Elizabeth gave a guarantee to the Bank in support of a loan to Tomasz.Over the next few years,the Bank and Tomasz made a number of alterations to the loan agreement.The effect of these changes was to significantly increase the amount owing to the Bank.Elizabeth had no notice or knowledge of these changes,nor she did not consent to any such changes.What is the likely result?
A) Elizabeth is bound by the changes to the loan, because guarantees are, by their nature, continuing.
B) Guarantees are a mere formality; only Tomasz has obligations to the Bank.
C) The guarantees are likely to be invalid and unenforceable against Elizabeth.
D) A guarantee is executed under seal, therefore it will be presumed valid regardless of defect.
E) The failure to notify Elizabeth would release both Elizabeth and Tomasz from their obligations.

Question

Quizplus · Accepted Answer

The changes made to the loan agreement without Elizabeth's notice or consent have altered the underlying liability of the guarantee. As a result, the guarantee is likely to be invalid and unenforceable against Elizabeth. The principle of good faith and fairness requires that a guarantor be informed of any material changes to the loan agreement. Failure to provide such notice may result in the guarantee being discharged. Therefore, option C is the correct answer.

Elizabeth Gave a Guarantee to the Bank in Support of a Loan