The recent Court of Appeal decision in Vuletic v Contributory Mortgage Nominees Limited highlights the need for clarity in documentation intending to bind a guarantor. In the case, the court found that a clause in a sale agreement purporting to incorporate a guarantee did not bind the director as a guarantor.
Ms Vuletic was a director of a company that contracted to purchase a property from Contributory Mortgage Nominees Limited under a mortgagee sale. The details of the agreement were contained in two documents, a sale agreement and a mortgage agreement. The sale agreement contained a clause that said in part ‘this agreement shall be personally guaranteed by Ita Vuletic ... to the intent that the obligations of the purchaser or nominee shall be paid personally by the said Ita Vuletic’. But the document itself only contained provision for execution by the purchaser, not the guarantor and purchaser, and no separate guarantee was ever signed. The purchaser never paid the full purchase price and was struck from the Companies register. Contributory Mortgage Nominees then sought and obtained summary judgment against Ms Vuletic as guarantor for the unpaid amount in the High Court. Ms Vuletic appealed successfully.
The Parties’ Contentions
Ms Vuletic argued that she had only signed the agreements in her capacity as a director for the purchaser and not also as guarantor. Contributory Mortgage Nominees argued that Ms Vuletic’s signature on the sale agreement was enough to give effect to the guarantee within that document.
The Court noted that where a signatory purports to sign on behalf of another, he or she is presumed to have only signed in that capacity. Here the presumption was not displaced. Ms Vuletic succeeded for three main reasons:
Neither the sale agreement nor mortgage agreement listed her as either a party or a separate signatory in her capacity as guarantor. Likewise, the clause in the sale agreement stating the fundamental obligations did not refer to Ms Vuletic as guarantor and there was no other evidence to suggest that she had signed the agreement in that capacity.
The passive wording of the guarantee clause made it arguable that the purchaser had only agreed to obtain a guarantee from Ms Vuletic in the future.
The Court found it significant that Ms Vuletic had written the word ‘director’ under her name when signing the sale agreement. As there was no evidence to the contrary, it was strongly arguable that she had only intended to sign the agreement in that capacity.
Lessons To Be Taken From The Case
Where a guarantee is combined with another agreement in a single document:
The guarantor should be listed as a party to the agreement in their separate capacity as guarantor.
The guarantor should sign the agreement in their separate capacity as guarantor.
The terms of the document should clearly set out the guarantor’s obligations and show an intention to bind the guarantor.
This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.
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Anyone with standard form contracts who deals with small business must review the contracts for potential unfair terms.
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