Undue influence – Lease of commercial premises – Guarantee – Defendant employee of company – Company in poor financial position – Defendant induced to sign lease as guarantor of company as tenant – Defendant led to believe that signing only as witness to document in which no financial involvement – Whether guarantee enforceable – Whether procured by misrepresentation and undue influence of which claimant landlords having constructive knowledge – Claim dismissed The claimants owned freehold commercial premises in their capacity as trustees of a retirement benefit scheme. The premises were let, for a term expiring in October 2003, to a company of which the defendant was a junior director. At the request of another director, M, the defendant acted as one of two guarantors of the company’s lease obligations. Following a financial reorganisation, the defendant ceased to be a director of the company, although he continued to be an employee and, at M’s request, retained the title of sales director. Held: The claim was dismissed. Philip Fellows (instructed by Fraser Brown Solicitors, of Nottingham) appeared for the claimants; Howard Lederman (instructed by West London Law) appeared for the defendant. Sally Dobson, barrister
From November 2002, protracted negotiations took place for the grant of a new lease to the company. During that time, the company fell into financial difficulties. The claimants demanded guarantees from two directors as a condition of granting the new lease but were later persuaded to accept one. M informed the claimants that the defendant would act as guarantor. He did not tell the company that the defendant was not a director, and he did not mention the guarantee to the defendant. The defendant later signed the lease, which was for a term of 15 years at an initial rent of £32,500 pa. Completion of the new lease was delayed owing to the company’s difficulties in making the required completion payments, but completion finally took place in September 2005.
The company subsequently went into liquidation. The claimants brought a claim against the defendant for unpaid rent, damages for breach of repairing obligations and other expenses pursuant to the guarantee. The defendant contended that the guarantee was unenforceable since it had been obtained by undue influence and misrepresentation on the part of M. He claimed that M had simply presented him with the last page of the lease for signature without telling him the nature of the document he was signing or explaining that it involved him personally or put him at financial risk; he gave evidence that M had frequently asked him to sign legal documents for the company as a witness and had given the impression that the lease was just another such document.
M had obtained the guarantee from the defendant because be was determined not to give a guarantee himself, owing to the risky financial situation that the company was in and the real possibility that the guarantee might be called on. He had devised a stratagem for obtaining the defendant’s signature without him realising that he was signing a guarantee. M had misrepresented to the defendant that he was only being asked to witness M’s signature, or to sign a document in which he had no financial involvement. He had carefully ensured that the defendant saw only the last page of the document, which made no reference to it being the last page of a lease. Anyone presented with that page, and thinking that they were being asked to witness a signature in a way that they had done many times before, would not appreciate that they were signing up to be the guarantor of an annual payment of rent in excess of £30,000 pa for a period of 15 years. Had the defendant been informed that he was to sign a guarantee of a lease, he would have refused. Having signed, had he been informed of the subsequent difficulty in completing, he would have withdrawn any earlier consent and completion with his name on the guarantee would not have occurred. Had the claimants been informed that the defendant was not a director, they would have refused to enter into the lease.
All the elements of undue influence were made out. The defendant was in a position of inferiority to M and had no commercial or employment-related interest in the proposed transaction. He was being asked to guarantee rent payments of £32,500 pa for a period of 15 years at a time when the company’s finances were poor, with no other supporting guarantor to assist in taking the risk of default. He was entitled to be provided with sufficient information about what he was being asked to sign to enable him to take an informed decision whether to agree to it or to take independent advice on the issue. He should have been informed what he was being asked to sign, why he was being asked to sign it instead of M, the risks of the company defaulting, any financial concerns it had about paying the rent and fulfilling its other obligations and what the claimants, as landlords, had been told about the defendant. He had been entitled to know that M was lying to him in misrepresenting the nature of the transaction. He had trusted M and M had breached that trust.
The claimants had constructive knowledge of M’s undue influence. Knowing that the company’s financial position was precarious, they should have checked that the proposed guarantor was financially sound, aware of the risks and in full agreement with the proposal that he should guarantee the company’s obligations for a 15-year period. The guarantor should have been asked to provide a signed acknowledgment from a solicitor that he had been given appropriate advice before agreeing to sign, or a signed waiver of the need to take such advice. Moreover, the claimants could readily have ascertained that the defendant was not a director by an online search of the relevant register at Companies House. The difficulties in completing the lease should have also led to further enquiries about the company’s financial position and the defendant’s preparedness to give a guarantee.
It followed that the defendant had prove all the ingredients of undue influence, fed by significant misrepresentation by M to both him and the claimants. The guarantee was not enforceable against him. The defendant could also make out the defence of non est factum, namely that he was not bound by the document that he had signed because he had made a fundamental mistake as to the nature of the transaction and had taken all reasonable precautions available to him before signing to ascertain the nature and purpose of the deed being signed. He had genuinely believed that he was witnessing other signatures and had reached that conclusion because the words and actions of M had reasonably led him to that belief: Saunders v Anglia Building Society [1971] AC 1004 applied.
