Does your commercial guarantee bite?

It is common in commercial guarantee agreements for co-guarantors to have joint and several liability, so that each of them become ‘on the hook’, collectively and individually, pursuant to one contractual document.

Dunbar (the bank) had loaned £2,969,000 to a development company to help finance completion of a development site in Sunderland. Part of the bank’s security for its loan was a joint and several guarantee, in a largely standard form, from four individuals including Mr Harvey (the appellant) and a Mr Lenny. The development was unsuccessful and the bank called on all four guarantors to repay the guaranteed sum and interest.

It turned out that Mr Lenny’s signature on the guarantee contract was a forgery and as such he had the bank’s statutory demand against him set aside. Mr Harvey then argued that the existence of the fraud meant that the guarantee, which was one composite document under which liability was expressed to be joint and severable, had never actually come into effect…

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