The underlying question for any guarantor is a basic one – what is the extent of my liabilities? The principal question for any lender on the other hand is – how can I ensure the guarantor’s liabilities are sufficient for me to get my money back if the borrower fails to make repayments?
Matters of liability and enforcement can quickly become complicated when variations are made to the original terms of the contract. This is especially the case when the terms can no longer be said to resemble the original agreement which the guarantor agreed to guarantee. Would the guarantor still be liable to step in to make repayments if the borrower defaults in these circumstances?
The reasonable contemplation argument
It is a matter of interpretation and fact as to whether amended terms:
- constitute a genuine variation of the underlying loan agreement, falling within the scope of the original agreement; or
- whether they are so radically different in substance that they can only be said to form new terms entirely.
The “doctrine of purview” considers the latter category. The doctrine has been used in the courts to argue that the guarantor’s liabilities should be discharged in circumstances where the effect of a varied term was outside the “purview”, or reasonable contemplation, of the guarantor. Put another way, where the changes are so significant that they cannot be viewed as a variation to the originally guaranteed agreement but are instead completely outside the scope (or purview) of the guarantee.
Matters that can impact on this include whether or not the guarantee relates to a specific contract or just an arrangement (the latter being more commonly seen with “all monies” guarantees). It is an issue that can present considerable difficulties for lenders when enforcing their guarantees (and any security backing up those guarantees).
