Triodos Bank NV v Dobbs
A guarantee which permits the creditor to vary the principal agreement does not extend to a new agreement which is substantially different from the one guaranteed.
Facts
Mr Dobbs guaranteed the obligations of his company under a loan agreement with Triodos Bank. The guarantee allowed the bank to agree amendments, variations or waivers in respect of the loan agreement without Mr Dobbs's consent. The bank and the company later entered into new loan agreements, which substantially increased the amount lent and changed the terms. When the company defaulted, the bank sued Mr Dobbs on the guarantee.
Legal principle
The Court of Appeal held that Mr Dobbs was not liable. Longmore LJ said that a clause allowing the creditor to vary the principal agreement without the guarantor's consent must be construed as permitting only variations within the general purview of the original guarantee, and did not allow the creditor to make a new agreement, substantially different from the original, which would expose the guarantor to new risks. The new agreements were not variations of the original agreement, but new agreements, so they fell outside the scope of the guarantee. The case limits the effect of variation clauses.
Related cases on lending, guarantees and security
- Agnew v Commissioner of Inland Revenue (Re Brumark Investments Ltd) [2001] UKPC 28, [2001] 2 AC 710
- Barclays Bank plc v O'Brien [1994] 1 AC 180
- Re Charge Card Services Ltd [1987] Ch 401
- Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd [2009] UKPC 19
- Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159
- Holme v Brunskill (1878) 3 QBD 495
- Kleinwort Benson Ltd v Malaysia Mining Corp Bhd [1989] 1 WLR 379
- Moschi v Lep Air Services Ltd [1973] AC 331
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