A second guarantee given by the same person covers debts already incurred, not just new debts

Where a second guarantee recording liability for a higher amount was given, an English court decided that it guaranteed debts incurred both before and after the guarantee was given.

In this case1, the guarantor was a director of the debtor company. In September 1998, the guarantor signed a guarantee of payment by the debtor company for all trade goods supplied by the creditor. The guarantee recorded that his liability was in respect of the whole debt but limited to £75,000.

By September 1999, the debtor company owed £143,000, and the guarantor gave a further guarantee on the same terms as the original guarantee, but recording that his liability was limited to £150,000.

When in May 2000 the debtor company went into receivership, it owed £111,883, most of which related to goods supplied prior to execution of the second guarantee.
When a claim was made by the creditor under the second guarantee, the guarantor argued that:

• the guarantee was only for amounts relating to goods supplied after the date of that guarantee; and
  
  
• the guarantee should be construed strictly - i.e. the words “[the creditor] may supply” could only refer to the future and not to amounts owing for goods already supplied.

The court decided that:

• the guarantee was intended by both parties to extend, and did extend, to the whole of the trading both before and after execution; and
  
  
• a reasonable person informed of the background would see no commercial sense in increasing the limit of the guarantee and yet limiting it only to future sales.

1 Egan v Static Control Components (Europe) Limited [2004] EWCA Civ 392

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