Trustees of Beardsley Theobalds Retirement Benefit Scheme v Yardley
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Undue influence – Lease of commercial premises – Guarantee – Defendant employee of company – Company in poor financial position – Defendant induced to sign lease as guarantor of company as tenant – Defendant led to believe that signing only as witness to document in which no financial involvement – Whether guarantee enforceable – Whether procured by misrepresentation and undue influence of which claimant landlords having constructive knowledge – Claim dismissed
The claimants owned freehold commercial premises in their capacity as trustees of a retirement benefit scheme. The premises were let, for a term expiring in October 2003, to a company of which the defendant was a junior director. At the request of another director, M, the defendant acted as one of two guarantors of the company’s lease obligations. Following a financial reorganisation, the defendant ceased to be a director of the company, although he continued to be an employee and, at M’s request, retained the title of sales director.From November 2002, protracted negotiations took place for the grant of a new lease to the company. During that time, the company fell into financial difficulties. The claimants demanded guarantees from two directors as a condition of granting the new lease but were later persuaded to accept one. M informed the claimants that the defendant would act as guarantor. He did not tell the company that the defendant was not a director, and he did not mention the guarantee to the defendant. The defendant later signed the lease, which was for a term of 15 years at an initial rent of £32,500 pa. Completion of the new lease was delayed owing to the company’s difficulties in making the required completion payments, but completion finally took place in September 2005.The company subsequently went into liquidation. The claimants brought a claim against the defendant for unpaid rent, damages for breach of repairing obligations and other expenses pursuant to the guarantee. The defendant contended that the guarantee was unenforceable since it had been obtained by undue influence and misrepresentation on the part of M. He claimed that M had simply presented him with the last page of the lease for signature without telling him the nature of the document he was signing or explaining that it involved him personally or put him at financial risk; he gave evidence that M had frequently asked him to sign legal documents for the company as a witness and had given the impression that the lease was just another such document.
Held: The claim was dismissed.M had obtained the guarantee from the defendant because be was determined not to give a guarantee himself, owing to the risky financial situation that the company was in and the real possibility that the guarantee might be called on. He had devised a stratagem for obtaining the defendant’s signature without him realising that he was signing a guarantee. M had misrepresented to the defendant that he was only being asked to witness M’s signature, or to sign a document in which he had no financial involvement. He had carefully ensured that the defendant saw only the last page of the document, which made no reference to it being the last page of a lease. Anyone presented with that page, and thinking that they were being asked to witness a signature in a way that they had done many times before, would not appreciate that they were signing up to be the guarantor of an annual payment of rent in excess of £30,000 pa for a period of 15 years. Had the defendant been informed that he was to sign a guarantee of a lease, he would have refused. Having signed, had he been informed of the subsequent difficulty in completing, he would have withdrawn any earlier consent and completion with his name on the guarantee would not have occurred. Had the claimants been informed that the defendant was not a director, they would have refused to enter into the lease.All the elements of undue influence were made out. The defendant was in a position of inferiority to M and had no commercial or employment-related interest in the proposed transaction. He was being asked to guarantee rent payments of £32,500 pa for a period of 15 years at a time when the company’s finances were poor, with no other supporting guarantor to assist in taking the risk of default. He was entitled to be provided with sufficient information about what he was being asked to sign to enable him to take an informed decision whether to agree to it or to take independent advice on the issue. He should have been informed what he was being asked to sign, why he was being asked to sign it instead of M, the risks of the company defaulting, any financial concerns it had about paying the rent and fulfilling its other obligations and what the claimants, as landlords, had been told about the defendant. He had been entitled to know that M was lying to him in misrepresenting the nature of the transaction. He had trusted M and M had breached that trust.The claimants had constructive knowledge of M’s undue influence. Knowing that the company’s financial position was precarious, they should have checked that the proposed guarantor was financially sound, aware of the risks and in full agreement with the proposal that he should guarantee the company’s obligations for a 15-year period. The guarantor should have been asked to provide a signed acknowledgment from a solicitor that he had been given appropriate advice before agreeing to sign, or a signed waiver of the need to take such advice. Moreover, the claimants could readily have ascertained that the defendant was not a director by an online search of the relevant register at Companies House. The difficulties in completing the lease should have also led to further enquiries about the company’s financial position and the defendant’s preparedness to give a guarantee.It followed that the defendant had prove all the ingredients of undue influence, fed by significant misrepresentation by M to both him and the claimants. The guarantee was not enforceable against him. The defendant could also make out the defence of non est factum, namely that he was not bound by the document that he had signed because he had made a fundamental mistake as to the nature of the transaction and had taken all reasonable precautions available to him before signing to ascertain the nature and purpose of the deed being signed. He had genuinely believed that he was witnessing other signatures and had reached that conclusion because the words and actions of M had reasonably led him to that belief: Saunders v Anglia Building Society [1971] AC 1004 applied.
Philip Fellows (instructed by Fraser Brown Solicitors, of Nottingham) appeared for the claimants; Howard Lederman (instructed by West London Law) appeared for the defendant.
Sally Dobson, barrister
