A bank guarantee or any other legal obligation entered into under another’s undue influence may well not be worth the paper it is written on. The point was made by the case of a pensioner who faced a mountainous debt claim after backing his daughter’s ill-fated foray into the world of property development.
As a precursor to bankruptcy proceedings, a creditor that had taken an assignment of a bank debt issued a statutory demand against the man, a retired clothing retailer in his 70s, on the basis that he owed a sum approaching £9 million. It pointed to his signature on personal guarantees by which he apparently underwrote the debts of a property development company in which his daughter was a shareholder.
He contended, however, that the guarantees were worthless in that he had signed them under the undue influence of his daughter, whom he trusted implicitly and on whose judgment he relied. He said that she had persuaded him to invest £300,000 in a property development on the basis that it could not fail.
He had no knowledge or experience of property development and, although he was appointed a director of the company, he was not a shareholder and said that he had no part in its management. He accepted that he had signed some documents but said that he had never attended any meetings with the bank in connection with the company’s borrowing. He expressed doubt as to the quality and independence of any legal advice given to him before he signed the guarantees.
In overturning the statutory demand, the Court found that the debt was disputed on grounds which appeared to be substantial and that the man had a potentially viable defence to the creditor’s claim. The demand, which contained a bald assertion that the money was due and owing, was also insufficiently particularised. The ruling meant that the creditor would be required to establish the debt at a full trial.