D and D Property Holdings Pty Ltd v Davidovic Holdings Pty Ltd
[2012] NSWDC 162
•26 September 2012
District Court
New South Wales
Medium Neutral Citation: D & D Property Holdings Pty Ltd v Davidovic Holdings Pty Ltd [2012] NSWDC 162 Hearing dates: 18 and 19 September 2012 Decision date: 26 September 2012 Jurisdiction: Civil Before: Gibson DCJ Decision: (1) Judgment for the plaintiff for the sum of $232,033.68.
(2) Second defendant to pay the plaintiff's costs.
(3) Exhibits retained for 28 days.
(4) Liberty to restore re costs and interest.
Catchwords: GUARANTEE - action against surety - defence that agreement signed by director of company as director, and not in personal capacity - whether terms of guarantee ambiguous or void for uncertainty - whether guarantee unenforceable for want of consideration Legislation Cited: Evidence Act 1995 (NSW), ss 131(2) Cases Cited: Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168
Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424
Ankar Pty Ltd & Arnick Holdings Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549
Ariadne Steamship Co v James McKelvie & Co [1922] 1 KB 518
Bleyer v Neville Jeffress Advertising Pty Ltd (New South Wales Court of Appeal, Kirby P, Hope and Mahoney JJA, 15 December 1987, unreported)
Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 160
Delaney v Purves [1930] QWN 6
Follacchio v Harvard Securities (Aust) Pty Ltd [2002] FCA 1067
Howhua Steel Door Frames Pty Ltd v O'Leary [2008] NSWSC 1185
Marston v Charles H Griffith & Co Pty Ltd (1982) 3 NSWLR 294
McKay v National Australia Bank Ltd [1998] 1 VR 173
National Commercial Banking Corporation of Australia Ltd v Cheung (1983) 1 ACLC 1326
NEC Information Systems Australia Pty Ltd v Linton (1985) NSW ConvR 55-240
Padstow Corporation Pty Ltd v Fleming (No. 2) [2011] NSWSC 1572
Palindrome Holdings Pty Ltd v Wass [2009] NSWSC 797
Prosilis v Double Bay Newspapers Pty Ltd [2000] NSWCA 30
Scottish Amicable Life Assurance Society v Reg Austin Insurances Pty Ltd (1985) 9 ACLR 909
Smart v Australia and New Zealand Banking Group Ltd [2002] VSCA 111
SWV Pty Ltd v Spiroc Pty Ltd (2006) 201 FLR 238Texts Cited: S. E. Jones, "One size fits all: when 'unsigned' lease guarantees can still bind company directors: Padstow Corp Pty Ltd v Fleming (No 2) [2011] NSWSC 1572" (2012) 26(6) APLB 74 Category: Principal judgment Parties: Plaintiff: D & D Property Holdings Pty Ltd
First Defendant: Davidovic Holdings Pty Ltd
Second Defendant: Michael Davidovic (aka Miroslav Davidovic)
Third Defendant: Sylvana DavidovicRepresentation: Plaintiff: Mr A Williamson (solicitor)
Third Defendant: Mr M Badarne (solicitor)
Plaintiff: Williamson Isabella Lawyers
Third Defendant: Good Legal Pty Ltd
File Number(s): 2010/324890 Publication restriction: None
Judgment
The plaintiff, D & D Property Holdings Pty Ltd ("D & D"), seeks payment of a liquidated sum ($187,000) plus interest from 1 May 2010 from the second defendant, Mr Miroslav Davidovic (Mr Davidovic). Judgment has already been entered against the first defendant by default. Proceedings against Mrs Silvana Davidovic, who was the third defendant, have been discontinued.
The plaintiff's claim arises from a guarantee given by Mr Davidovic in a document entitled "sale agreement" for a loan of $220,000 entered into by the first defendant and the plaintiff on or about 1 May 2009. Although the agreement was called a "sale agreement", it was in fact a loan by the plaintiff to enable the first defendant to purchase real estate owned by the plaintiff. The second defendant claims he signed this sale agreement only in his capacity as director of the first defendant, and not as guarantor.
