Directors signing on behalf of Companies are not personally liable

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The recent Supreme Court  case of Reozone Pty Ltd v  Rene Santoro [2016] NSWSC 1383 confirms that a Director will not automatically be personally liable for a company’s liabilities if the guarantee was signed with a qualification on behalf of the company.

Facts

  • Elite Plant Hire Pty Ltd (Elite) was in the business of renting vehicles, plant and machinery.
  • Rene Santoro (Santoro) signed a Loan Agreement from Sydney Trucks and Machinery (STM)for the supply of machinery and vehicles to Elite.
  • The Loan Agreement provided that Santoro granted a charge over all her present and future real “estate/property” to secure payment of money owed by Elite to STM.
  • Santoro’s signature appeared on the Loan Agreement above the words “Customer Signature” and “Accepted for and on behalf of the Company Name Rene Santoro Director ELITE PLANT HIRE PTY LTD”
  • Santoro ‘signature did not appear on the Loan Agreement in the space below the words “GUARANTOR: I Rene Santoro …secure payment by granting a charge over all real estate/property held now or in the future”
  • Elite went into liquidation and STM claimed that Santoro charged her real property with payment of debts owed by Elite to STM

Issue

The Court considered the question whether by her signature on the Loan Agreement Santore indicated to a reasonable person in the position of STM that  she granted a charge over her personal real property as security for Elite’s debts

Decision

  1. The Court considered a number of similar cases and found that the question is whether objectively a party has indicated that they accept personal liability by the placement of their signature on the relevant document. In this regard the document should be considered as a whole and the circumstances in which it came to be entered into.
  2. The Court found that Santoro did not sign the contract without qualification in the execution clause and the only signature on the document was expressly a signature on behalf of Elite.  In those circumstances it would be natural for the other party to assume, where a party signs with a qualification as agent for the company and not otherwise, the signatory is not accepting personal contractual liability.

Lessons for Directors

Directors should always qualify their signature on documents executed on behalf of a company and include the words “for and on behalf of XYZ Pty Ltd” to avoid any inference that they are accepting personal contractual liability.  However, the Courts will decide any dispute in this regard by considering the contract as a whole and also the circumstances in which it came to be entered into.