Lecture 3 – Cautionary Obligations & Other Rights in Security
Caution – What is it?
• In Scotland, a guarantee is sometimes known as “caution”.
• Cautionary obligation is a personal obligation – what is meant by that?
Personal right and security that gives the creditor the right to recover this money back from a
specified third party if the principal debtor needs to pay back the loan. The creditor can only
approach the cautioner to pay back the money if the principal debtor has failed to pay the
debt back. Cannot go directly.
• What is an “improper caution”?
Constitution of Cautionary Obligation
• Guarantee by cautioner is treated as a contract
• Should it be in writing? There is no such requirement for that contract of Guarantee to be
written if a commercial Guarantee.
• The Royal Bank of Scotland v Carlyle [2015] UKSC 13
• Certain Guarantee’s required to be in writing:
• If it is gratuitous and unilateral and not in the course of business
• Any Guarantee’s which are given under the Consumer Credit Act 1974 s.105-
113 – they are required to be properly executed
• Commercial guarantee given in the course of business need not to be in writing
Contract - Void and Voidable
• A contract of caution is void when:
• parties lack capacity or
• the contract is entered into under force and fear or
• The contract is entered under essential error
• A contract of caution is voidable when:
• The contract is entered into as a result of misrepresentation, undue influence or by
facility and circumvention
Caution – What is it?
• In Scotland, a guarantee is sometimes known as “caution”.
• Cautionary obligation is a personal obligation – what is meant by that?
Personal right and security that gives the creditor the right to recover this money back from a
specified third party if the principal debtor needs to pay back the loan. The creditor can only
approach the cautioner to pay back the money if the principal debtor has failed to pay the
debt back. Cannot go directly.
• What is an “improper caution”?
Constitution of Cautionary Obligation
• Guarantee by cautioner is treated as a contract
• Should it be in writing? There is no such requirement for that contract of Guarantee to be
written if a commercial Guarantee.
• The Royal Bank of Scotland v Carlyle [2015] UKSC 13
• Certain Guarantee’s required to be in writing:
• If it is gratuitous and unilateral and not in the course of business
• Any Guarantee’s which are given under the Consumer Credit Act 1974 s.105-
113 – they are required to be properly executed
• Commercial guarantee given in the course of business need not to be in writing
Contract - Void and Voidable
• A contract of caution is void when:
• parties lack capacity or
• the contract is entered into under force and fear or
• The contract is entered under essential error
• A contract of caution is voidable when:
• The contract is entered into as a result of misrepresentation, undue influence or by
facility and circumvention
