eg Form 47 [889] ante). Althoughthis means that the bank (or other indemnifier) enjoys less protection, the inclusion of such provisions is not normally justifiedwhen considering the extent of the risks involved.

2 The words in square brackets should be used if the bank is asked to enter into the indemnity jointly with its customer.

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Indemnity to drawer of lost cheque on receipt of second cheque

[915]

To: (name of drawer of cheque)

of: (address)

INDEMNITY

IN CONSIDERATION of your giving [me (or) us] a further cheque for the sum of £ ... being the amount of acheque that has been lost dated (date of lost cheque), drawn by you in [my (or) our] favour, and of yourstopping the earlier cheque;

NOW [I (or) we], (name(s), of person(s) giving indemnity) of (address(es)), AGREE WITH YOU that:

1 [I (or) We] shall indemnify you and keep you indemnified against all demands, claims, liabilities,losses, costs and expenses whatsoever that may be incurred by you as a result of thepresentation to and payment by your bankers of the earlier cheque or as a result of your beingcalled upon to make any payment in respect of such earlier cheque by any person legally entitled[(as to which your certificate1 given in good faith shall be conclusive)] to such payment.

2 [I (or) We] shall pay and reimburse such sums to you on demand.

Dated:

AS WITNESS etc

(signature(s) of person(s) giving indemnity)

[916]

1 If the certificate provision is omitted, the drawer, as a precondition to his recovering payment under this indemnity, mustprove that the person to whom payment in respect of the earlier cheque has been made was in fact legally entitled to receivesuch payment.

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Indemnity by ship vendor's bank

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[917]

To: (name of purchaser)

of: (address)

WE, the undersigned (name of vendor's bank) have been advised that a contract ('the Contract') has beenmade on (date) between (1) (name of vendor) ('the Vendor') and (2) yourself (the Purchaser) for the sale of avessel ('the Vessel') named (name) to be delivered not later than (date).

WHEREAS clause (number) of the Contract provides for payment of £ ... as an advance payment, to bemade by you to the Vendor's account with this bank ('the [1st] Instalment')

[918]

NOW IN CONSIDERATION of your making payment of the [1st] Instalment under the Contract to theVendor's account with this bank we irrevocably and unconditionally undertake as primary obligor and notmerely as guarantor to pay to your account with a bank to be nominated by you a sum equal to the amountof the [1st] Instalment that has been paid to the Vendor's bank account (together with interest thereon at therate of ......% a year accruing from the date payment is received by the Vendor on his account with us to thedate of receipt of any refund made to you or on your behalf on your account with a bank to be nominated byyou) within (number) working days after receipt from you of a written demand (together with supportingdocumentary evidence) stating that the Vendor has failed to deliver the Vessel according to the Contract orthat you have become entitled to cancel or rescind the Contract or claim any refund thereunder. Such writtendemand together with supporting documentary evidence is the only pre-condition for our payment obligationhereunder.

OUR UNDERTAKING hereunder shall not be affected by any indulgence or by any amendment or variationof the Contract whether as to time or otherwise that may be agreed between you and the Vendor and willcome into force on the date when the [1st] Instalment is received by the Vendor on his account with us andshall remain valid until [delivery and acceptance of the Vessel] after which date this payment obligation shallbecome null and void.

Irrespective of the above, if we receive notification from you or the Vendor (confirmed by an arbitrator) statingthat your claim to cancel or rescind the Contract or your claim for a refund thereunder has been disputed andreferred to arbitration in accordance with the Contract, the period of validity of this Indemnity shall beextended until (number) days after the final award has been rendered in the arbitration.

AS WITNESS etc

(signatures on behalf of Vendor's bank)

[919]-[950]

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L: PERFORMANCE BONDS

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Performance bond by contractor's bank1

[951]

To: (name of employer)

of: (address)

WE, the undersigned (name of Contractor's bank) have been advised that a contract ('the Contract') hasbeen made on (date) between (1) yourself, as employer, and (2) (name) ('the Contractor') for the provision ofServices (as defined in the Contract).

WHEREAS clause (number) of the Contract requires the Contractor to procure the provision of a bond inyour favour in the manner appearing as follows in the sum of £ ... (and state amount in words)2

[952]

NOW IN CONSIDERATION of your accepting our obligations in this bond in discharge of the Contractor'sobligation to procure such a bond we (name of Contractor's bank) of (address) hereby irrevocably andunconditionally agree to make payment to you of any amount or amounts up to or equal to the MaximumAggregate Sum (as defined below) and accordingly agree as follows:

1 The Maximum Aggregate Sum shall be £ ... (and state amount in words).2 Upon receipt of a written demand ('Demand'), in the form set out in the Schedule to this bond,

made by you upon us from time to time, and without any of the following namely:2.1 our being entitled or obliged to make any enquiry of either you or the Contractor,2.2 the need for you to take any legal action against or to obtain the consent of the

Contractor,2.3 any conditions or proof of any default or liability on the part of the Contractor, and2.4 any right of set-off or counterclaim,and notwithstanding any objection by the Contractor or any other party, we shall pay to youforthwith the amount or amounts specified in such Demand, subject to clause 1.3 You may make as many separate Demands under this bond as you think fit, provided thatsuch demands shall not exceed in aggregate the Maximum Aggregate Sum.

