A company director who was misled into signing a guarantee over a lease, when he thought he was merely witnessing his fellow director’s signature, has escaped liability under the guarantee.
Joshua Yardley signed the guarantee, over a 35-year lease on a property in Nottingham, after being asked by a fellow director to ‘pop in for five minutes’. He was shown the last page of the document, which had been signed by the other director, and was asked to sign it.
When the company failed, the landlords sought payment of the rent of £32,500 per year. Mr Yardley claimed that he had no idea that the document was a lease and that by signing it he was ostensibly guaranteeing payment of the rent.
The landlords argued that even if Mr Yardley did not know that it was a guarantee, he should still be bound by it because they had no way of knowing whether or not he was unaware of the nature of the document he had signed.
The court was unimpressed with the landlords’ reasoning. They knew the company was in difficulties (hence requesting the guarantees by the directors) and had failed to take steps to satisfy themselves that Mr Yardley had acknowledged that he had guaranteed performance of the lease.
Mr Yardley was therefore ruled to have no obligation under the purported guarantee.
The lesson to be learned is that it is important to make sure that when documents are executed, there is a clear paper trail showing that all signatories are clearly aware of the commitments they are making.
Contact DFA Law Partner John Keeble for advice on any aspect of contract law.