Companies engaging in trade or commerce frequently apply for credit terms so that they can buy stock or equipment on credit. These agreements frequently involve a personal guarantee from a company director or other third party. A personal guarantee is a promise by an individual to pay the debts of another.

But what happens if the company director or third party does not sign the personal guarantee section?

Case Example

The Court recently considered a case where the credit application consisted of 3 distinct sections –

1. Terms and Conditions;

2. The Agreement and;

3. The Guarantee and Indemnity (“the guarantee”).

The company’s managing director completed and signed the “Terms and Conditions” and the Agreement”, but he did not sign the guarantee.

The supplier did not get paid. It had the company operating the business placed into liquidation. The supplier sued the director personally on the basis of the director’s guarantees. But the director’s guarantee section of the supply contract had not been signed!

In considering the director’s personal liability, the Court held that when a party signs a document that embodies all the terms of a contract, the signing party is taken to have agreed to those terms. The failure to sign the guarantee did not assist the director as the “Terms and Conditions” included a clause to the effect that the person signing the “Terms and Conditions” accepted liability as principal debtor “jointly and severally with the incorporated body and in our own names”. By signing the “Terms and Conditions”, the director objectively expressed to the world that he accepted the obligation to pay on behalf of the company, and in his own name.

The decision highlights the importance of carefully reading and obtaining advice on the consequences for anyone completing a credit application on behalf of a company. Sometimes the devil is in the detail.