The effective taking of guarantees is a critical stage in the provision of finance by banks and similar institutions.
However, in spite of the huge amount of litigation on the topic over recent years, it is astonishing just how many guarantees are still not properly taken.
The last major examination of the law governing the taking of guarantees by the House of Lords was in the case of Royal Bank of Scotland v Etridge [2001] 4 All ER 449. In this Lord Nichols set out guidelines which, if properly followed, should ensure that any guarantee was as close to being beyond the possibility of challenge as may be. In this article, for clarity the scenario will be that the husband is the businessman and that it is his wife who is being asked to provide the guarantee. However, this is done merely for clarity of expression and Lord Nichols made it quite clear that the principles he set out would apply in any other relationship.
Proof that a surety, trying to obtain relief from
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