Guarantees and Undue Influence

Trustees of Beardsley Theobalds Retirement Benefit Scheme v Yardley [2011] EWHC 1380 (QB)

The Claimants were trustees and the registered freehold owners of a commercial premises in Nottingham.The Trustees entered into a 15 year lease with a company Body Care International limited. The Defendant guaranteed the lease. Body Care went into liquidation in November 2007.

The Claimants sort to claim from the Defendant outstanding rent,insurance and repairs totalling £79,049.46.

The Defendant had been requested to sign the lease by Mooney who was a Director of the company. He signed the lease thinking he was merely witnessing the document. He had signed documents previously for the company.

The court found

  • The relationship between Mooney and the Defendant was one of undue influence. It was not a commercial relationship so there was a presumption of undue influence and he should have been given the opportunity to take legal advice at Body Cares expense.
  • The Claimants had constructive knowledge. They knew the company was in financial difficulty, they failed to check that the Defendant was a board director and should have checked that the Defendant was aware of the risks.
  • The court held that the Defendant had been misled as to what he was signing.

The case highlights the need for beneficiaries of guarantees such as landlords to ensure that the guarantor has taken advice and understands what he’s signing.

Insisting that he takes advice from a solicitor and that it is confirmed in writing should satisfy that requirement.

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