Bank Denied Summary Judgment on foot of Ex-Partner’s Guarantee for “emotionally transmitted debt”

By Charles Waterhouse and Darryl Broderick
14 September, 2017

Mr. Justice Barrett has referred summary judgment proceedings to plenary hearing in circumstances whereby a bank are seeking to rely on a personal Guarantee entered into by the ex-partner of a man who did not explain to her what she was signing.

Background

Ms. Geraghty was in a romantic relationship with the Third Named Defendant in the proceedings, Mr. James Kearney, who set up his own construction business in 1999. Mr. Kearney suggested that Ms. Geraghty become a 49% shareholder after persuading her to invest the sum of €17,500 in the company, Rostaff Property Development Limited (“the Company”). The romantic relationship ended in November 2013 and Mr. Kearney asked Ms. Geraghty to sign over her shares to his nephew. It transpired that some of the documents executed by her at this time constituted a personal Guarantee to AIB for all monies owed by the Company to the Bank. Ms. Geraghty does not deny that it is her signature on the guarantee documents, however, she states that she did not knowingly sign a personal Guarantee and that she was never made aware by the Bank that she would be held liable for the debt of the Company.

Ms Geraghty’s position

Ms. Geraghty has sworn on Affidavit that she will rely on the legal defences of undue influence, unconscionable bargain, non est factum, misrepresentation and mistake. She states that the signing of the Guarantee was an unconscionable bargain and it was one which no sensible person would enter into and furthermore, the document was presented in a way she believed it to be a meaningless document and so there was a clear misrepresentation.

AIB’s position

The Bank’s position has been set out as “black and white” and that it was clear what was contractually agreed. Mr. Justice Barrett noted on a number of occasions that the threshold for sending summary applications to plenary hearing has been pitched at a notably low level in Aer Rianta C.P.T –v- Ryanair Limited [2001] 4 IR 607 and that no effort was made by AIB to rebut the evidence of Ms. Geraghty save a couple of bald statements that an Appearance was only entered for the purpose of delay and that the Defendants have no bona fide defence.

The facts of this case echo those in Governor and Company of the Bank of Ireland –v- Michael Curran and Maureen Curran [2015] IEHC 819 which related to a Guarantee signed by a 73 year widow who lived alone. The Guarantee in this case was signed in her own home in the presence of a Bank Official. In granting the Bank summary Judgment, the Judge noted that notwithstanding there was no solicitor present at the signing of the Guarantee, the Defendant had in fact received legal advice which had strongly cautioned the Defendant against entering into any Personal Guarantees, and so found that the Defendant had in fact received advice but chose not to accept it. The Judge dismissed the defence of unconscionable bargain and noted that the Defendant had not put forward any credible evidence to back up this defence. In relation to the defence of non est factum the Judge dismissed this as the Guarantee was clear on its face and the Defendant had signed the document.

In the case at hand the Judge did not address the defences of non est factum, misrepresentation or mistake as he felt that Ms. Geraghty had already proven that there is a possibility of a bona fide defence and so referred the matter to plenary hearing.

Comment

This decision does not mean that Ms Geraghty has succeeded in her defence of the proceedings but only that the Bank must proceed to a full hearing with witness evidence if it is to attempt to secure judgment against her. The decision turned on its particular facts and it does not mean that the Courts will accept that Defendants have an arguable defence of “undue influence” or “unconscionable bargain” just because the guarantor is in a relationship with a borrower or director of a company whose debts are guaranteed or is related to them. Whether these defences succeed or not, such arguments are featuring more frequently in these type of summary judgment cases, albeit with varying degrees of success as we see from the Curran case noted above. The main lessons for financial institutions are to make sure the wording of the guarantee is clear, to ensure compliance with all legal formalities associated with the contract and also to ensure that guarantors in certain situations obtain verifiable independent legal advice.