Q&As

When can a guarantor voluntarily revoke its liability under a guarantee?

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Produced in partnership with Tom Stewart Coats of XXIV Old Buildings
Published on LexisPSL on 09/05/2017

The following Banking & Finance Q&A produced in partnership with Tom Stewart Coats of XXIV Old Buildings provides comprehensive and up to date legal information covering:

  • When can a guarantor voluntarily revoke its liability under a guarantee?
  • Termination of a guarantor's liability
  • When can a guarantor revoke its liability by giving notice to the guaranteed party?
  • Revocation of specific guarantees
  • Revocation of continuing guarantees
  • Can such termination be prevented by specific contractual term?

Guarantees are a contractual arrangement where one party (the guarantor) agrees to answer for the liability of another party (the principal or principal obligor) to another party (the creditor/lender or guaranteed party).

Termination of a guarantor's liability

The liability of a guarantor can be terminated in a number of different ways:

  1. firstly, the guarantee can be discharged by performance of the guaranteed obligation by the principal obligor or performance of the guarantee by the guarantor (see Practice Note: Discharging guarantees by repayment or performance and clawback considerations)

  2. secondly, the parties can agree to release the guarantor (see Practice Note: Releasing guarantors by agreement between the parties)

  3. thirdly, the guarantor’s liability might be discharged, extinguished or reduced by other circumstances including a material variation to the terms of the underlying contract which would prejudice the guarantor (see Practice Note: Guarantor protections and how to exclude them in guarantee documentation—waiver of defences clauses)

  4. finally, the guarantor may be able to revoke its liability under a guarantee by giving notice to the lender

The question at issue, whether a personal guarantor can terminate their liability under a guarantee at will, appears to be concerned with the final possibility discussed above, whether and when a guarantor may be able to revoke its liability by giving notice to the lender.

Howev

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