Personal Guarantee Advice

[Mollymalone63]

Ok, here we go......
A friend of mine Needed to borrow money from a friend for a business £25,000
The friend wanted a "Personal Guarantee"
Her daughter cobbled one together from the internet for her
Document was not a "DEED" or was not "signed as a deed" (was not marked a deed anywhere on the document) Was headed "Personal Guarantee"
She signed document.
Her husband took it the next day to his brother in law to witness. He signed it but did not witness her signature.
The brother in law signed PG because he knew if the company got the investment loan he would get paid for some work she wanted doing so was win for him.

Long story short, business has failed and she wants her money back. Where would she stand as she cannot afford to pay back.

[R0b]

Re: Personal Guarantee Advice

Hello,

I am struggling to follow what you are saying, can you explain by referencing as party A and Party B?

The company you mention is it a limited company?

Will need to see the terms of it to understand the position better.

The guarantee may not be enforceable if not signed as a deed, as it would then instead become a contract and in order to create a legally binding contract there would need to be consideration. No consideration = no legally binding contract. This is why guarantees are signed as a deed to as you do not require any consideration for it to be enforceable.

For that sort of money being loaned, why didn't your friend employ a solicitor for a few hours work and get it done properly? For the sake of a few hundred quid, she is at real risk of not being able to recover any money.

[Mollymalone63]

Re: Personal Guarantee Advice

Hello,

I am struggling to follow what you are saying, can you explain by referencing as party A and Party B?

The company you mention is it a limited company?

Will need to see the terms of it to understand the position better.

The guarantee may not be enforceable if not signed as a deed, as it would then instead become a contract and in order to create a legally binding contract there would need to be consideration. No consideration = no legally binding contract. This is why guarantees are signed as a deed to as you do not require any consideration for it to be enforceable.

For that sort of money being loaned, why didn't your friend employ a solicitor for a few hours work and get it done properly? For the sake of a few hundred quid, she is at real risk of not being able to recover any money.

Thanks R0b, sorry for the confusion.

A friend of mine (PARTY A) Needed to borrow money from a friend (PARTY B) for a business £25,000
PARTY B wanted a "Personal Guarantee"
So PARTY A's daughter found one on the internet
Document was not a "DEED" or was not "signed as a deed" (was not marked a deed anywhere on the document) Was headed "Personal Guarantee"
She signed document.
PARTY A's husband took it the next day to his brother in law to witness. He signed it but did not witness PARTY A's signature.
The brother in law signed PG because he knew if the company got the £25,000 loan he would get paid for some work she wanted doing so was win win for him.

No company. It was individual lending to individual. Although PARTY A did pay money into her LTD company. However, PG was in PARTY A name as guarantor.

Does not state DEED anywhere on the document so does that mean it is not a DEED?

If not a DEED, will there still be a claim?

Can you define "consideration" please?

£25,000 was loaned, neither PARTY A or B wanted to pay a Solicitor so her daughter took document from the web for free

[Mollymalone63]

Re: Personal Guarantee Advice

thanks r0b, sorry for the confusion.

a friend of mine (party a) needed to borrow money from a friend (party b) for a business £25,000
party b wanted a "personal guarantee"
so party a's daughter found one on the internet
document was not a "deed" or was not "signed as a deed" (was not marked a deed anywhere on the document) was headed "personal guarantee"
she signed document.
party a's husband took it the next day to his brother in law to witness. He signed it but did not witness party a's signature.
the brother in law signed pg because he knew if the company got the £25,000 loan he would get paid for some work she wanted doing so was win win for him.

no company. It was individual lending to individual. Although party a did pay money into her ltd company. However, pg was in party a name as guarantor.

Does not state deed anywhere on the document so does that mean it is not a deed?

If not a deed, will there still be a claim?

Can you define "consideration" please?

£25,000 was loaned, neither party a or b wanted to pay a solicitor so her daughter took document from the web for free

basically r0b, my friend party a borrowed the money
drafted her own pg
signed her own pg without realising the legal implications
did not seek legal advice
did not get the document witnessed correctly( from my research a witness needs to see the pg being signed
and the witness knew he would walk away with some of the £25,000 she borrowed as he would get a contract for a job if the loan went ahead.

What a mess!!!!

[R0b]

Re: Personal Guarantee Advice

I see,

So it depends on what the document actually says and whether or not a contract exists between Party A and Party B. Under normal circumstances a personal guarantee is a 3-way agreement: Party A (Borrower), Party B (lender) and Party C (Guarantor).

