A guarantee under hand is barred by the Statute of Limitations in six years from the date when the right of action first accrued against the guarantor. If there is a clause in the guarantee that payment is to be made days after demand," the statute in such a case will not begin to run until the demand has been made. It is advisable, however, whether the guarantee includes such a clause, or not, to get all guarantees renewed before they are six years old. Not only does such a course prevent the guarantee from becoming statute barred, but it brings to the notice of the surety the fact that his liability still continues.
A guarantee under seal is not barred till twenty years from the date when the cause of action arose. But if the guarantee is in re spect of a debt secured by a mortgage of land, the period is twelve years by the Real Pro perty Limitation Act of 1874, whether the covenant of the surety is in the mortgage deed itself, or is contained in a collateral bond.
Payments to the credit of an account by a debtor keep the debt alive as against the debtor, hut they do not prevent the statute from running in favour of a surety. (See STATUTE OF LIMITATIONS.) In the important case of Parr's Banking Company v. Yates (1898, 2 Q.B. 480), where the bank held a continuing guarantee from Yates for an account, Vaughan Williams, L.J., said : " My view is that the cause of action on the guarantee arose as to each item of the account, whether principal, interest, commission, or other banking charge, as soon as that item became due and was not paid, and, consequently, the Statute of Limitations began to run in favour of the defendant in respect of each item from that date. agree with what my brothers have said with regard to the claim for interest. I think that the interest stands on the same footing as any other item to the debit of the party guaranteed in the account ; and that the defendant continues liable as guarantor in respect of interest which has accrued within six years before action, and does not get rid of that liability because his liability to be sued on the guarantee with regard to the principal has become barred by the Statute of Limitations. I also agree that there is no ground for saying that there is any rule which could apply the payments which have been made to the interest on the advances made to the party guaranteed as dis tinguished from the principal. According to the ordinary practice of bankers, the interest due is from time to time added to the principal, and becomes itself part of the principal due." The balance for which a surety is re sponsible is the general balance of the customer's account, and all accounts between the customer and the banker at the time the guarantee comes to an end must be taken into account. (In re Sherry, London and County Banking Co. v. Terry, 1884, 25 Ch. D (392.) upon the failure of a guarantor, unless the debtor supplies other security, the banker should call in his advance and, if repayment is not made, claim upon the surety's estate.
Where there are several sureties and one of them gives notice to terminate his lia bility, the account of the debtor should be broken until fresh arrangements are made.
Any material variation of the original agreement between the debtor and creditor, unless provided for in the guarantee or made with the assent of the guarantor, will have the effect of releasing the guarantor from liability. In Samuel v. Howarth (1817, 3 Mer. 2721, Lord Eldon said : " The surety is held to be discharged for this reason, because the creditor, by so giving time to the principal, has put it out of the power of the surety to consider whether he will have recourse to his remedy against the principal or not, and because he, in fact, cannot have the same remedy against the principal as he would have had under the original contract." Where a guarantee has been given for a fixed period and at the end of that period it is arranged that it be continued for a further period, either a new guarantee should be taken or the old guarantee should be indorsed accordingly and bear another six penny stamp. Any such indorsement should, of course, be signed by the guarantor, or, if more than one. by all of them. If a new guarantee has not been obtained, or the old one extended, before the fixed period expires. the account should be stopped when the date arrives until a fresh arrangement is made.
A guarantee by a married woman can be enforced only against her separate estate.
In the case of a guarantee by a firm, it should, in order to avoid the risk of any future trouble, be signed by each partner.
Where a partnership account is overdrawn and a guarantee is taken from the partners in their private capacities to secure the firm's account, the banker will then have a claim upon the private estates of the partners, as well as upon the partnership estate.
Where a change of partnership takes place and a guarantee is held for the account, unless the form provides for such change, the account should be broken until fresh arrangements are made.
By Section 18 of the Partnership Act, 1890 A continuing guaranty or caution ary obligation given either to a firm or to a third person in respect of the transactions of a firm is, in the absence of agreement to the contrary, revoked as to future trans actions by any change in the constitution of the firm to which, or of the firm in respect of the transactions of N‘hich, the guaranty or obligation was given." Before accepting a guarantee 1w a com pany. a banker should see that the memo randum of association gives power to the company to give a guarantee.
\\lien a guarantee has been discharged, or is no longer required, it is the practice of some bankers to give it up to the guarantor, whilst other bankers prefer to retain the document, after being cancelled by, or in the presence of, the surety.