More on guarantees

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    More on guarantees

    I have just come across the following while researching something else:

    Mr Yardley's signature was not correctly witnessed.

    There are two aspects to this defence. For the guarantee to be valid as a deed, Mr Yardley's signature had to be witnessed. If the deed was otherwise valid, it was contended that Ms Ryan was not present when Mr Yardley signed the document and, in any event, thought she was witnessing Mr C. Mooney's signature and not Mr Yardley's. Both these grounds of defence are good and, had it been necessary, I would have found that the document was not enforceable as a deed.* However, that finding would not have assisted Mr Yardley because the document could still be enforceable as a contract in writing, so long as the claimants could show that that contract was supported by consideration. Here they could show that. The consideration was their granting the lease, which is the detriment moving from them, on terms that the lessee procures a guarantor of the rent who is a director of the lessee company, which is the benefit moving from both the lessee and the guarantor. It follows that success on this issue would have resulted in no more than a pyrrhic victory for Mr Yardley since the guarantee would still have been enforceable.

    [Para 58 of Trustees of Beardsley Theobalds Retirement Benefit Scheme v Yardley ]

    We have a clear statement that a guarantee is valid if supported by consideration. No problem there. What is perhaps surprising is that the judge manages to find a benefit moving from the guarantor. It is also not clear whether he finds the benefit because the guarantor was a director. (To confuse the issue further, Mr Yardley was not in fact a director, though represented as being one.)

    The case emphasises the need to make sure a guarantor knows what he is doing, is not acting under undue influence and takes proper advice.

    Whilst not directly relevant to guarantees generally, the part quoted up to the asterisk is very surprising and seems to be in direct conflict with an earlier case the name of which I cannot remember. On a strict interpretation of section 1(3)(i) of the Law of Property (Miscellaneous Provisions) Act 1989 he is right because the deed was not signed in the presence of the witness. However, the earlier case held that someone relying on a document which appears to be correctly executed is entitled to assume that it was unless he has notice to the contrary. ("Correctly executed" here meaning no more than executed in accordance with the Act; no one is bound by a forgery or a signature fraudulently obtained.)

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