Close Brothers Ltd v Pearce

A continuing guarantee may be revoked orally where its terms permit unilateral revocation. The revocation must be clear and explicit. A request for release is distinct from revocation and requires the other party’s agreement. The court may determine whether revocation occurred from the whole evidential context, including subsequent lending documentation and the parties’ conduct. Where a guarantee names a trust company solely because it holds title to aircraft, replacing that company with another performing precisely the same facilitative role does not necessarily remove later liabilities from the guarantee’s scope.

Close Brothers Limited claimed £49,780 from Michael Roy Pearce under personal guarantees given in 2004 and 2005 for lending to Air Touring Limited. Mr Pearce contended that he had revoked the guarantees for future borrowing during a telephone conversation on 10 October 2006. He also argued that a 2008 loan was outside the 2005 guarantee because the guarantee named Air Touring Limited and ATL Aircraft Inc as principal debtors, whereas the loan involved Air Touring Limited and Air Touring Inc.

The court determined the evidential revocation issue and the alternative construction issue. The claim was amended to rely on the 2004 guarantee after the Bank accepted that its terms covered the liability.

1. The court held that a guarantor may unilaterally revoke a continuing guarantee, depending on its terms. Revocation may be oral, and the absence of a signed written record does not prevent oral revocation from being relied on as a defence. The revocation must nevertheless be clear and explicit. A request that a guarantee be released is not itself a revocation and, if it is merely a request, requires agreement by the creditor.

2. On the evidence, Mr Pearce made sufficiently clear that his existing guarantees would not cover future loans. Mr Kearsey indicated assent. The subsequent loan and credit-authorisation documents consistently identified no personal guarantee, supporting the conclusion that the parties had changed their practice after the conversation. The court accepted Mr Pearce’s account and the claim under both guarantees therefore failed.

3. The alternative construction argument concerned the 2005 guarantee. Although a guarantor is liable only for liabilities assumed under the instrument, the Delaware company named in the guarantee was included solely as the holding company for United States-registered aircraft. Its replacement by Air Touring Inc, performing precisely the same facilitative role, did not alter the scope of the guarantee. Had the guarantee remained in force, it would have covered the 2008 loan.

4. The construction issue did not arise for the result because the guarantees had been revoked for future borrowing. The claim was dismissed. Consequential matters were reserved.

First-instance decision of the High Court. No earlier appellate decision is stated in the judgment.