SQE1 sample questions

Question 102

A woman owns a profitable business as a sole trader. She runs her business from the family home which is owned by her husband in his sole name. The family’s only source of income is from the woman’s business. The husband does not have a paid job, being the full time carer for the couple’s four children.

The woman needs to borrow £10,000 to expand her business. A family friend agrees to lend her the money, provided the woman’s husband agrees to guarantee the loan.

A meeting is arranged between the woman, the family friend and the husband. Before the meeting takes place, the woman stresses to her husband the importance to the family of getting the loan. The family friend’s wife and adult son also attend the meeting and hear the husband verbally agreeing to personally guarantee repayment of the loan. Following the meeting, the family friend makes the loan of £10,000 to the woman.

The woman cannot now repay the loan and the family friend wants to enforce the guarantee against the husband.

What advice should the family friend receive in relation to the guarantee?

A. It is not binding because it must be evidenced in writing and signed by the husband.

B. It is not binding because it must be evidenced in writing and executed by the husband as a deed.

C. It is binding because it was freely given by the husband in the presence of two witnesses.

D. It is binding because the giving of the loan was conditional on the giving of the guarantee.

E. It is not binding because there is an irrebuttable presumption that the husband was subjected to undue influence by the woman.