Consider inserting a clause to bind guarantors individually if that’s the intention says Greg Standing
Leasing companies may request personal guarantees as additional security. Care needs to be taken to ensure they are entered into correctly and so are enforceable.
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Unless stated otherwise, where the wording of a guarantee provides that it is to be signed by all the guarantors and that their liability under it is to be joint and several (i.e. both collective and individual), it has to be signed by all of them to be enforceable against any of them.
This was the scenario in Harvey v Dunbar Assets PLC (2012). The defendant required a guarantee to be entered into by four individuals, including Harvey, to guarantee the liabilities of a development company (Vision). The liability under the guarantee was said to be joint and several.
The guarantee provided at clause 4(a) that neither the obligations of the guarantor (defined as all four individuals), nor the rights or remedies of the defendant, would be discharged, impaired or affected by any failure to take or fully take any security in respect of Vision’s obligations to the defendant.
The venture failed and the defendant issued a statutory demand based on the guarantee. One of the guarantors alleged his signature had been forged. Harvey contended that, as a consequence, the guarantee was not binding against the three individuals who had actually signed it. The intention had always been that the four individuals would be party to the guarantee, not three, and therefore the guarantee he had entered into was not the one contemplated and so was not binding on him.
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By GlobalDataHarvey argued that clause 4(a) did not help the defendant, as the reference to ‘any security’ in that clause meant any security other than that provided by the guarantee in question.
The Court of Appeal, reversing the first instance decision, agreed. On its true construction the guarantee was a single composite guarantee, prepared for signature by four people whose liability was expressed to be joint and several. There was no wording in the guarantee to displace the starting point when construing it that it was a condition that it be signed by all four intended guarantors and that liability would only be imposed on an individual guarantor when all the named guarantors had in fact signed it.
On the assumption that one signature had been forged, the four intended guarantors had not all signed and the condition had not been fulfilled. Harvey had never, therefore, become a guarantor and was not liable. The defendant was not entitled to rely upon the guarantee as the basis of the statutory demand which would be set aside.
Comment
There is no absolute rule, or enshrined principle that, in all circumstances, if one intended guarantor does not sign, the other intended guarantors who did sign are not bound. Whether a guarantor is bound will depend upon the proper construction of the guarantee itself. Leasing companies may consider inserting a clause into a guarantee to the effect that a guarantor will be bound on
signature, regardless of whether other intended guarantor(s) also sign – if that’s the intention.
Greg Standing is a partner with Wragge & Co
