Banking and guarantee disputes

Banks take guarantees from third parties to give their reassurance when lending. In these difficult times more and more people are finding their banks are pressing them either to sign guarantees or to pay the debts of third parties because of the guarantee.

It is important to understand that a guarantee is a contract which has certain peculiarities. To be enforceable, any guarantee must be in writing and signed by the “party to be charged”. This is a requirement from legislation as old as the statutory frauds 1667. If the agreement is not in writing and signed this way, then it is unenforceable.

Even if the principal debtor whose debt was guaranteed is in liquidation, you are entitled to adopt whatever defence it had to the claim for your own against the claim on the guarantee. So if the bank are pursuing a guarantor but are themselves in breach of the terms of their agreement with a customer, this may be a defence.

Further, a person can only be liable on a guarantee if they sign willingly without direct pressure, understanding what the document was. So if a wife is pressurised into signing a guarantee for her husband’s debts or those of his company, without receiving separate advice, the agreement may be unenforceable for that reason.

We have considerable experience in advising parties under liabilities and guarantee, including the following issues:

• is the agreement clear as to its terms and signed
• was there undue influence when it was signed
• are any defences available to the principal debtor alone or to the guarantor
• advices to the value of the claim being brought by the bank
• advices to other parties may also have some liability