Thinking About Guaranteeing Somebody Else’s Debts?

Joe Kafrouni

09 Nov 2013

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min read

Providing your personal and/or business assets as security for the debts of another business/person involves the highest amount of risk to the financial security of yourself and/or your business.

Think it’s safe to rely on what a member of your own family tells you about being their guarantor?

Please think again and consider the following case study. No matter how well you may know a family member, do not accept their interpretation of your obligations under a document they want you to sign or their assurances that “you’ll be right” without making your own inquiries. While it may not be pleasant or easy to refuse a family member who appears to be in trouble, they may well be asking you for more than you can give them.

People from non-English speaking backgrounds can be especially vulnerable to the dangers of unlimited guarantees. The complicated phrasing of contractual documents that often place important information in the fine print is a challenge even for native English speakers but can be near impossible for people from non-English speaking backgrounds to unravel.

Consider the following case study:

V asks his parents to help him and his business out of debt by signing a document from the bank. He assures them that it will be alright but misleads them as to the time and amount of the guarantee. V’s parents do not understand written English and rely on their son to look out for them.

The parents sign what turns out to be an agreement that gives the family home and their savings as security for their son’s present and future debts. The bank repossesses their home when the son can’t pay (Commercial Bank of Australia v Amadio (1983) 151 CLR 447).

Reader’s Tip

The most effective way to prevent yourself from being caught up in a similar situation is to be vigilant. Remember, you are under no legal obligation to sign anything you are uncomfortable with. You always have the right to seek legal advice about any document that requires your signature and no-one can make you sign it against your will. Finally, never commit what you cannot afford to lose, especially to a family member.

Joe Kafrouni
Legal Practitioner Director
Kafrouni Lawyers

Disclaimer

The information provided by Kafrouni Lawyers is intended to provide general information and is not legal advice or a substitute for it. Business people should always consult their own legal advisors to discuss their particular circumstances. Kafrouni Lawyers makes no warranties or representations regarding the information and exclude any liability which may arise as a result of the use of this information. This information is the copyright of Kafrouni Lawyers.

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