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Guarantee or Indemnity
Catalyst Business Finance Limited v Very Tangy Television Limited
Group D11
Anirudh | Adithi | Nayana | Pranav | Sanjay | Shivaraj
.
Introduction
👉 Operated through
VTTL (Very Tangy Television Ltd.)
Entrepreneur in
US$40 million investment from Vanguard
Digital Media Industry
Short Term Loan
.
Urgency of Requirement
Tuckwell accepts terms, signs the documents and drops them with Catalyst
New Request
After receiving signed documents, Catalyst demands proof of funds in respect of Vanguard
As proof will take time, Tuckwell requests £ 50,000 be released immediately and balance later
Aug 23, 2015 – Tuckwell mails Catalyst that secured funding, which Vanguard had let down
Aug 24, 2015 – Provided Memorandum of Understanding with Select TV & asked for funds
Final Disbursement
Transferred
£ 30,000
Activity Timeline
Demand for
Loan Sanction MoU with Select TV
payment
Demanded
Repayment + Legal Costs
Guarantee
As Catalyst did not get paid, demanded repayment + legal costs from Mr. Tuckwell under
Personal Guarantee
Dispute
Tuckwell disclaimed liability for repayment and had the following contentions:
Primary vs Secondary: Liability under guarantee was secondary and liability of VTTL primary
Loan question: £ 80,000 advance was not paid under the loan agreement; loan agreement
provided for single payment of £ 500,000. Hence no secondary liability
Relevant Clauses
Clause 4: “The loan shall be drawn down in a single sum (or such other sums as
shall be agreed between the parties) as soon as this agreement is signed.”
Clause 5: “The loan shall be repaid 90 days after the date the Advance is made
unless otherwise agreed in writing by both the Lender and the Borrower”.
Two questions arose from the loan question
? Question 1: Were the £ 30,000 and £ 50,000 drawn under the loan agreement?
The sums of £30,000 and £50,000 are covered in the definition of advances
Agreement clearly states £500,000 could be drawn in a single sum or many smaller sums as
agreed by parties
? Question 2: Was VTTL and Tuckwell under obligation to repay loan only after
entire £500,000 had been transferred?
Total amount loaned, (with advances) shall be repaid 90 days after it is made
All advances drawn shall be repaid 90 days after they are made
If clause 5 construed otherwise, perverse result of no repayment until whole loan of £ 500,000 made
It is pertinent to understand the difference between guarantee and indemnity in this context.
Parties to the Contract
Creditor Principal debtor Surety
Third party responsible
To whom the Who is obligated to the
for payment of
obligation is owed creditor
obligation
Contract of Guarantee
Indemnifier Indemnified
✘ Primary liability falls upon the giver of the ✘ Liability of surety is always secondary to that of
indemnity the principal
An indemnity prevents the discharge of the principal or any variation or compromise of the
creditor’s claims against the principal from affecting the liability of the indemnifier under his
contract with the creditor.
Contract of Indemnity Contract of Guarantee
✘ Principle of co-extensiveness does not ✘ The liability of a guarantor is dependent on the
apply to a contract of indemnity underlying obligation of the principal to the
guaranteed party
✘ Shifts the burden of principal’s insolvency ✘ Surety only liable to the same extent as that of the
on to the indemnifier and safeguards principal. Hence, no liability if the underlying
creditor against the possibility of underlying obligation is void or unenforceable
transaction being void or unenforceable
Time of liability
✘ Liability of indemnifier arises only on the ✘ Liability of the surety is already in existence but
happening of a contingency or loss arises on the default of the principal debtor.
Application to Terms of Contract
Express Agreement
I indemnify and hold you harmless against all losses and costs that you may suffer or incur
by reason of any failure of the Borrower to comply with any terms of the Agreement and
against all Losses and Costs arising out of or in connection with the recovery by you of any
Clause 3 monies ……
Judge’s View
Primary Liability
These references would be pointless if the personal guarantee & indemnity gave rise to a
secondary liability
Judge’s View
Final Judgement
It is clearly a primary obligation because it extends beyond losses & costs for which the Borrower is
liable
In the given case, Catalyst has suffered a loss and Tuckwell’s liability is primary. Therefore he has to
pay the sum demanded by Catalyst