A subsequently falsified letter of guarantee didn’t hold in court

We successfully represented a client in a dispute where the client’s obligation to fulfil a contract of guarantee was in question. A claim arising from the letter of guarantee was raised right after a part of the company was expropriated.

The importance of witness statements as evidence

The dispute arose after an acquaintance of the company’s former sole shareholder demanded the client fulfil the guarantee obligations. The guarantee was allegedly given as collateral for a loan agreement between the former sole shareholder and the claimant.

In order to prove the objections to the letter of guarantee, statements of witnesses had to be heard. The testimonies of the company’s former sole shareholder and the former board member revealed inconsistencies regarding the signing of the letter of guarantee and the alleged partial repayment of the loan. The claimant was also unable to prove the former board member’s right of representation at the time of signing the letter of guarantee. Furthermore, the demand letter to the company’s new board member to fulfil the guarantee claim was never issued. Since the former board member didn’t have the right of representation when the letter of guarantee was issued, the court declared the letter of guarantee void and the claim was dismissed.

Realisation of the guarantee must not contradict the principle of good faith

The court also found that granting the claim would have been contrary to the principle of good faith. According to case law, a case in which the principal claim has not been secured by the letter of guarantee is considered a violation of rights. This dispute is an example of violation of rights, in which the claimant’s conduct is contradictory and purposefully undermines the defendant’s rights. The dispute didn’t enter a procedure, making the judgment of the Tartu Circuit Court final.

Our services and client team

We represented the client at all stages of the proceedings and throughout the dispute. The team included our partner Carri Ginter, head of Insolvency & Restructuring Mari Agarmaa and associate Liisa-Maria Puur.