Guarantor’s signature not all that it seems

A recent High Court decision has given a helpful reminder of how a signed and witnessed Guarantee may not be worth the paper it’s written on.

This was on the basis of “undue influence” and because the defendant had not intended to sign a guarantee – the defence of “non est factum”.

  • Undue influence – where a relationship exists between two parties with “trust and confidence, reliance, dependence or vulnerability on the one hand, and ascendancy, domination or control on the other”.
  • Non est factum – where the document was fundamentally different to what the Defendant intended to sign; and crucially that he had not himself been negligent in connection with this.

That second hurdle generally trips you up if you simply sign a document without reading it first.

The Backgound

The Defendant had been a company director. He often witnessed the signatures of fellow directors on Leases. He had to resign from the board but was kept on as an employee.
The company’s landlords knew that the company was in difficulty and were insisting on a personal guarantee by a director of the company before granting a new Lease.
One of the remaining directors of the company got the Defendant to sign the guarantee page.

The Court’s decision

There was a presumption of undue influence. As an employee he should not have been asked to sign the guarantee until he had either taken or clearly rejected an opportunity to take independent legal advice.
Crucially the Court held that the landlord was deemed to be aware -had “constructive knowledge” -of the undue influence. It knew that the company was in trouble yet failed to carry out checks to ensure that the Defendant was aware of the risks.

For good measure the Court was also satisfied that the Defendant had been tricked into signing as a guarantor thinking that all he was doing was witnessing somebody else’s signature. In view of the history of him witnessing signatures the Court held that he had not been negligent. The “non est factum” defence therefore also succeeded.

And the message?

For those intending to take personal guarantees – follow the guidance laid down in Court decisions; that will generally require the involvement of lawyers.
The narrow message for those who have signed guarantees is that the circumstances can in some exceptional cases provide a defence; of course the best advice is still never to sign any document without reading and understanding it first.

If you would like to discuss this article, or any other matter relating to disputed guarantees or other contract issues please contact John Cadywould on 01603 675629, or e-mail [email protected]
To read more blogs from Rogers and Norton visit their blog here.

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