How a doctor lost $600k after acting as a loan guarantor for his boss’ clinic

A doctor at an aesthetics clinic ended up shouldering a $600,000 debt after he was enticed by his boss to act as a guarantor for the clinic’s loan.

He was promoted to medical director just a month before signing the loan agreement and was apparently also paid $120,000 after the loan was disbursed to the clinic.

The boss, however, did not honour the loan, and the clinic defaulted on the monthly repayments, leading to the cancellation of the loan.

As it turned out, the clinic’s boss, Foong Chong Hung, and two other men, Adrian Choy Weng Keen and Samuel Woo Wai Hoong were allegedly involved in a scam to defraud financial institutions. All three were charged in court with conspiring to make fraudulent loan applications totalling about $16 million.

That Foong is currently facing criminal charges is cold comfort for the doctor, who could not wriggle out of his personal guarantee for the clinic’s loan.

Even if he could prove that the boss had duped him into believing that he was merely doing the company a favour, the High Court ruled that he still had to shoulder the loan. As far as the creditor was concerned, he was the person who signed the loan agreement, and not his boss.

This case should make you think twice before acting as a guarantor for any loan, because once you put your name on the agreement, you would be liable for the debt if the borrower defaults on the loan.

Here are three important lessons from the case.

You are liable once you sign

Once you sign an agreement, you will be bound by its terms and you cannot avoid this responsibility by claiming you did not have time to read it or that you did not understand the consequences of signing it.

You can get out of it only if you can show that you have made a mistake that is fundamental to the terms of the contract.

For instance, an elderly bank customer mistakenly signs a document for a high-risk investment when he thinks the document is related to a fixed deposit placement. To show that he is conned, the customer must also show the other party knows about the mistake.

In this case, Senior High Court Judge Tan Siong Thye noted that the doctor could get out of his obligation only if he did not know the document that he had signed was a deed of guarantee for the loan.

But the doctor had an impossible task of showing that he had made a mistake because the document that he signed had the words “DEED OF GUARANTEE” printed prominently at the top. The words “the Guarantor” were also printed next to the space where he signed his name.

“I find it unlikely that a highly educated medical doctor could have harboured the mistaken belief that there would be no personal liability, given these patent words before him,” the judge found.

The doctor claimed that he was rushing to attend to his patients on the day and that he signed the deed without reading it carefully. Even if that was true, the judge said it was still his fault that he did not read before signing that document.

Although the doctor claimed he did not know that he had become a guarantor for the clinic’s loan, the judge found that it was “telling” that he told the loan company he wanted to be replaced as a guarantor barely two weeks after he signed the document.

Even when he made that request, he neither provided any hint that he did not understand the role of a guarantor nor why he ended up as one.

You cannot claim you were misled by a third party

If someone misleads you into signing a contract that causes you to lose money, you can certainly sue the person who makes the false representation.

In this case, the doctor claimed that his boss had assured him that even if he signed the loan agreement, he would not be liable for repayments because the loan was for the clinic.

He claimed this conversation took place during the meeting with the finance company’s employee, who had “remained silent despite being present in the meeting room”.

But his version of the event ran counter to the employee’s testimony. She said that, as part of the procedure for providing loans, she had explained to the doctor the nature of all documents relating to the loan, including the deed of guarantee.

The judge noted that it was strange that the employee would need to explain the nature of the loan documents if it was true that she also heard what the boss told the doctor.

The doctor could have a case against the company if its employee had also misled him by agreeing with what the boss had said.

But instead of holding the employee responsible for misleading him into signing the documents, the doctor later admitted to her supervisor that he was induced into signing the deed of guarantee as he thought the entire $600,000 would be transferred to him for safekeeping.

In the end, the judge found that Foong did not tell the doctor that he would not be personally liable for the loan during the meeting, and that this was why the employee had to explain the liability of a guarantor to him.

The judge went on to explain that even if the boss had made those misrepresentations, the doctor could sue him directly, but this would not spare him from being bound by the agreement that he signed.

This was because the boss did not sign the agreement, and any misrepresentation made by such a “non-party” to the agreement would not allow the doctor to avoid the contract with the finance company.

Alleging dishonesty may not let you escape liability

You can get out of a contract if you can show that it infringes “moral turpitude”, which means that it violates community standards of justice, honesty or morality.

This means that if you are sued by X because you have signed an agreement with him, you can use this legal principle to nullify the contract if you can show that X has committed acts of dishonesty.

For instance, the High Court once heard a dispute over more than $4 million in unpaid commissions for helping secure construction projects. During the trial, it was found that the agreement between the parties was conceptually built on using those funds to pay bribes to foreign officials to win the contracts.

The court dismissed the case because it would not uphold any agreement that was designed for a dishonourable cause.

In this case, the doctor claimed that the loan agreement should not be enforced because the finance company committed an act of dishonesty by backdating the financing application form by a few weeks.

But the judge found that the doctor was making a mountain out of a molehill over the dates because the meeting occurred at the height of the Covid-19 pandemic. The company explained that the backdating of these documents was for the purpose of convenience and practical consideration.

“I am satisfied that there is no sinister motive or intention regarding the backdating, although it should not have been done. This clearly does not constitute the turpitude that typically brings the doctrine into operation,” said the judge, adding that the doctor cannot avoid paying for the loan.

What this means is you should never act as a guarantor unless you do not mind shouldering the loan as your own debt.

Source: The Straits Times © SPH Media Limited. Permission required for reproduction.

Why are physical signatures still required for deeds?: Forum Nudification, murder- and gambling-themed apps flagged in IMDA’s first app store audit