Credit Applications – Directors beware – Are you Signing as a Guarantor?

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The recent New South Wales Supreme Court decision of Temperzone Australia Pty Ltd v Amabile [2016] NSWSC 1197 serves as a stark reminder for Directors that most personal guarantees accompanying credit applications are enforceable and should not be executed without due consideration of the extent of the Director’s personal liability.

In this case, the Supreme Court held Mr Amabile, a Director and shareholder of an air-conditioning company, Twin Air Pty Ltd (“Twin Air”), to be jointly and severally liable with his co-Director for the debt of $38, 853.38 after “unintentionally” signing as guarantor for the debts of his company,  which later fell into liquidation. Hall J regarded Temperzone Australia Pty Ltd’s (“Temperzone”) failure to draw Mr Amabile’s attention to the relevant terms and general conditions of the contract immaterial – the defendant was a “sophisticated” person experienced in business and should have read the contract himself before signing it.  Generally the Courts will conduct an objective enquiry to arrive at the true meaning of a contract.  An objective enquiry is concerned with what a reasonable person in the position of a specific party will consider the effect of the words in the Contract to be.

Facts of the Case

On 21 August 2009 Mr Amabile entered into a credit agreement with  Temperzone for the supply of goods to his air-conditioning business. Mr Amabile’s wife filled out Mr Amabile and his co-Director, Mr Musico’s personal details on Temperzone’s standard Application for Credit Account form. She then acted as witness while the two Directors signed the agreement (which both businessmen had not read).

Mr Amabile alleged that during the signing of this agreement, the agent for  Temperzone,  Mr Battle, a sales representative, did not bring to the  Directors’ attention “any of the general conditions and in particular clause 4 of the payment terms” which included the terms in relation to the personal guarantee.  Mr Amabile  also submitted that he was never “afforded the opportunity to seek legal advice” in relation to the terms of the agreement, but was simply told to “fill out the form”.

Based on these circumstances, Mr Amabile alleged that he did not know he was actually signing as guarantor for his company’s debts. Moreover, Mr Amabile argued that he had no intention to be legally bound to personally make repayments to Temperzone should Twin Air fail to do so. Mr Amabile argued that he understood that the agreement was merely an application for credit. If he had understood the contract to be otherwise, he would have asked for a cash-on-delivery agreement.

In 2013 Twin Air fell into liquidation. The balance owing on the Temperzone credit account on 12 July 2013 was $38, 853.38.  Temperzone  attempted to enforce Twin Air’s obligation to pay on the company’s Directors.

Mr Amabile argued that there was no enforceable contract due to a lack of intention to be legally bound, and therefore no legal obligation to pay. The Magistrate Court agreed with the Mr Amabile’s contention, finding that having regard to the “objective circumstances”, the Directors did not intend to be bound as guarantors.

Temperzone appealed to the Supreme Court.

Issues considered on Appeal in Supreme Court

Hall J on appeal in the Supreme Court,, considered that the issues for consideration were “two-fold”:

  • Was it open to the Magistrates Court to find that the defendant was not bound by the terms of the Guarantee signed by him?
  • Having regard to the signed Guarantee and the surrounding circumstances in which Mr Amabile signed it, was it correct for the Magistrate Court to find that Mr Amabile did not intend to be bound by the contract as guarantor?

Decision in Supreme Court

Hall J  overturned the Magistrates Court’s decision to find that Mr Amabile was liable for the contract as guarantor and that Mr Amabile did intend to be legally bound. His honour noted that determining Mr Amabile’s intention required “an assessment of the relevant objective circumstances” in accordance with the principles laid out in Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8.  This was because intention is not confined to the written document itself.[1] Having regard to both the document and the circumstances, however, Hall J found that an intention did exist.

Mr Amabile was ordered to pay the debt plus interest.


Mr Amabile was an experienced business man and was familiar with such contracts. He did not need Mr Battle to explain the terms. 

Hall J noted that Mr Amabile was a “sophisticated defendant” who had admitted to knowing what a Guarantee was, and to knowing that he had signed the document under the “Acknowledgement and Agreement” and “Guarantee” headings where his personal information had been inserted by his wife. For this reason, in conjunction with the plaintiff not owing Mr Amabile a fiduciary duty, it was not Mr Battle’s obligation or duty to direct Mr Amabile to the terms of the contract. Mr Amabile was in a position to know what he was signing. His Honour also noted that the facts did not raise a “reasonable expectation” that Mr Amabile should have the terms explained to him. Rather, it was Mr Amabile’s duty to read the contract himself which had “clear and unambiguous” terms and bolded headings. By signing the agreement under the particular headings of the contract, Mr Amabile evidenced an intention to be bound. Mr Amabile’s decision not to read the contract was held to be explicable on a number of bases. For example, “he  did not care to take time to read the document or … understood what a guarantee was and decided not to read it”.

His Honour distinguished these facts from those in Druin Pty Ltd v Corbin[2] . In Druin, the defendant had not signed the Guarantee in question under the section designated for a guarantor, nor had his name or personal information been inserted into such. The defendant had instead signed under the document designated for the “signature of the witness”.

His Honour also noted that Mr Amabile’s argument – that had he known he was signing as guarantor he would have opened a cash-on-delivery account – was based on Mr Amabile’s subjective state of mind. This should not have been accepted by the trial judge; The test which needed to be applied demanded consideration of the circumstances objectively.

Thus, by signing the contract the Supreme Court held that Mr Amabile intended to be bound, regardless of his insistence otherwise. Mr Amabile was liable as guarantor for Twin Air’s debt.


Temperzone Australia Pty Ltd v Amabile illustrates the importance for Directors of companies to read credit applications carefully to ensure that they understand the full extent of their rights and obligations that flow from the document.  There is no onus on a company providing credit in a commercial business transaction to explain the terms of a credit application that are self evident.  There is also no duty on a credit provider to warn experienced business persons about the extent or consequences of any personal guarantee in the credit application.  Failure to properly read and understand a credit application, because you are in a hurry is no excuse; Directors will be bound by a personal guarantee if they complete the details and sign a personal guarantee.  If you are unsure about the meaning of a document, seek legal advice.

For more information regarding guarantor

Please contact our Business Development Team or call us on (07) 3252 0011 to book an appointment with one of our Commercial & Construction Litigation Lawyers today.

[1] Druin Pty Ltd v Corbin [2014] NSWSC 481.

[2] [2014] NSWSC 481.