There are basic elements for a contract to be binding e.g. an offer, an acceptance, consideration and intention to create legal relations. Consideration is where each party will receive both a benefit and a detriment. Normally consideration is money e.g. Party A will receive £1 (benefit) to carry out the services (detriment), Party B will pay £1 (detriment) to receive the services (benefit).

For personal guarantors, there is generally no consideration because they are not receiving any benefit but just the detriment (by agreeing to cover any sums if the borrower defaults) hence the need for it to be in the form of a deed where no consideration is necessary.

I am speculating but a way around the consideration is to state in the document for example, "in consideration for personally guaranteeing the loan, Party A/B has given the sum of £1 to Party C, receipt of which is hereby acknowledged". Party C would then have both a benefit and a detriment.

Again, unless you are able to upload the document along with its terms, I can't really comment much further, and if you do, make sure personal info is redacted.

[Mollymalone63]

Re: Personal Guarantee Advice

Are you a Lawyer R0b?
Can I upload privately as it needs to remain private?

[R0b]

Re: Personal Guarantee Advice

Yes and no because the forum is public and I will only respond in the open but also for others to comment and add their opinions, hence suggesting to remove personal info. Is there any reason why you can't upload without the personal information? It is simply terms and conditions which as you have suggested was taken from the internet so it's already out there in the public domain.

[Mollymalone63]

Re: Personal Guarantee Advice

Yes and no because the forum is public and I will only respond in the open but also for others to comment and add their opinions, hence suggesting to remove personal info. Is there any reason why you can't upload without the personal information? It is simply terms and conditions which as you have suggested was taken from the internet so it's already out there in the public domain.

No problem, ill send across tomorrow once I get to work and can scan it in.

[Mollymalone63]

Re: Personal Guarantee Advice

R0b, please see attached PG document with info blacked out. As you can see this was not executed as a DEED.

One more thing, although it states "Guarantor & Indemnifier" the clauses relating to Indemnifier were removed as she did not want to be tied under an Indemnifier clause.

The company who obtained the investment is based outside the UK. The guarantor is UK based person and director of the company.

Investor was an individual not a company/bank/finance institution

No legal advice was taken to draft document or before signing.

Witness was not present at the signing of the document, he signed it a few days later at a different location

Please take a look and your opinion would be very much appreciated as to the validity of the document.

ANY OPINIONS ARE APPRECIATED THANK YOU

[R0b]

Re: Personal Guarantee Advice

My view is that I don't think there is any merit in a claim. Firstly because the Personal Guarantee makes reference to an 'investment agreement' and also that there's no proper consideration between the Guarantor and the Investor e.g. the Guarantor is promising to pay the sums on demand where the borrower who is party to this 'investment agreement' defaults. The Guarantor is not receiving any benefit but simply suffering a detriment. The document is not a deed, there doesn't seem to be any reference to it being a deed from what I am able to see.

I also assume there are no terms relating to this 'investment agreement'? or even an investment agreement being agreed either verbally or in writing?!

Therefore no deed and no consideration = no binding contract, only recourse I guess is to pursue the borrower of the money. Unfortunately, this is what happens when people use documents without actually knowing the true legal implications of it. I may come across as harsh for saying this but it was a bit silly to skimp on a few hundred quid for legal advice where a lot of money is concerned, and people can only learn from it.

My gut feeling is that due to the lack of consideration in particular, the document is what you would call an agreement to agree and those are not enforceable in law.

[Mollymalone63]

Re: Personal Guarantee Advice

My view is that I don't think there is any merit in a claim. Firstly because the Personal Guarantee makes reference to an 'investment agreement' and also that there's no proper consideration between the Guarantor and the Investor e.g. the Guarantor is promising to pay the sums on demand where the borrower who is party to this 'investment agreement' defaults. The Guarantor is not receiving any benefit but simply suffering a detriment. The document is not a deed, there doesn't seem to be any reference to it being a deed from what I am able to see.

I also assume there are no terms relating to this 'investment agreement'? or even an investment agreement being agreed either verbally or in writing?!

Therefore no deed and no consideration = no binding contract, only recourse I guess is to pursue the borrower of the money. Unfortunately, this is what happens when people use documents without actually knowing the true legal implications of it. I may come across as harsh for saying this but it was a bit silly to skimp on a few hundred quid for legal advice where a lot of money is concerned, and people can only learn from it.

My gut feeling is that due to the lack of consideration in particular, the document is what you would call an agreement to agree and those are not enforceable in law.

Thank you so much R0b for taking the time to look through this and respond.