The procedural history of this claim is relevant to a determination of whether Mr Davidovic did in fact refuse to give the guarantee set out in clause 7 of the sale agreement. D & D relies upon certain admissions and statements made by Mr Davidovic in the course of two proceedings to set aside the judgment entered against all defendants. Both parties also rely upon statements made by each other in the course of settlement negotiations at or before the time of those applications being brought. These applications are a helpful starting point when considering the circumstances leading to the loan of $220,000, the identity of parties to this transaction, and the terms upon which this agreement was entered into.
The defendants' applications to set aside default judgment
The loan agreement required payment in two instalments. The first instalment of $50,000 was paid, but the first defendant defaulted on payment of the second instalment of $170,000. There were negotiations between the parties but these were unsuccessful.
The plaintiff's statement of claim was filed on 22 September 2010. As no defence was filed, judgment was entered against the first defendant on 29 November 2010, and later against the second and third defendants (Mr and Mrs Davidovic) on 23 December 2010.
On 16 February 2011 a notice of motion was filed by the defendants, acting for themselves, seeking to set aside the judgment, and attaching a proposed defence. In an affidavit sworn on 14 February 2011, the second defendant stated:
"3. I was involved in negotiations with the plaintiff's representative named Diego Diaz regarding the purchase of the building material subject to the within proceedings. I was also removing the material from Marley Place Unanderra where it was stored.
4. Soon after removing the material I stored it at 32 Doyle Avenue, Unanderra. At that time it became apparent that the steel was of inferior quality and had substantial number of kinks and bends that made it unsuitable.
5. After satisfying myself that the building material was not suitable for the intended purpose I informed the plaintiff's representative and told him that I was prepared to return the steel back provided you refund me back the $50,000 plus GST I already paid.
6. For considerable [sic] period of time I did not hear from plaintiff [sic] until receiving the Statement of Claim." (Exhibit H)
The proposed defence, which was filed on 16 February 2011, sought to defend the claim on the following bases:
(a) The first and second defendants (D & D and Mr Davidovic) did not admit that there was an agreement to purchase a dismantled building for an amount of $220,000 plus GST. The defence pleaded that the agreement was entered into by another company, and that this $220,000 payment was "related to different [sic] entity named Obnova Concrete Pty Ltd".
(b) The guarantee pleaded in paragraph 2 of the statement of claim was not admitted (paragraph 2). Significantly, there was no denial of the guarantee by Mr Davidovic at this time, although the third defendant, Mrs Davidovic, has always denied being a guarantor.
(c) The nature of the defence that Davidovic Holdings and Mr Davidovic sought to rely on was one of unfitness for purpose of the goods, not denial of the guarantee by the second defendant; as paragraph 8 demonstrates:
"8. As to the matters pleaded in paragraph 6 the first and second defendants:
(i) says there is no legal obligations to pay damages as alleged or otherwise;
(ii) says the plaintiff's representative misrepresented the quality and suitability of the building material;
(iii) says that the sale agreement was written sometime after the oral discussions about the suitability and the condition of the building material with the plaintiff's representative;
(iv) says that at all times during the discussions that plaintiff's representative was well aware that the agreement was subject to suitability, conditions, and quality of the building material."
(d) However, the third defendant, Mrs Davidovic, who never signed the agreement, denied giving any guarantee (paragraphs 9 and 11)
(e) The claim was further defended as follows:
"12. In answer to the whole of the matters pleaded in the Statement of Claim the first and second defendants say that the plaintiff representative misrepresented the quality and suitability of the building material and that all the material is still in situ and available for the plaintiff to collect.
13. In further answer to the whole of the Statement of Claim the first and second defendants seek orders that the plaintiff refund the sum of fifty thousand dollars ($50,000) paid to the plaintiff as a gesture of goodwill pursuant to the representations referred to in the preceding paragraphs.
14. In additional further answer to the whole of the Statement of claim the first and second defendants say that the correct first plaintiff is Obnova Concrete Pty Limited and not the named first defendant."
On 11 March 2011, Delaney DCJ heard the first application by all defendants to set aside judgment. His Honour dismissed the notice of motion and ordered that the applicants pay the respondent's costs of the proceedings. His Honour read affidavit material that had been tendered and heard evidence from Mr Diego Diaz for the plaintiff company. Delaney DCJ did not accept the evidence of Mr Davidovic that the contracting party was Obnova Concrete Pty Ltd ("Obnova"). His Honour was correct; Mr Davidovic admitted in cross-examination in the hearing before me that the sale was in fact made to Davidovic Holdings Pty Ltd. He agreed that he had crossed out the word "Obnova" and initialled it when he signed the contract. The issue of whether or not Mr Davidovic was a guarantor was not raised.
