Greg Standing explains how the wording of contract documentation can be key to personal guarantees
Motor finance companies sometimes take personal guarantees as additional security. Whether a guarantee is enforceable in the event of one signatory not signing as intended will depend on the wording of the guarantee itself.
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In Harvey v Dunbar Assets PLC (2012), the defendant required a guarantee to be entered into by four individuals to guarantee the liabilities of a company (Vision) up to a maximum of £720,000. The liability under the guarantee was said to be joint and several (both collective and individual). Harvey agreed to stand as one of the guarantors.
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 demanded payment under the guarantee. It issued a statutory demand which Harvey sought to set aside. The issue for the court was whether the guarantee was valid and enforceable, as it was alleged that one of the four signatures had been forged.
Harvey contended that, as a consequence, the guarantee was not binding against the three individuals who had signed it. The intention had always been that four individuals would be party to the guarantee. Therefore the guarantee he had entered into (which bound only three of them) 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 High Court found that ‘any security’ in clause 4(a) referred to any security contemplated by the defendant, including the security given by the guarantee.
The clause meant that the guarantors, both collectively and individually, should not be discharged by any failure to take any security contemplated or agreed to be taken concerning Vision’s obligations. The failure to take valid security from one of the four intended signatories did not discharge, impair or otherwise affect the security taken from the other three.
Clause 4(a) was wide enough to exclude the argument that it was contemplated there would be no contract unless all four signed.
Clause 4(a) was intended to preserve the defendant’s rights and did so successfully. The wording was clear that when Harvey signed the guarantee, he must have realised it may render him liable.
Harvey therefore remained liable to the defendant, despite the fact that one of the signatures to the guarantee had been forged.
Comment
This is a helpful decision to motor finance companies. So long as the wording of a guarantee includes an ‘intention to be bound’ clause along the lines of clause 4(a), an individual guarantor will not be able to avoid liability if it transpires that other security intended to be obtained was defective. As ever, the precise wording of the clause is crucial.
Greg Standing is a partner in Wragge & Co’s motor finance litigation team
