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JGM
JGM, Solicitor
Category: Scots Law
Satisfied Customers: 11426
Experience:  30 years as a practising solicitor.
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what is fair notice in scots law in terms of a contract

Resolved Question:

what is fair notice in scots law in terms of a contract
Submitted: 3 years ago.
Category: Scots Law
Expert:  JGM replied 3 years ago.
Thank you for your question.
The answer depends on the nature of the contract and such things as the obligations on the parties as well as the monies and time invested by each. Can you give me more detail and I will try to assist you?
Customer: replied 3 years ago.

Basically, a director of a company (which is now liquidation) sought to obtain a trade credit account with a supplier. On the credit agreement which was signed in his capacity as director he entered the required credit amount as £25,000.

At the foot of the form was a section headed 'customer declaration' under which it was stated 'in consideration of X agreeing to supply the applicant company on a credit account basis, we the undersigned, being owners/directors of the applicant company, jointly and severally personally guarantee,unconditionally and irrevocably full and complete payment of all financial obligations of the applicant company to X. X may, in its sole discretion, increase the level of credit to be afforded to the applicant company at any time'

This wasn't read at the time, and the directors attention was never drawn to it. The application was duly signed.

At the time of the company going into liquidation a sum much in excess of the 25,000 was owed and X sought to rely on the personal guarantee provision within the application to recover the whole amount apparently due.

I am a law student faced with this scenario and asked to prepare a defence for the director. I think there is the possibility for the action to be dismissed as X fails to give fair notice of the term within the application purporting to create a cautionary obligation, to the director who as far as he was concerned was signing only in his capacity as a director.

Expert:  JGM replied 3 years ago.
Thank you for clarifying that. I originally thought you meant notice as in a period of time. I now see what you need to know.
Your view on this is entirely right and you are fortunate in that I was involved in acting for the successful party in what has become the leading Scots authority on this subject.
As a law student you will have access to Westlaw. Look up the case of Montgomery Litho v Maxwell and that will give you the information you need. That case says that a personal guarantee has to be obvious to the guarantor and not hidden in the main contract between supplier and company. The Montgomery Litho case went to the Inner House of the Court of Session. The director was successful in his argument that the contract with the company, which purported to contain a personal guarantee, was not binding on the director as an individual because it was not obviously a guarantee obligation.
JGM and other Scots Law Specialists are ready to help you
Customer: replied 3 years ago.

Thank you so much. I'll have a read. My project then goes on to ask if, should that fail, that the amount available to be recovered should be limited to £25,000. Any thoughts on this? Or is this covered in Montgomery? I'm actually at my part time job just now so not had the chance to have a look!

Thanks

Expert:  JGM replied 3 years ago.
That depends on the exact terms of the contract but the personal guarantee would be limited to what was specified in the contract.