Why it is important for a guarantor to understand its obligations and liabilities under a guarantee

The High Court was recently asked to consider the language in a personal guarantee. The wording of a guarantee typically contains “see-to-it” obligations, conditional payment obligations or a combination of both, and in this case the High Court had to determine which one the guarantor had agreed to in the disputed guarantee.

What is a “see to it” guarantee?

A “see-to-it” obligation is a promise from the guarantor to ensure the debtor performs its obligations under the primary contract. This can create a liability in damages only.

What is a conditional payment guarantee?

Whereas a conditional payment guarantee is a promise by the guarantor to pay any sum due to the creditor if the debtor does not pay. This can create a liability in debt for which a bankruptcy petition can be presented (under section 267 of the Insolvency Act 1986) against the guarantor, if the debt is for a liquidated sum.

The case: Jones v City Electrical Factors Ltd [2025]

In Jones v City Electrical Factors Ltd [2025], the High Court considered whether wording in a personal guarantee was merely a “see-to-it” obligation or a conditional payment obligation. The wording under consideration was:

• ”we hereby unconditionally guarantee the due and punctual performance and discharge of all the [debtor’s] obligations under or pursuant to the [Agreement]” (Part 1).
• ”we hereby unconditionally guarantee … the due and punctual payment on demand of all sums now or subsequently payable (including any interest or late payment charges upon such sums) by the [debtor] to the [creditor] under or pursuant to the [Agreement] or otherwise” (Part 2).

The Court found Part 1 was a “see-to-it” obligation. Part 2 was regarded as a conditional payment obligation, where the guarantor is obliged to pay the creditor, the amount owed by the debtor.

The distinction between Part 1 and Part 2 was a reference to the “demand”, which in Part 2 was directed at the guarantor and not the debtor. This was supported by further wording in the document which suggested the guarantor had primary liability, including a statement that, if any sums are not recoverable from the debtor because of any legal limitation or any other circumstance, those sums should still be recoverable from the guarantor as principal debtor.

Obligations and liability in a guarantee wording

This decision demonstrates the importance of accurate wording in a guarantee and how it affects the liability of the guarantor. Whilst most creditors/lenders won’t accept any changes to the wording of the guarantee, it is important for any guarantor to understand what type of obligations it must comply with and the guarantor’s potential liabilities, in order for the guarantor to make an informed decision as to whether or not to agree to a guarantee.

Our Real Estate Finance team acts for both borrowers and lenders and aims to ensure all transactions are swift, expertly facilitated and remain on track to a satisfactory conclusion. If you have any questions on any of the issues raised above, please get in touch to find out how we can help.