Suretyship CASES
In English law, suretyship is an arrangement where one party (the surety or guarantor) undertakes to fulfil the contractual obligations or debt of another party (the principal debtor) should they fail to do so.
Definition and Principles
Suretyship involves a secondary obligation, where the guarantor’s responsibility arises only upon default or failure of the principal debtor. The surety typically has rights to recover amounts paid from the debtor.
Key Characteristics
- Secondary Liability: Surety’s obligation triggered by debtor’s default.
- Right of Subrogation: Surety may assume rights against debtor after payment.
- Right of Indemnity: Surety entitled to reimbursement from the principal debtor.
Practical Applications
Frequently used in loan agreements, leases, performance guarantees, and other financial transactions to provide security and risk mitigation.
Importance
Understanding suretyship clarifies responsibilities and rights of parties, enabling effective risk management and financial security in transactions.
Home » Suretyship
In eight conjoined appeals, wives mortgaged their homes to secure husbands' business debts. The House of Lords clarified the doctrine of undue influence and set out practical steps a bank must take to ensure the wife's consent is properly obtained. Facts The case comprised eight conjoined appeals, each involving a similar factual pattern. A wife charged her interest in her home, often the matrimonial home held in joint names, as security for a loan or overdraft facility provided by a bank to her husband or a company through which he operated his business. The businesses later failed, and the bank
A junior employee provided an unlimited guarantee over her flat for her employer's business debts. She received no benefit and no independent advice. The court set aside the transaction for undue influence, finding the bank failed its duty of inquiry. Facts Miss Andrea Burch, a 21-year-old junior employee, worked for a travel company owned and run by Mr Andrea Pelosi, a man she trusted. At his request, she agreed to provide security for the company’s overdraft with Credit Lyonnais Bank Nederland NV. She executed a legal charge over her flat, securing an unlimited, all-monies guarantee for all the debts of
Facts Mr. and Mrs. O’Brien were joint owners of their matrimonial home. Mr. O’Brien’s company, in which Mrs. O’Brien had no interest, required an increased overdraft facility from Barclays Bank. The bank agreed, on the condition that it was secured by a second charge over the O’Briens’ home. Mr. O’Brien misrepresented the nature of the transaction to his wife, falsely stating that the security was limited to £60,000 and would be released within three weeks. In reality, the charge was unlimited in amount and duration, securing all liabilities of the company, which eventually reached £154,000. Bank staff were instructed to
