SIMPLE REQUEST
It started with a simple request.
Could we look over a Lending Agreement.
The Agreement said that the company they entrusted their cash to had no liability or responsibility for investments. They were 100% responsible. Even though they were in the dark about the investment. The director was known to them.
They just signed you see and £157,000 later the target company was in administration and investments were gone.
Could they say that as they never read the Agreement and so weren’t bound by the restrictions and could sue for their loss.
APPALLING CONTRACT
The Agreement had not been drawn up by a lawyer.
They had not taken advice from one.
Let’s leave the wisdom of that hanging.
What happened, happened.
SHE SIGNED A £50M GUARANTEE OUT OF LOVE
Eternity Sky Investments ltd v Xiaomin Zhang [2023] and as reported in the Times Monday 7th August 2023.
Mrs Zhang signed the final page of the Guarantee faxed to her while on holiday in Spain. Interesting legal arguments in the case but in the end Held she was liable to pay. She signed. She is responsible. There was no question of misrepresentation or duress.
WHAT ABOUT STATUTE?
Section 4 of the Statute of Frauds 1677 requires a Guarantee to be given or evidenced in writing. It must be signed by the Guarantor and does not have to be witnessed unless signed as a deed when it must be witnessed.
In Signature Living Hotel Limited v Andrei Sulyok [2020] the Guarantee was not a deed as there were no witnesses. The Court wanted to see valuable Legal Consideration to support the promises given in the Guarantee.
The Court Held that a Guarantee can be enforced as a contract if it was supported by valuable Legal Consideration.
COMMERCIAL TRANSACTIONS AND THE COURTS
Generally the Court is reluctant to interfere in a commercial agreement that the parties clearly intended to be binding.
CONSEQUENCES
For our client the consequences were dire. Their investment stood little chance of being recovered. Their business was going into a members insolvency and that also meant that any course of action was taken away from them and would be for the Liquidator to determine. On insolvency Directors owe a duty to creditors not shareholders. They could do nothing to make the situation worse.
TAKE AWAYS
Fairly obvious.
Saving pennies by not taking legal advice before the event will have consequences when things go wrong.
And from time to time things go wrong.
Never sign anything you haven’t read and understood and if in doubt ask.
You may think you know what you read. You will not know if it is fair, reasonable or usual and you will not know what has been omitted.
ALEXANDER BUSINESS LAW SOLUTIONS are lawyers for business and advise businesses on a wide range of company and commercial matters.