Two related cases in which guarantors under personal guarantees sought to avoid liability under the guarantees and also to avoid sequestration as a result of the guarantees being called up. The Royal Bank of Scotland was the creditor in both cases.
The guarantors applied for an interim interdict to prevent the Bank obtaining sequestration. The Royal Bank had loaned sums to two companies of which the guarantors were directors. The guarantors claimed that a Bank employee had made representations to them to the effect that the bank could not exercise the guarantees until it had first pursued all steps against the companies.
Lord Brodie refused to grant the interim interdict finding that the guarantors had failed to make a prima face case. And even if that decision was wrong and they had managed to make a prima face case, the guarantors delay in bringing the case had been too long.
The error the bank’s employee was said to have induced was one as to the meaning of a formal legal document. The guarantors knew that they were entering binding legal documents and they were only in error as to the circumstances in which the guarantee would be enforceable. Any award of reduction would have been dependant on restitutio being possible (i.e. the Bank being paid). The issue was not solely between the companies and the bank as the loans had been advanced on the strength of the guarantees.
Scottish Courts, 17 May 2011 http://www.scotcourts.gov.uk/opinions/2011CSOH84.html http://www.scotcourts.gov.uk/opinions/2011CSOH85.html