A party seeking to rely on a condition alleged to be part of a guarantee should ensure it is referred to in the guarantee.

In National Westminster Bank Plc v Binney, Binney entered into a guarantee with the bank to discharge, on demand, his company's liabilities to the bank. Pursuant to the guarantee, the bank demanded payment from Binney of £100,000. Binney alleged that the bank was not entitled to enforce the guarantee. He argued that as, prior to entering into it, the bank's relationship manager had agreed that the guarantee would only be in place until either matching funds were deposited into the company or security was provided and that the bank would then tear up the guarantee. Binney alleged he had deposited sums totalling £100,000 with the company so the bank could not enforce the guarantee.

The court found that, on the evidence, Binney did make payments into the company's accounts totalling £95,000 and that there was documentation relating to the additional funds to be injected into the company. However, there was nothing in the documentation to suggest that there was any agreement with the bank that it would release the guarantee when those funds were received.

The court held that any request to limit a guarantee in time or make it conditional upon future cash injections would have been particularly unusual. It would therefore have required a review of the bank's lending to the company and by someone with higher authority than the relationship manager, neither of which occurred. Further, Binney was a financially experienced and competent businessman, who had trained as an accountant and qualified as an economist. It was therefore highly improbable that he would have been prepared to sign the guarantee as it stood without qualification, if it had been subject to the term that he alleged.

The bank was entitled to recover the sum of £100,000 under the guarantee.

Things to consider

This case shows the benefit of having all essential provisions included in a written agreement. The bank was able to fend off Binney's argument that agreement had been reached.