When is a deed not a deed? When the party
signing the document has no intention of being bound by it, says
Greg Standing
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Often, personal guarantees will be entered into by
directors to support their businesses’ leasing arrangements. If a
signed and dated document is handed over, the finance company may
be forgiven for thinking ‘job done’.
That is not always the position
though, as the case of Bibby Financial Services Ltd vs
Magson and others concluded.
The defendants in this case, as
directors, signed personal guarantees in the form of deeds in
relation to a debt factoring agreement their company entered into.
The factoring agreement was terminated and the claimant sought to
enforce the guarantees.
The defendants alleged the
guarantees were not binding. They had signed the documents during a
meeting with the claimant and their signatures had been witnessed
and the documents handed over.
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By GlobalDataHowever, they had made manuscript
notes on the documents of changes required to them. They said they
expected clean versions would be produced for them to sign and date
afresh.
They alleged they had only signed
the documents as a gesture of good faith and to show an intention
to proceed. As the corrected documents had not been produced for
them to sign, the guarantees had not been properly executed and so
could not be enforced against them.
The parties’ accounts of what had
happened at the meeting differed greatly. It was clear from
correspondence before the meeting that the defendants had not
previously undertaken any personal obligations towards the
claimant.
The claimant had sent the offer
letter to the company the day before the meeting with the
defendants and it could not
be assumed they would have had time to consider its terms properly
by the time of the meeting.
That made it unlikely that the
purpose of the meeting, as alleged by the claimant, was to sign the
guarantees.
It was more likely that there would
be discussions about the offer with a view to reaching agreement on
terms, with the documentation being signed later.
The court, looking at the objective
facts and contemporaneous evidence, preferred the evidence of the
defendants as to what the purpose of the meeting was.
Importantly, to be effective, deeds
have to be “delivered as a deed” within the meaning of the Law of
Property (Miscellaneous Provisions) Act 1989 and the Law of
Property Act 1925. The person signing the deed must separately
indicate (by sufficient acts or words) that he intends to be bound
by the deed.
Signature alone is not enough and
neither is physically handing it over to the other party.
The court accepted that the
defendants had not intended to ‘deliver’ the guarantees after
signing them at the meeting and they were not, therefore, bound by
them.
Things to
consider
To ensure certainty, the deeds used
by finance companies should state precisely when delivery is to be
effective, for example, the deed is to be delivered and take effect
on the date stated at the beginning of it.
If the intention is not to deliver
the deed, it should not be dated. Consideration should also be
given to using contractual guarantees instead of deeds.
The author is a partner in
Wragge & Co’s finance litigation team
