CG66012 - Losses: loans to traders: payments under guarantee

The first question to consider is whether the terms of the written guarantee required a demand to be issued. If they did not, then unless there are unusual circumstances pointing to a different conclusion, there should be no difficulty in accepting that the payment was under the guarantee. But you may encounter cases where, although the terms of the written guarantee require the issue of a demand, no demand has in fact been issued. In these circumstances, the absence of a written demand will not of itself be sufficient for us to conclude that the payment was not made under the guarantee. You will have to look at the wider factual context in which the payment was made. This might include

• evidence that the lender had discussed with the guarantor proposals to discharge the original borrower’s liabilities
• details of any payments made where the money paid over either went directly to the lender or, although it went to the original borrower, it was not at that person’s disposal since that person was merely acting as a conduit through which the money passed on its way to the bank
• evidence on behalf of the parties that the payment was to be considered as satisfaction or partial satisfaction of the guarantor’s liability (for example, correspondence between the lender and the guarantor, or board meeting minutes which show the payment was being made as a result of liabilities under the guarantee).