Cautionary Obligations

Constitution and form
1. Doesn't need to be in writing unless gratuitous unilateral obligation RoW(S)A s1(2)(a)(ii)
  1. All co-cautioners or none are bound (Scottish Provincial Insurance v Pringle)
Misrepresentation
1. By the Creditor - contractual rules apply. Void/voidable
  1. Creditor does not need to disclose material facts but if they choose to, must disclose fully (Young v Clydesdale Bank)
    1. Have to disclose if aware cautioner is under a misrepresentation (RBS v Greenfields)
2. By the Debtor - introduced idea of good faith to cautionary obligs. If the creditor is not in good faith, cannot enforce it. Smith v Bank of Scot
  1. Duty of good faith is met if independent legal advice is sought (Forsyth v Bank of Scotland)
Rights of Co-Cautioners
1. Can get relief from each other excluding insolvents (Buchanan v Main)
  1. Rank on bankrupt estate - if creditor sought payment but not if he's ranking on the estate as well.
    1. Veitch v National Bank of Scotland
      1. If cautioner has guaranteed specific funds then he can pay the creditor and both can rank on the estate for the different debts.
2. Proper cautioner - pro rato share
  1. Improper cautionary - joint and several liable.
Termination of the obligation
1. By the cautioner
  1. Only if guarantee continuing with no time limit then can say no to future advances
    1. Must give reasonable time
      1. May have to pay the principal debt
2. By operation of law
  1. Cautioner's death does not release them
    1. British Linen Co v Monteith - guarentee called on 14 years after cautioner's death
  2. Change in constitution of a partnership under s18
  3. Prescription - 5 years after cautioner was asked to pay
3. By action of the creditor
  1. Giving time - to pay without cautioner's consent.
    1. Not pressing for immediate payment is not giving time (Hamilton's Exrs v Bank of Scotland)
      1. Creditor can expressly retain right to give time
  2. Alteration of principal debt without consent
    1. If fixed limit, cautioner is not released if debtor is given more money (Huewind v Clydesdale)
  3. If discharge one co-cautioner then all discharged if joint and severally liable.
  4. Creditor who voluntarily gives up security discharges the cautioner to the extent of the security
4. By extinction of principal debt
  1. Two exceptions to principal debt subsisting (Aitken's Trs v BoS) - bankruptcy and pactum de non petendo (Muir v Cranford)
    1. Pactum - keep right to sue cautioner but not debtor and don't need to notify cautioner
  2. Rule in Clayton's case - money going in is set off against the first debt
  3. Compnsation so set off owed debts
  4. Novation - old debt extinguished and new one. new one is not covered by obligation.
  5. Prescription - 5 years

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Cautionary Obligations

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