Past Consideration On PG Non-Deed

FACTS

In 2002 ‘R’ and ‘S’ set up a partnership in another EU country and obtained an overdraft from the Bank.

In 2003 R and S converted the business to a limited company, with the directors being R and his wife, T. This company then ceased trading in 2004. The Bank never changed the account to the new company and continued to run the account in the old partnership name. Some two years later, it discovered the positional change and sought to obtain a guarantee from R to enable it to recover the debt incurred by the former partnership.

R’s previous partner S then approached him with a blank guarantee and informed him that the Bank had told him that he was still liable for the previous company debts. S and the Bank insisted that R sign the new guarantee thus relinquishing S from his alleged liabilities and securing the old borrowings outstanding on the previous company account. R reluctantly signed under the threat of violence from S who then disappeared with the documents. S then returned the signed guarantee to the Bank where the company’s former account manager signed the guarantee as witness to R’s signature. The Bank then called in the guarantee and issued proceedings against R for nearly £50,000.

OUTCOME

Given that the Bank official did not physically attest T’s signature to the guarantee, it failed as a deed under the Law of Property Act (Miscellaneous Provisions) 1989. Although no longer a deed, the agreement was still a contract of guarantee. However, because the guarantee was taken to secure existing borrowings (past consideration) it failed as a valid security on that basis as well. The Bank therefore accepted a reduced settlement of £15,000.

14 December, 2015 by Katie Lancaster

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