A second motion to set aside judgment was then brought before the Wollongong District Court on 11 May 2011. Delaney DCJ, by reason of his credit findings against Mr Davidovic, disqualified himself from hearing that motion, standing it over to Wednesday 14 September 2011. In this second application, the question of whether a guarantee was given by Mr Davidovic was raised for the first time.
The second application to set aside judgment came before Letherbarrow SC DCJ on 24 May 2012. There was no hearing of this application as, by consent, the default judgments entered against the second and third defendants were set aside and leave was granted to the second and third defendants to file the defences attached to the affidavit of Mr Davidovic of 22 July 2011. The judgment against Davidovic Holdings Pty Ltd was not, however, set aside.
The defence filed by Mr and Mrs Davidovic, namely the defence for which leave was granted by Letherbarrow SC DCJ, states in paragraph 2:
"2. The Second and Third defendants deny paragraph 2 of the S/C.
In further answer to paragraph 2 of the S/C:
(a) The Second Defendant says that he did not sign the agreement in his capacity as a guarantor. He only signed the agreement in his capacity as a director of the First Defendant.
(a) [sic] The Third Defendant says that her name is not listed as a guarantor in the agreement and she did not sign the agreement."
In paragraph 6 of this defence, Mr and Mrs Davidovic deny that any guarantee was given by either of them. The defence states at paragraph 8:
"8. In answer to the whole S/C, the Second and Third defendants say:
A. That they did not sign as guarantors any agreement with the Plaintiff and therefore they should not be personally liable.
B. That the alleged contract of guarantee is not supported by consideration and therefore it is not enforceable for want of consideration.
C. That the alleged agreement is vague in material respects and should be set aside for uncertainty.
D. That the alleged agreement was created by the Plaintiff and therefore in the case of any ambiguity it should be interpreted against the interest of the Plaintiff.
E. That they are not parties to the alleged agreement and that they have been improperly or unnecessarily joined to these proceedings. Therefore their names should be removed as parties in these proceedings pursuant to Rule 6.29 of the Uniform Civil Procedure Rules 2005 or otherwise.
F. That the S/C against them is frivolous and vexatious and/or does not disclose any reasonable cause of action and therefore pursuant to Rule 13.4 or Rule 14.28 of the Uniform Civil Procedure Rules 2005 the S/C against them ought to be struck out.
G. The Second and Third Defendants seek the following orders:
(a) That the S/C against them be dismissed; and
(b) That the Plaintiff pays their costs."
The issues for determination
The parties agree that the issues for determination are as follows:
(a) Whether the second defendant was a guarantor;
(b) Whether the agreement is ambiguous or void, or otherwise should be set aside for uncertainty; and
(c) Whether the contract is unenforceable for want of consideration.
The witnesses in the proceedings
Mr Diego Diaz gave evidence on behalf of the plaintiff, as did Mr Warren Budd, the solicitor who prepared the sale agreement. Mr Davidovic gave evidence for the defendant.
The circumstances leading to the creation of the sale agreement
It is not in dispute that Mr Davidovic approached Mr Diaz wanting to buy a building owned by D & D at 6 Marley Place, Unanderra. Mr Davidovic said his company had a tenant who could be accommodated in this property. After initially saying to Mr Davidovic "it's not for sale", Mr Diaz came to an agreement with Mr Davidovic that the building would be sold to Mr Davidovic's company for $220,000 plus GST. At the time, Mr Diaz thought this company was Obnova.
According to Mr Diaz, Mr Davidovic then told him that he was not able to raise finance, but that he was very keen to go ahead with the purchase if payment of the purchase price of $220,000 could be deferred. He said the company could pay the first $50,000 straight away, but wanted to pay the balance in 12 months. Mr Diaz said he would agree to this, but he would need to see his lawyer so that he could draft an agreement, and that he required a guarantee from both Mr and Mrs Davidovic, because "if something happens" Mr Diaz wanted to be able to get D & D's money back. In addition, he wanted some concrete panels constructed. Mr Davidovic agreed in cross-examination that there was discussion about both these issues, but said he refused to give a guarantee.
