Q&As

I am acting for a lender who wants to make a demand under a guarantee—what considerations are there before making the demand?

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Produced in partnership with Ian Higgins of 3 Verulam Buildings (3VB)
Published on LexisPSL on 23/09/2016

The following Banking & Finance Q&A produced in partnership with Ian Higgins of 3 Verulam Buildings (3VB) provides comprehensive and up to date legal information covering:

  • I am acting for a lender who wants to make a demand under a guarantee—what considerations are there before making the demand?
  • Contractual requirements
  • Method of service
  • Be polite but unconditional
  • Calculating the correct sum
  • Reasonable time to comply
  • Pursuing the primary debtor

I am acting for a lender who wants to make a demand under a guarantee—what considerations are there before making the demand?

Contractual requirements

The first and most obvious task is to check the provisions of the guarantee. Depending on the drafting of the guarantee, a demand may be a condition precedent to the guarantor’s liability. If so, you will need to ensure that the demand complies strictly with the contractual requirements. Although it may seem very technical, the courts are surprisingly willing to allow guarantors to avoid liability (at least in the short term) based on technical failings.

Method of service

Guarantees often provide that the demand must (or may) be sent by a particular method or to a particular address. There may be debate about whether a particular method of service is mandatory or permissive. The authors of Andrews & Millett ‘The Law of Guarantees’ (7th edition) consider that there is no reason in principle why demand could not be given orally. That is obviously not advisable. You will want to have a clear record of the demand being sent to (and ideally received by) the guarantor.

Be polite but unconditional

'[T]here must be a clear intimation that payment is required to constitute a demand; nothing more is necessary, and the word “demand” need not be used;

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