Trustees of Beardsley Theobalds Retirement Benefit Scheme v Yardley

A guarantee may be set aside for undue influence where a person in a position of trust or influence is induced to sign without sufficient information about the transaction and its risks. Where the circumstances call for independent advice, the proposed guarantor should receive the document, full information and a genuine opportunity to obtain that advice or give informed consent not to do so. A creditor may have constructive knowledge where the circumstances should prompt reasonable enquiries. The exceptional defence of non est factum may also succeed where a signatory makes a fundamental mistake about the nature of the deed as a result of an intended misrepresentation.

The claimants, trustees and freehold owners of commercial premises, sought to enforce against the defendant a guarantee of a company tenant’s obligations under a fifteen-year lease. The defendant maintained that he believed he was witnessing signatures and had not understood that he was undertaking a substantial guarantee. He relied on undue influence, misrepresentation, non est factum, want of authority to deliver the deed and defective attestation. He also raised a late argument concerning notices under section 17 of the Landlord and Tenant (Covenants) Act 1995.

1. The claim failed. The defendant established that the person procuring his signature deliberately misrepresented both the nature of the document and the defendant’s status as a company director.
2. The defendant was entitled to full information, the document and an opportunity to obtain independent legal advice or give informed consent not to do so. The claimants had constructive knowledge of the undue influence because their advisers knew of the company’s precarious finances, insisted on a director guarantor and failed to verify the defendant’s status.
3. The guarantee was unenforceable for undue influence. On the exceptional facts, the defendant also established non est factum, having made a fundamental mistake as to the nature of the deed as a result of deliberate misrepresentation.
4. Had the guarantee otherwise been valid, the defendant would also have succeeded on want of authority to deliver it in escrow. Defective witnessing would not have defeated enforcement as a written contract because consideration was present.
5. The proposed section 17 defence was unpleaded and raised difficult issues. It was not permitted at that late stage, and the statutory questions were left undecided. Permission was granted to amend the claim, but the sums remained unrecoverable because the guarantee was unenforceable.

First-instance decision. No appellate history was stated in the judgment.