When is a guarantee not a guarantee?

The recent cases of Bibby Financial Services Limited (Bibby Invoice Discounting Ltd) v Magson and the subsequent case of Lombard North Central plc v Magson have highlighted the danger of making assumptions not only that a signature to a document indicates the signatory’s agreement to the proposed transaction but also that manuscript alterations to documents after signature are permissible without affecting enforceability (even though they only be seeking to clarify certain issues, such as the start date and additional vehicle details).

To supplement the note we prepared on the Bibby case in our last bulletin, we report on Mr Magson’s further attempts to avoid his liability under personal guarantees and look at additional lessons to be learned from these cases

Lombard v Magson-the facts

In the Lombard case (which had certain facts in common with the Bibbycase), decided shortly after the Bibby decision was handed down, Mr Magson once again managed to avoid liability under another personal guarantee. This time he had signed a document entitled “Schedule to Lease Agreement” on behalf of one of his companies in May 2008. He also signed a guarantee and indemnity. A start date was later inserted into the Lease of 23rd May 2008, with the dates for each following monthly payment together with details of the vehicle. There was also an alteration to the guarantee. The vehicle was delivered in July 2008. This time HH Judge Michael Roach, in Bristol County Court,  was satisfied that Magson thought that he was signing only a commitment on behalf of the company to take the vehicle from July 2008 at which stage further documents would be signed. However, no additional documents were signed and the Company had the use of the vehicle for 2 months before the company went into administration in September 2008. On the basis of his findings, not only did the judge conclude that there was no binding Lease but he also relied upon the long established principle inPigot’s Case (1614) that a material alteration to a deed or written contract discharges the other party from his obligations.


The decision in Bibby was perhaps not surprising given the judge’s findings as to the discussions which took place surrounding the signing of the guarantee. The finding in Lombard about Magson’s view of the documents which he signed, ignores both the principle that a party of sound mind should ordinarily be deemed to understand any document which he signs and the seemingly inconsistent finding in General Guarantee v Hitchens.

In that case, the court readily accepted from the facts that the customer had agreed to take a vehicle, and the lessor agreed to supply it, on finance, despite there being no signed document in existence until a later date. After all, upon what basis did the company agree to take the vehicle, if it was not on the terms of the document which Mr Magson did sign?    However, the key lessons to be learned from these 2 decisions are:-

  • The circumstances surrounding the signing of personal guarantees can often “trump” the apparent binding nature of the obligation thought to be assumed by the guarantor’s signature;
  • To avoid this, care needs to be taken to ensure that there is a proper process for procuring a signatory’s execution, including, if possible, provision for the signatory to take legal advice-getting documents signed in the pub over a few beers is clearly not a proper process, particularly if there is no clear written facility offer in place setting out clearly the conditions of the facility;
  • Ensure that the terms upon which guarantees are to be taken are set out in an offer letter that make it clear that the guarantor has relied on no representations and/or that no variation to the terms can be agreed other than in writing
  • Ensure no manuscript amendments are made to documents whether before or after signing, even though they may seem not to be material or simply confirming what was in fact agreed. This is even more important as far as guarantees are concerned.
  • The practical difficulties of procuring guarantees where intermediaries are involved are clear. Here ensure
    • Proper broker/dealer vetting;
    • Clear broker/dealer terms for procuring execution of documents

If there are manuscript entries on existing documents, there is an evidential presumption that these were in the document at the time of signing, unless the contrary is proved. However, manuscript entries invite these sorts of allegations and are therefore best avoided.

This article is written by David Wood, a Partner in the Finance Litigation team who can be contacted on 0161 603 5000 or

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

David Wood


I advise clients in all sectors on asset and consumer finance documentation and procedures and FCA consumer and mortgage credit regulation.