Lenders and other parties present guarantees in different ways. Sometimes, they appear as distinct documents separate form the main transaction of loan, and other times, the guarantee element is intertwined within a singular document.
Either way, the importance of ensuring that the proposed guarantor execute the guarantee properly, cannot be underestimated.
That is especially important when the personal guarantor is also a director of the company that they are providing the personal guarantee for.
Why Signing Correctly Matters
A signature of a person upon a contract provides clear intent to be bound by the terms stated within it.
However, then a person wears 2 hats for a company (director, and guarantor), the signature must also provide objective evidence as to the obligations to which that person was agreeing to be bound.
That is, in their capacity as director (for the company) or as both director and as personal guarantor?
Two contrasting cases illustrate the issue
In Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168, a director guarantor argued that she was not responsible as guarantor of her company’s debt under the personal guarantee (of a lease) because she failed to sign specifically as guarantor, but otherwise as the sole director of the company.
The court identified the correct question to be answered was whether the Guarantor, by signing (as a director) had an objective or manifest intention to be legally bound by the lease, also as guarantor, noting that her subjective beliefs and intentions are irrelevant, to the question.
The court held that she did have an objective intention to be legally bound by the lease as guarantor of the Company’s obligations, noting that the absence of a signature does not preclude a finding that a guarantor had the requisite intention.
As guarantor, she was found to be liable under the guarantee provisions and ordered to pay the lessor the sum of $71,990.10 plus interest.
In Sleaford v Worthing & Saunders [2020] NSWDC 231, a director again argued to avoid liability under a loan agreement as personal guarantee on the basis that he did not sign as guarantor, but otherwise did sign as company director.
The court took to analyse the same 4 indications of objective intention and found in favour of the apparent guarantor, finding him not liable for the company’s debt to the lender.
The court considered a clear indication that the guarantor section of the singing provision being left blank, and a lack of direct involvement in the pre-negotiations (which were undertaken by a co-director) were 2 key factors is showing no intent to be bound personally to the borrowers obligations.
Conclusion
The mere absence of a completed guarantee signing and execution clause does not provide conclusive evidence that no personal guarantee is provided.
The courts will look at the objective intention of the guarantor to determine if the evidence provides such intent.
Legal cases such as those mentioned above (for which there are many more) mean lenders are always keen to ensure that guarantees are not only signed, but are signed properly and in all capacities, including as guarantor.
Equally, if you do not wish to provide a personal guarantee for your company’s debts, it is vitally important to ensure that you not only refuse to sign ‘as’ guarantor, but you also give positive indications to the other party that you are so refusing.
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