[953]

4 Any Demand referred to in clause 2 above shall be deemed to be sufficiently served upon us ifsigned by one of your directors and delivered to us at the following address, namely (address; faxnumber). A Demand shall be deemed to have been served upon us on the day calculated inaccordance with the following provisions, namely:4.1 if left at the registered or principal office or last known place of abode, on the day it

was so left if such day is a Working Day, or if such day is not a Working Day, on thenext Working Day,

4.2 if sent by first class prepaid post, 2 Working Days after the day when the Demand wasput in the post (and in proving delivery it shall be sufficient to prove that the same wasproperly addressed and put in the post),

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4.3 if sent by fax before 4.30 pm on a Working Day (as defined below), on the day it wasso faxed, or if faxed otherwise, on the next Working Day.

5 For the purpose of this bond, 'Working Day' shall mean a day (other than a Saturday, Sunday orpublic holiday) when banks are open for the conduct of normal banking business.

6 Subject to clauses 1 and 4 above, we shall within (number) Working Days after service of anyDemand pay to you the sum specified in such Demand to the account specified in the Demand.

7 Subject to clauses 1 and 4 above, your Demand shall be conclusive evidence3 of our liability topay you and of the amount which we are liable to pay you. Our obligation to make payment underthis bond shall be a primary, independent and absolute obligation and we shall not be entitled todelay or withhold payment for any reason.

[954]

8 Without prejudice to the generality of clause 7 above, our obligations under this bond shall not beaffected by any act, omission or matter which might (but for this clause) operate to release ordischarge us from our obligations in whole or in part, including without limitation:8.1 any legal limitation, disability, incapacity on the part of the Contractor or lack of

authority of any director or other person appearing to be acting for the Contractor inany matter in respect of the Contract or any part of it,

8.2 any renewal, modification, release, or abstaining from the perfection or enforcement ofany security4 or guarantee on your part with regard to any security or guarantee now orhereafter held from the Contractor or any other person,

8.3 any time5 or waiver or accommodation or credit granted to the Contractor, or anyabstention from enforcing your rights against the Contractor,

8.4 any variation of or amendment6 to the Contract (and references to the Contract in thisbond shall be references to the Contract as so varied or amended from time to time),

8.5 any obligation on the part of the Contractor being void, unenforceable or frustrated,8.6 the acceptance by you of a repudiatory breach by the Contractor or the termination of

the Contract by you for material breach by the Contractor7,8.7 the bankruptcy, liquidation or insolvency of the Contractor or the making of an

application for an administration order in respect of the Contractor or the making of anysuch order or the appointment of (or giving of notice to appoint) an administrator inrespect of the Contractor,

8.8 any thing or matter that would or might have discharged or affected our liability if ourobligations under this bond had been secondary rather than primary.

9 The benefit of this bond may be assigned by you to any person to whom the benefit of the wholeContract is assigned by you, but shall not otherwise be assignable without our prior writtenconsent, such consent not to be unreasonably withheld.

10 This bond shall not confer any right or benefit on any third party8.Executed and delivered as a Deed on (date)

AS WITNESS etc

(signatures on behalf of Contractor's bank)

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[955]

SCHEDULE: FORM OF DEMAND UNDER BOND

To: (name of bank)

of: (address)

DEMAND

TAKE NOTICE THAT the Contractor has made default in the performance of its obligations under theContract and is liable to us in the sum of £ ....

AND TAKE NOTICE THAT WE REQUIRE YOU immediately to pay or cause to be paid to us that sum bypayment (in such manner as shall result in cleared funds being received by us within (number) Working Daysfrom service of this Demand) to the following account (set out account details)

otherwise legal proceedings to enforce and recover payment will be taken against you at the expiration of(period) from the date of this notice.

Dated:

(signature of director of employer)

[956]

1 As to performance bonds, see Paragraph 45 [311] ante.

2 This should be the same amount as specified in clause 1.

3 As to conclusive evidence clauses, see Paragraph 26 [191] ante.

4 As to the possibility of discharge of a guarantor by reason of the release or loss of securities, see Paragraph 36 [253] ante.

5 As to the giving of time, see Paragraph 35 [251] ante.

6 As to the possibility of discharge of a guarantor by variation of the principal agreement, see Paragraph 34 [249] ante.

7 This clause is intended to prevent there being an argument that termination of the main contract for breach discharges thebank from liability under the bond. Contracts of the type requiring the procurement of a bond will generally contain provisions fortermination on the ground of material breach. Clause 8.6 in this Form should be adapted, where appropriate, to suit theparticular termination provisions of the main contract.

8 The bank will wish to ensure that there is no potential liability to third parties by reason of the Contracts (Rights of ThirdParties) Act 1999 s 1.

[957]-[1000]

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