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Lawbite: a special relationship? Creditor and guarantor

  • United Kingdom
  • Litigation and dispute management
  • Real estate
  • Real estate dispute resolution


Promontoria (RAM) Limited v John Moore [2017] CSOH 88

It is a matter of general principle that if a debt is assigned the assignee can call on the guarantor for payment unless the guarantee specifically prohibits assignation.  The dispute in this Scottish case centred around the assignation of a personal guarantee, which guaranteed debts due to a bank under a facility agreement.  The guarantee was assigned as part of a global deed of transfer from a British Bank to an Irish company affiliated with a far larger American conglomerate. 

The party to whom the guarantee was assigned sought to enforce it.  The guarantor argued it had no right to do so.

The guarantee did not contain any express prohibition on assignation so the court had to consider whether a prohibition could be implied.  The court looked at the contract as a whole to decide how the reasonable person would read it.  The main obligation required payment to “the Bank” and the guarantor argued this meant that payment could be made only to the bank and not another party.  The court accepted that the ancillary clauses widened the primary obligation so that read as a whole the guarantee did not prohibit assignation.

The guarantor’s second argument was possibly of greater general interest.  This was that the guarantee was not assignable because there was delectus personae (in other words, the obligations were personal to the particular parties and could not be transferred).  In support of this, the guarantor emphasised the importance of banking standards in the UK, which the assignee was not subject to, and the fact that it could have a different enforcement policy.  The court held that it is not the case that a right can only be assigned to a particular class of assignee (e.g. a UK bank) but rather the question is whether there are any obligations which are personal to the parties.  The relationship between the bank and the guarantor did not contain that “personal” element.

The court held that there was “some force” in the guarantor’s argument that there was an implied prohibition on assignation but it ultimately held “with some hesitation” that having regard to the guarantee as a whole, it did not prohibit assignation.

Key points

  • if a guarantee contains no express prohibition on assignation it may still be possible to argue that there is an implication that it is precluded
  • the relationship between the parties and the precise nature of their obligations is important and will be considered by the court
  • creditors should ensure their guarantees expressly allow them to assign to avoid this issue being raised
  • companies considering assignations should remember that intimation of the assignation is required in order for it to be effective