When is a Guarantee not a Guarantee?

Most people, at least once during their lives, will enter into a deed of guarantee for someone else’s loan. The most common situation is when a parent guarantees their adult child’s home loan.

It is well known that formally guaranteeing someone else’s performance of a contract is basically a one-way street. This is because the other parties to the contract receive all the benefits and protection and the Guarantor receives nothing but risk and obligations.

However, recent case law in NSW and WA has offered Guarantors a possible avenue of escape. These cases determined that, in circumstances where the terms of the contract have been varied without the Guarantor’s knowledge or consent, a guarantee could be unenforceable against a Guarantor.

Where do I stand?

If you are a Guarantor and feel like the original contract has been varied without your knowledge or consent, we urge you to seek legal advice before signing any other documents.

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