GUARANTEES
Wirr/WflNN (UK) LJO V WILLDAV iNGlNEERING SA [2007] EWCA CIV 824 (COURT OF APPEAL, CIVIL DIVISION)
(WARD, BUXTON AND MOORE-BICK LJJ) (31 JULY 2007)
Whether a guarantor was liable for rhe obligations of a guaranteed
party undet a contract which had been discharged and substituted
by new contracts.
companies and Automold remaining liable for the price of the goods.
Autnmold's obligationtopay foe the equipment was merely reduced in
account {not dischatgcd) to take account of the obligations assumed
by the finance companies. The guarantee did not lack content.
BACKGROUND
Tlic same person controlled the affairs of Willdav and Automold.
Willdav, through that person, had consented to the tcstructuring of
the conttactual arranj;ements. hiavmg consented to the changes in
question, Willdav remained liable on the guarantee.
Willdav Engineering SA ('Willdav) entered into a guatantee in
favour of Wit tmann (UK) Ltd ('Wittmann') in tespecr of the price
of certain equipment to be supphed by Wittmann to Automold Ltd
('Automold'). Wittmann had supphed equipment for several years
to Automold (which is ultimately owned by Willdav). Wittmann
had become aware that Automold generally obtained financing for
individual purchases and Wittmann had often invoiced a finance
house for equipment supplied to Automold.
Automold and Wittmann agreed that Wittmann would
supply specified equipment to Automold under purchase orders.
Subsequently, Automold managed to obtain the support of three
hnance companies. As a result, Wittmann entered into new agreements
with Automold and each of the finance companies. Under the
agreements, title in certain equipment passed to each finance company
in return for payment of part of the relevant purchase price,
Automold failed to pay Wittmann and went into liquidation.
Wittmann made a fotmal demand under the Willdav guarantee and
commenced proceedings to recover the outstanding amount.
Wittmann had, from the statt, been led to understand that
Automold would be financing the contiact from outside sources. It
became almost certain that outside finance would involve sales to
lease companies. The provisions of the lease contracts and Willdav's
guarantee were essential to the sale going forward at all.
The right ofa surety to discharge if the terms of or obligations
undet the principal conttaci are altered is founded in equity. The
surety therefore cannot assert that dischaige right in circumstances
where it would be inequitable for him to do so: most obviously, where
he has assented to the alteration. In the present case, the altetation is
substantial: but, provided that the new terms &11 within the mattix
Of general ambit of the obligation guaranteed, the guarantot will
continue to be bound it he has assented to those tetnis. It is assent
to, and not merely knowledge of, the new terms that is required. If
a guarantor agrees to an alteration in the contract guaranreed, he
cannot rely on that alteration to secure his discharge.
CONCLUSION
The parties were aware at the time Willdav gave the guarantee
that Automold was seeking to put in place financing artangements
which would result in title to the goods being transferred to finance
Jonathan Lawrence
K&L Gates
jonathan.lawtence@klgates.coin,www.klgates.com