Archive for the ‘escrow’ Category

Guarantee procured by misrepresentation can be void because of undue influence

January 6, 2012

In Beardsley Theobalds Retirement Scheme Trustees v Yardley ([2011] EWHC 1380), Y had been a director of B Ltd. M was another director and controlling shareholder and he was trusted by Y. Y left the board at M’s request but continued as an employee. B Ltd was due to take a new lease of a shop but the landlord (L) insisted on a guarantee because of B Ltd’s precarious financial position. M asked Y to join in the lease as guarantor. Y signed as a result of M’s skillful misrepresentation; he made it appear that Y was simply witnessing M’s signature as he often did. B Ltd went into administration and L sought to enforce the guarantee. It failed: the guarantee was void as against Y for an impressive range of reasons.

First, in the circumstances, M’s misrepresentation amounted to undue influence. L was affected by it since it knew of B Ltd’s precarious position and it ought to have realised that Y was not a director of B Ltd. It should have ensured that Y was independently advised as to the nature of the document and the financial risk he was running. Y should have confirmed in writing that he was signing with the benefit of full knowledge of the nature of the document and the risk. A solicitor should have been asked to certify that independent advice had been given. None of this had happened so L had constructive notice of the undue influence. The court would also have found the guarantee to be unenforceable on the grounds of non est factum and that Y had not given authority for the guarantee to be delivered in escrow.