What is a personal guarantee and can a third party create a binding liability by signing on your behalf?

Personal guarantees are often utilised to obtain capital for businesses, perhaps where they are startups or small in size and have insufficient credit history or assets to meet lending criteria on their own. In exchange for the lender providing credit or capital to the business, the personal guarantor will agree to repay the debt from personal assets in the event that the business defaults.

There are a number of potential circumstances which could give rise to a defence to a claim by a creditor pursuant to a personal guarantee, for example:

• If the debt is not properly owing in the first place;
• Where the guarantee or the debt has arisen as a result of fraud;
• If the position was misrepresented to the debtor or the guarantor;
• If the guarantor had not agreed to be bound by the personal guarantee; or
• If the guarantor was unduly influenced into entering into the guarantee.

Further information in relation to the above can be found on our Personal Guarantees page.

But what happens if someone else has signed the personal guarantee agreement on your behalf?

It is not uncommon for a personal guarantee to be signed by a third party on behalf of a guarantor. A question which may arise in that scenario is whether the guarantor is still bound by that agreement despite not having signed it themselves.

In the case of Ramsay v Love [2015] it was held that celebrity chef, Gordon Ramsay, was bound by a personal guarantee given to a landlord, even though he had not personally signed the document.

The judgement provided that:

• Certain legal documents can be binding on someone where their signature is written by a signature machine;
• The signature can be validly produced even where the machine is not operated by the signatory but by an agent on their behalf; and
• In such circumstances, for the signature to be binding, the agent needs to have sufficient authority from the signatory to sign.

Although the judgement did bind Mr Ramsay to the personal guarantee, it shows that these types of cases are highly fact-sensitive and opens the door for a personal guarantee to be challenged if the person who signed it did not have the requisite authority to do so.

This case may assist others in similar positions by providing authority that there needs to be clear permission or previous dealings of similar authority to allow for the personal guarantee to be binding when it has been signed by a third party on behalf of a guarantor. Practically speaking, it also highlights the importance of having clear processes, procedures and remits for employees or agents when it comes to entering agreements on behalf of a business owner.

How can Ellis Jones help you?

Our specialist Banking and Finance Litigation team has substantial experience in dealing with claims in this area and we have successfully enforced and challenged a number of personal guarantees. Our lawyers have the knowledge and expertise to review your matter and advise on the most appropriate steps to take. We will always consider your individual circumstances to provide tailored advice at an affordable cost and may also be able to act on a no-win, no-fee basis, subject to eligibility and the outcome of an initial assessment of your claim.

If you wish to discuss a potential claim or complaint, please contact our Banking and Finance Litigation Department on 01202 525333, via email at banking@ellisjones.co.uk, or by clicking on the “Make an Enquiry” button below.