When Mr Diaz went to his solicitors to have the agreement drafted, he told his solicitor, Mr Budd, that the company which was buying the building was Obnova, which was the company he knew and of as being associated with Mr Davidovic, and that both Mr and Mrs Davidovic would be guarantors. Mr Budd drafted the contract referring to "Obnova" and included a clause for Mr and Mrs Davidovic to be guarantors.
Mr Diaz then collected this document from his solicitor's office and took it to the Obnova factory yard on 1 May 2009, where he met Mr Davidovic in his office. According to Mr Diaz, Mr Davidovic then said "it's not Obnova, it's Davidovic Holdings Pty Ltd". "Obnova Concrete Pty Limited" was crossed out by Mr Davidovic, who initialled this alteration. He also told Mr Diaz that his name was Miroslav, not Michael.
Mrs Davidovic was elsewhere in the office, and was unavailable to sign as guarantor. Mr Diaz said he agreed to the transaction proceeding without her signature, and without her being a guarantor. In addition, the parties appear to have agreed that the company seeking the $220,000, Davidovic Holdings Pty Ltd, would provide M7 surplus panels, requiring an addition to paragraph 5 of the agreement, although neither Mr Diaz nor Mr Davidovic could remember what this discussion was.
Mr Davidovic's secretary was present and she signed on the back page as a witness. Mrs Davidovic, who was on the phone elsewhere in the premises, did not sign and was not present at any relevant time. Neither of these persons was called as a witness.
Mr Davidovic signed as company director, but did not sign in the space for the guarantors to sign. He initialled the crossed-out company name. Both parties erroneously described the office they held in their respective companies as "Obnova yard". This was, in fact, the address at which they signed the document.
It is not in dispute that changes to the sale agreement reflecting the variations discussed by Mr Diaz and Mr Davidovic were made in a document created a short time after these signatures were appended to the original agreement. Mr Diaz was unable to remember who created this revised agreement, which changed the names of Michael to Miroslav, omitted the name of Silvana Davidovic as guarantor, reduced "the guarantors" to "the guarantor" in paragraphs (c) and 7 (as well as the description on the front page of the document), and added the M7 surplus panels to paragraph 5.
Mr Diaz only recalled taking the first signed agreement to the office of his own solicitors, although he was not sure to whom he gave it. He said, however, he did not make these later changes. He was emphatic that at all times he had required a guarantee from Mr Davidovic.
Mr Davidovic said that Mr Diaz had these changes made, and delivered the revised first two pages to him at the factory. He said he did not read the document when Mr Diaz arrived, as he was busy. He agreed he read it that same evening, and had noticed that the guarantor clauses all remained in the document. He said he complained to Mr Diaz that the references to any guarantee should not be there. Mr Diaz denied that this conversation ever took place.
Mr Diaz's version of events was supported by the evidence of his solicitor, Mr Budd. Mr Budd said that he prepared the contract in the form of Exhibit A, but did not see any revised agreement. He heard nothing further for 4 to 5 months, namely in September 2009, when Mr Diaz contacted him to say that the payment of $50,000 due on 1 July 2009 had yet to be paid.
The email Mr Budd sent was as follows:
"From: Julie Duncan
Sent: Thursday, 10 September 2009 03:59PM
To: '[email protected]'
Cc: '[email protected]'
Subject: D & D Property Holdings Pty Limited Sale to Obnova Concrete Pty Limited
Dear Mr & Mrs Davidovic,
We advise that we act on behalf of D & D Property Holdings Pty Limited.
We are instructed that the instalment payment of $50,000.00 for the building due on 1 July 2009 has yet to be paid.
We understand that our client has followed you up and provided a schedule of interest payable as well.
We have received instructions that unless the payment is made within the next seven days then we are to take enforcement proceedings.
Could you make the appropriate arrangements for payment as soon as possible and advise once payment has been made." (Exhibit D)
The reference to "Obnova Concrete Pty Limited" in the subject line is the same name as that in the first version of the sale agreement. Mr Budd's evidence was that he never altered, or even saw, the revised contract referring to Davidovic Holdings Pty Ltd until many months later, when a further dispute arose about the payment of the balance.
