To sign or not to sign?

When you are provided with a document to sign, do you sign it without reading it or fully understanding what the document says? The risks of doing so are substantial and you should consider what the consequences might be in your particular circumstances.

Many people will have been in the situation where someone produces a document and asks you to sign it with words to the effect that it is “just procedural” or “it is a standard document that everyone has signed”. However, often hidden in that document will be legally binding consequences for the signing person it.

Typically, this situation may occur where a creditor requires security or a guarantee from an individual for the debts of a 3rd party. This may be demanded by a bank or trade creditor, such as a supplier to the 3rd party.

Specifically, this may occur if that person is closely involved in a voluntary group or club, which needs an individual member or members to provide security for the on-going liabilities of the group/club to a creditor.

Being aware of the risks is vital in these situations. Before signing, consideration should be given as to what is the monetary value of the liability on the person guaranteeing the amounts which may be owed, could that person afford to pay that amount, is that person prepared to pay that amount and is the sum secured in anyway over property which they own?

Generally speaking, if the person guaranteeing the money due to the creditor is called upon by that creditor to pay amounts owing by the club/group, the guarantor will not be able to escape those responsibilities by arguing that they did not understand what they were signing.

There is a real danger that selling the family home may be the only option in complying with responsibilities arising under the guarantee. This may be the only option if other finance is not available.

Understanding the content of the any document is therefore vital before signing it. Most importantly, if you are unsure about what the document means, take advice.

Written by Matthew Read, a Trainee Solicitor in the Commerce and Technology team.