Many solicitors are asked, from time to time, to advise about bank guarantees and their effect.

We think it important that solicitors should be alert to the problems that can arise, as illustrated by recent experience.

Guarantors invited to provide a limited guarantee of a bank customer's account should not be content with the use for this purpose of the bank's standard, printed, 'all moneys' form of guarantee.The practice of at least one of the major clearing banks is, from the limited guarantor's viewpoint, most unsatisfactory.

At this bank, with a limit of the guarantor's liability to, eg, £20,000, the bank, when demanding payment of the £20,000 by the guarantor, asserts first that the guarantor is not entitled to be told the amount of the customer's indebtedness to the bank, but only that it exceeds £20,000; secondly, that the guarantor is not entitled to any information about securities given to the bank in support of the account; and thirdly, that the guarantor is not entitled to know whether there are other guarantors, or their identities, or the extent (if limited) of their guarantees, or whether they have made any payments, or have responded to any demand for payment, under guarantees.This particular bank has in its printed form of guarantee the following clause: 'A certificate by an officer of the bank as to the amount for the time being due from the debtor to the bank...shall be conclusive evidence for all purposes against the guarantor.' This bank, in practice, does not bother to provide any certificate.

It issues a demand for payment without even asserting that the debt is in excess of the guarantee's £20,000 limit.In a recent case its response to a request for a cer tificate, in accordance with the clause in its own printed form quoted above, was to state, without certifying, the amount said to be due from the guarantor, not from the debtor, and to assert that this statement complied with the clause.

Greater care is likely to be taken when complying with an express certification provision than when providing a less formal, uncertified statement.When pressed further the bank issued a certificate that at the date of the demand on the guarantor, the customer's debt 'exceeded £20,000'.

At the same time the bank asserted that unless the guarantor paid off the whole of the customer's debt he would have no rights of contribution from the other, unspecified guarantors.

Under further pressure the bank eventually stated, but did not certify, the amount of the customer's debt at the date of the demand on the guarantor.In the correspondence about that case relevant legal principles were misstated and, it must be assumed, were not understood by the bank.

The guarantor was ready and willing to pay what was due from him, provided that the amount due was satisfactorily established and, because of the prospect of proceedings to enforce his consequential rights against the bank's customer and the other guarantors, that the bank provided a certificate complying with the clause in its own printed form.The practical absurdity of the bank's adopted position is that it denied any right of the guarantor to a certificate of the full amount of the customer's debt as contemplated by its own printed form; it asserted that any certificate issued to the guarantor must be restricted to the amount of the guarantor's liability; it acknowledged, even so, that by paying the customer's debt in full (information which, according to the bank, it could not disclose to the guarantor), the guarantor would acquire rights against the other guarantors.The lesson to be learned is that a guarantor, when giving his or her guarantee to a bank in that bank's standard printed form, should nevertheless insist on a side agreement binding the bank and the customer.

This side agreement could provide as follows:1.

Whilst this guarantee remains operative the bank will supply to the guarantor, regularly and promptly, at the end of each calendar month, copy statement or statements of the customer's account(s) with the bank for that month.2.

While that guarantee remains operative the bank will provide the guarantor with full information about any other guarantees of the customer's account(s) with the bank including the name and address of each other guarantor and the extent (if limited) of each other guarantor's liability.3.

While this guarantee remains operative, the bank will keep the guarantor fully informed about any security or securities held from time to time by the bank in respect of the customer's account(s).4.

Upon making any demand on the guarantor the bank will provide a certificate in accordance with the clause of the guarantee, certifying inter alia the total amount of the customer's indebtedness at that date.5.

After making any such demand the bank will promptly inform the guarantor of (1) any demand made upon any other guarantor, any payment received from any other guarantor and any arrangement made between the bank and any other guarantor about the discharge of that guarantor's liabilities to the bank and (2) any payment made by the customer in reduction of the customer's liabilities to the bank, any arrangement made between the bank and the customer about the discharge of the customer's liabilities and any reduction o f the customer's liabilities by the realisation of any of the securities or otherwise.As regards item 1 in such a side agreement, the bank would merely duplicate its monthly account statements to the customer: for the bank a trifling administrative matter, but of great importance to the guarantor.

Item 2 in the side letter ensures that the guarantor knows what other guarantees there are and for what amounts.

This information may help him or her to make informed and sensible decisions, for example, about whether and when to give notice terminating his or her guarantee.

Item 3 is important.

It ensures the provision of information denied to the guarantor in the case mentioned earlier.

A guarantor who pays may want to benefit, or have the chance of benefiting, from any such securities.

Item 4 reinforces the clause in the bank's own printed form of guarantee, and avoids the absurd and time-consuming argument which ensued in the case above.After demand, what happens between the bank and the customer and other guarantors may be of great importance for informed decision-making by the guarantor.

For example, suppose the balance of debt after the guarantor has discharged his or her guaranteed liability is a modest sum.

The guarantor may be prepared to pay that modest sum in order to ensure and enforce rights of contribution against the other guarantors.In the particular case mentioned the bank insisted that it had no obligation to disclose any information.

So, taking the example in para 3 above, the position at the date of demand could have been that there were four other guarantors, each with a guarantee limit of £20,000; that the total of the customer's debt was £25,000; and that (according to the bank) the guarantor on whom demand was made was not entitled to know those facts.

A sensible law of guarantee would not permit a bank to insist on that oppressively absurd position.

However, intending guarantors can easily and fairly protect themselves, and should be advised to do so.