Caution: substantive rules

Question 1

C’s duty of good faith

- what does it involve? [c]

Answer 1

• not uberrimae fidei (Smith v Bank of Scotland)

- duty to disclose all material risks known to C of which CA is excusably ignorant

Question 2

Wrongdoings by D

-basic rule?

Answer 2

not C’s problem

Question 3

Wrongdoings by D

-mirep, UI etc? Why?

Answer 3

-will not normally affect validity of cautionary obligation
- because caution creates another contract between CA and C
– C not responsible for conduct of D

Question 4

Wrongdoings by D

-Smith rule? [4]

Answer 4

CA may seek reduction:

1) there was an objective risk of wrongdoing by D against CA by virtue of their non commercial relationship
2) caution was granted gratuitously
3) C failed to take steps to mitigate the risk
4) D did in fact commit an actionable wrong against CA

Question 5

Wrongdoings by D

-Smith rule exception?

Answer 5

a. Force and fear if D induces CA to enter into a cautionary obligation by F&F the obligation is void by lack of consent despite good faith of C

Question 6

Wrongs by C against CA?

-general?

Answer 6

C must disclose all material risks (within its knowledge) if CA is excusably ignorant (lord clyde in smith)

Question 7

Wrongs by C against CA?

-if C makes positive representation? [c]

Answer 7

CA may seek reduction, provided she would not have entered into caution under true circumstances (Ritchie v Glass)

Question 8

Wrongs by C against CA?

Possible remedy for misrep? [c]

Answer 8

damages may also follow (Bryson & co Ltd v Bryson)

Question 9

Gratuitous alienations?

When can they be reversed? [2s]

Answer 9

If in the last 2 years/5 years?
• IA 1986 s242(2)
• B(S)A 1985 s34(3)