When the remaining $170,000 was not paid, Mr Diaz contacted Mr Budd, who sent a letter as follows:
"13 August 2010
The Manager
Davidovic Holdings Pty Limited
11 Keira Mine Road
KEIRAVILLE NSW 2500
and to
Michael Davidovic & Silvana Davidovic (as guarantors)
Dear Sir
Re: Outstanding Monies to D & D Property Holdings Pty Limited
As you may be aware, we act on behalf of D & D Property Holdings Pty Limited.
Pursuant to Agreement for Sale dated 1 May 2009 in respect of the sale of the dismantled building for a total consideration of $220,000.00 we are instructed that the initial payment of $50,000.00 has been made but that the remaining sum of $170,000.00 (plus GST), due and payable on 1 May 2010 remains unpaid.
On behalf of our client we hereby make formal demand for payment of the total sum of $192,657.92 calculated as follows:
Principal remaining outstanding - $170,000.00
Add GST - $17,000.00
Interest to 13 August 2010 being 104 days @ $51.23 per day - $5,327,92
Legal costs on demand - $330.00
[Total] $192,657.92
We are instructed that if payment is not made (or arrangements satisfactory to our client) within seven days from the date of this letter then we are to proceed with recovery action without further notice to you.
Please note that recovery action will most likely entail an Application for the winding up of the company and personal debt recovery action against the guarantors, Michael and Silvana Davidovic.
Please let us have your urgent response." (Exhibit E)
A reply was sent on 1 September 2010. Objection was taken because this letter was headed "Without prejudice". I permitted the tender of this document on the basis that I would give reasons for doing so in my judgment.
The tender of Exhibit G
Exhibit G is a letter from Rosier Partners of 1 September 2010 as follows:
"1 September 2010
Messrs DGB Lawyers
DX5157 WOLLONGONG
By facsimile 4229 8994
Without prejudice
Dear Sirs
OBNOVA CONCRETE PTY LIMITED AND D&D PROPERTY HLDINGS [sic] PTY LIMITED
We act for Obnova Concrete Pty Limited and Mr and Mrs Davidovic.
We understand that you act for D&D Property Holdings Pty Limited in relation to a transaction by which your client sold a dismantled building to our client for a sum of Two Hundred and Twenty Thousand Dollars ($220,000). After a part payment, a sum of $170,000 appears to be owing.
As you may be aware, the building was purchased to be used in connection with a proposed lease to a tenant of land owned by a company associated with our clients at Sylvester Avenue Unanderra. At the time of acquisition there was no reason whatsoever to believe that the tenant would not proceed with the lease. The tenant represented by word and by action that it was proceeding. It had earlier entered into an agreement to lease from our client another property, but had decided its needs would be better met by a factory on the Sylvester Avenue site and wok [sic] was being done in relation to the Sylvester site rather than the other. The tenant behaved as if it was obliged to enter into the Sylvester Avenue lease. Then, in November 2009, for its own reasons, that tenant peremptorily withdrew from the agreement to lease.
The building is thus completely surplus to our client's requirements unless current litigation between our client and the tenant results in the tenant deciding to change its mind (which it may do now that development consent has been obtained under Part 3A of the Environmental Planning and Assessment Act 1979 for the project). A change of heart is therefore a possibility, but not a certainty.
The change of heart on the part of the tenant has also had a devastating effect on our clients' financial positions. They are working very hard to get back on their feet having spent a large amount on the proposed tenancy (with the first year's rent payable in advance on commencement of the lease, payment to your client in a timely way had been guaranteed.) [emphasis added]
Thus our clients, through no real fault of their own, find it impossible to make payment of the amount owed at this time. At the same time, they are conscious of the obligation to your client.
It seems to us that there are probably only three solutions:
1. Our client delivers the building back to your client for use by it in any manner it sees fit. (We note that clause 6 purports to be an effective retention of title provision). On this basis, your client would agree that the obligation is forgiven.
