A recent decision in Ireland emphasises for directors and creditors of Irish companies the importance of ensuring that the written terms of a guarantee properly reflect the liabilities agreed to be assumed by the guarantor if the guarantee is to be upheld.
In the decision two individuals executed a joint and several guarantee of monies due by a company in which they were the controlling shareholders. The guarantee was limited to IR£155,000 and stated that it was "binding as a continuing security on the guarantors". However, the guarantors submitted that the guarantee was not intended to be a continuing security but had been created to deal with a particular transaction and was intended by all parties to relate to that transaction only.
The Court accepted that the guarantee was entered into for a specific transaction and that the bank was attempting to use the guarantee to cover a later transaction. The Court relied on evidence by officers of the bank that it was their opinion that the guarantee had been discharged by completion of the earlier transaction. As this was clearly the intention of the parties irrespective of the contents of the written agreement the Court prevented the bank from relying on the guarantee.
This decision reflects concerns, similar to those reflected in the recent Irish Regulations on Unfair Terms in Consumer Contracts, that financial institutions, or other persons in a position to do so, do not impose an unfair advantage in the conclusion of a contract as a result of ambiguous or unintelligible terms. If they do, they may lose the benefit of the relevant
terms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
