A common question that Clients across all industries ask is… What do I do if the personal guarantee I hold on file has not been witnessed?
We recommend to all of our Clients that any personal guarantees are in the form of a Deed. This is because a Deed is a particular type of legal document which has certain benefits over the usual form of Contracts or Agreements that are entered into by the parties.
A Deed has an extended limitation period of 12 years, not 6 years as in the case of an Agreement or Contract.
A Deed can be confined to its actual contents when trying to work out what the parties intended. Whereas, in the case of a Contract, the terms may consist of the written document as varied by the conduct of the parties or a series of written documents, emails, letters, invoices etc.
A Deed does not need to have consideration to be effective. If the parties decide to use a Deed to set out their agreement, the fact that it is all one sided is of no consequence. If they use a written contract it may be overturned or made unenforceable because it is unfair, it is harsh or unconscionable.
The net result is that, especially in the case of Guarantees and Indemnities and Charges, a Deed provides that absolute certainty that will bind the Guarantor.
The only question is, what constitutes a binding Deed?
To be binding, a Deed must be in writing, be signed, be sealed and be delivered. If the Deed attached is signed and sealed (meaning it is expressed as being signed sealed and delivered) and has been delivered (clearly the person signing has intended to be bound by it). The only question is – it hasn’t been witnessed. What is the effect of that?
The Conveyancing Act (NSW) provides as follows:-
S 38 Signature and Attestation
(1 ) Every deed, whether or not affecting property, shall be signed as well as sealed, and shall be attested by at least one witness not being a party to the deed; but no particular form of words shall be requisite for the attestation.
For a personal guarantee in the form of a Deed to actually be considered to be a Deed, it will require a witness, amongst other things. If it has not been witnessed, it will still be enforceable but not as a Deed. It will be limited to 6 years (instead of 12) and it will mean that the Guarantor may be able to provide other evidence (conversations, emails, etc.) if the contents of the Deed were challenged.
Ideally if you receive a Deed that has not been witnessed, you would return the document and have the Customer have his or her signature witnessed. If that is not possible, you still have an enforceable agreement, it is just not as “tight” as if it was a Deed.
For more information, contact Terry Ledlin, Special Counsel
Direct Line: 02-8488-3388