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Guarantee Voided by Forged Signature

PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.

The pitfalls of not getting documentation exactly right have become all too clear for a lender following a recent Court of Appeal hearing.

The case arose because the lender wished to rely on the guarantees given over a debt by a group of guarantors.

Unfortunately for the lender, the documentation contained a clause stating (in effect) that the guarantees were only valid if all four guarantors had signed the document.

When the person to whom the loan was made did not make the necessary repayments, the lender issued a statutory demand for payment on the guarantors. If a statutory demand for payment is not set aside or met within 21 days, the lender can bring insolvency proceedings against the debtor. Dealing with a statutory demand immediately on receipt is therefore essential.

One of the guarantors alleged that his signature was a forgery, so the guarantors applied to have the statutory demand set aside. The High Court refused and that decision was then appealed.

In overturning the decision of the High Court, the Court of Appeal considered that if the document was intended to create joint and several liability among the co-guarantors, it was clearly necessary that all should have signed it before any one was bound.

Accordingly, if the signature of one of the guarantors could be shown to be a forgery, the guarantee would fail. That point remains to be decided. In the interim, the lender’s statutory demand for payment was set aside.

If you are advancing funds or having an advance guaranteed by a guarantor, a failure to ensure that the paperwork is fully and correctly completed could cost you dear.

Contact us for advice on negotiating the giving or receiving of loan or other finance.

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