There is an investment agreement but again not drafted by lawyer, I cannot upload this publicly as there is too much personal info in this.

Would the "consideration" need to be noted on the PG?

Sorry for all the questions.

[charitynjw]

Re: Personal Guarantee Advice

How can one remove the indemnity?

I thought that was the very purpose of a personal guarantee; that is, the guarantor promising to recompense the lender if the borrower fails to live up to their end of the bargain?

[Mollymalone63]

Re: Personal Guarantee Advice

My view is that I don't think there is any merit in a claim. Firstly because the Personal Guarantee makes reference to an 'investment agreement' and also that there's no proper consideration between the Guarantor and the Investor e.g. the Guarantor is promising to pay the sums on demand where the borrower who is party to this 'investment agreement' defaults. The Guarantor is not receiving any benefit but simply suffering a detriment. The document is not a deed, there doesn't seem to be any reference to it being a deed from what I am able to see.

I also assume there are no terms relating to this 'investment agreement'? or even an investment agreement being agreed either verbally or in writing?!

Therefore no deed and no consideration = no binding contract, only recourse I guess is to pursue the borrower of the money. Unfortunately, this is what happens when people use documents without actually knowing the true legal implications of it. I may come across as harsh for saying this but it was a bit silly to skimp on a few hundred quid for legal advice where a lot of money is concerned, and people can only learn from it.

My gut feeling is that due to the lack of consideration in particular, the document is what you would call an agreement to agree and those are not enforceable in law.

There is an investment agreement and HOTs in writing but they are very basic documents. It was something again found on the web. As mentioned the guarantor is the only sharholder and director of the company that received the investment. Does that mean therefore that there IS consideration and that it would be enforceable, due to the guarantor being the sharholder and director of the company that received the investment?

Any advice would be appreciated. Thank you

[R0b]

Re: Personal Guarantee Advice

How can one remove the indemnity?

I thought that was the very purpose of a personal guarantee; that is, the guarantor promising to recompense the lender if the borrower fails to live up to their end of the bargain?

A guarantee is a secondary obligation which is contingent on the borrower to perform in accordance with the terms agreed. An indemnity is a primary obligation which means that if for whatever reason the obligations under the guarantee were set aside (for example where the terms of the main agreement were varied without the guarantors knowledge or consent) then the guarantor would still be liable to the beneficiary. That's why in a guarantee you will usually see both a guarantee and indemnity provision. I would actually say that clause 2.2 is arguably worded to the effect of an indemnity.

Going back to your question molly, the consideration I would say should have been inserted at 2.1 like the wording I mentioned previously about the £1 consideration. As it stands, the investor is parting with their money (detriment) to the third party and the guarantor is also giving a guarantee (a detriment) but there's no benefit. There has to be a benefit and a detriment between the two parties which is currently lacking hence guarantees always in the form of a deed to avoid any doubt.

Can I also ask if the wording of the document has been altered? At the end it says "executed and delivered" but that is standard wording requirement for a deed e.g. Executed and delivered as a deed.

[Mollymalone63]

Re: Personal Guarantee Advice

A guarantee is a secondary obligation which is contingent on the borrower to perform in accordance with the terms agreed. An indemnity is a primary obligation which means that if for whatever reason the obligations under the guarantee were set aside (for example where the terms of the main agreement were varied without the guarantors knowledge or consent) then the guarantor would still be liable to the beneficiary. That's why in a guarantee you will usually see both a guarantee and indemnity provision. I would actually say that clause 2.2 is arguably worded to the effect of an indemnity.

Going back to your question molly, the consideration I would say should have been inserted at 2.1 like the wording I mentioned previously about the £1 consideration. As it stands, the investor is parting with their money (detriment) to the third party and the guarantor is also giving a guarantee (a detriment) but there's no benefit. There has to be a benefit and a detriment between the two parties which is currently lacking hence guarantees always in the form of a deed to avoid any doubt.

Can I also ask if the wording of the document has been altered? At the end it says "executed and delivered" but that is standard wording requirement for a deed e.g. Executed and delivered as a deed.

The word deed was taken out everywhere. Although it therefore states executed and delivered, the word 'deed' was removed here and everywhere else on the document. Please advise.

On a separate point, are you saying that the indemnity point 2.2 is anything of concern, as the main supporting wording for indemnity was removed. My understanding of what you are saying is that indmnity is only required if an agreement is amended by a lender without the knowledge of the guarantor, so the guarantee is not void if the lender changes any terms of the loan. is this correct?

I would appreciate your response Rob.