2. Our client provides security for payment in a further twelve months time. This would be by way of second mortgage on the Sylvester Avenue land. The amount outstanding would attract interest at a commercial rate which our client believes should be of the order of 8% payable quarterly in advance until the principal is repaid. Such an arrangement could be the subject of further discussion. Under this scenario, our client would be prepared to pay the amount earlier if their circumstances change and to keep your client informed in relation to thereto [sic]
3. Your client commences proceedings. As things presently stand, this is only likely to see costs being incurred without any certain result. External administration of one sort or another of our client company is, in that event, quite likely without, on our instructions, much prospect of recovery of the amount your client claims.
Our clients are keen to do what they can to reach an agreement with your client which leaves both parties satisfied. We would ask that you seek instructions and revert to us in relation to these proposals.
Yours sincerely,
Rosier Partners
(Peter Rosier)" (Exhibit G)
Admissibility of a "without prejudice" letter
Mr Williamson sought to tender this document pursuant to s 131(2)(g) Evidence Act 1995 (NSW), which provides as follows:
"131 Exclusion of evidence of settlement negotiations
(1) Evidence is not to be adduced of:
(a) a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute, or
(b) a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute.
(2) Subsection (1) does not apply if:
...
(g) evidence that has been adduced in the proceeding, or an inference from evidence that has been adduced in the proceeding, is likely to mislead the court unless evidence of the communication or document is adduced to contradict or to qualify that evidence"
Mr Williamson submitted that the exception in s 131(2)(g) applied because the court would be likely to be misled as to the contents of an excluded communication or documents where those matters were an issue in the proceedings. He submitted that the contents of Exhibit G are inconsistent with the evidence of Mr Davidovic (set out in more detail below) that he never agreed to be a guarantor.
Mr Williamson's application was brought after Mr Diaz was cross-examined about these negotiations, and as to why the plaintiff had not considered these options. This meant that the exclusion under s 131(2)(g) was satisfied.
In addition, the ongoing nature of the communications, which include the circumstances in which the first $50,000 was paid, mean that Exhibit G may also be admissible under s 131(2)(f). In SWV Pty Ltd v Spiroc Pty Ltd (2006) 201 FLR 238 at [44], Barrett J held that:
"[44] According to the interpretation of s 131(2)(f) which I consider to be correct, having regard to the language of the provision, it makes no difference whether a continuum of contacts is broken down into several distinct "attempts" or viewed as a single composite "attempt". This is because the particular "dispute" and its settlement are at the heart of the overall "attempt" or each separate "attempt", with the result that, where there are proceedings to enforce (or as to the making of) an agreement to settle that "dispute", the section allows the introduction of evidence of all or any communications made in the course of any one or more of such attempts as have been made to settle that dispute. The linking factor between s 131(1) and s 131(2)(f) is, as I have said, "dispute", not "attempt"."
While the letter is headed "Without prejudice", some of the contents, and in particular the contents of the first page, are statements of fact, not material of a "without prejudice" nature, notably the admission highlighted in bold that the payment "had been guaranteed". The mere addition of the words "without prejudice" cannot prevent the tender of a document which is in fact not a "without prejudice" communication.
After the parties were unable to settle the matter, the plaintiff commenced proceedings. This led to the signing of default judgment in the circumstances referred to above. This brings me to a consideration of the evidence of Mr Davidovic that he never agreed to be a guarantor and had not signed the document as a guarantor, but only as a director of the first defendant.
The defence that the third defendant was not a guarantor
Mr Davidovic submits that he is not bound by the guarantee because he did not sign it in his personal capacity, but in his capacity as a director of the first defendant.
The actual wording appended to the signature on the lease was in the same terms as the signature appended to the contract in Padstow Corporation Pty Ltd v Fleming (No. 2) [2011] NSWSC 1572 ("Padstow"), where Gzell J explained the approach the court should take in such circumstances (at [12]):
"[12] The authorities make clear that the question whether a person has signed in a personal capacity is to be determined in accordance with the construction of the document as a whole and on the basis of admissible surrounding circumstances known to the parties."
There was dispute between the parties as to the law relevant to this issue, so I shall set out the relevant authorities.
The first of these is Delaney v Purves [1930] QWN 6. The directors of a company signed a lease as directors of the lessee. They did not execute that part of the document which contained provisions for the directors to be sureties. It was argued that these agreements were severable, namely an agreement for lease and a separate guarantee agreement. Macrossan SPJ (at 7) held the directors to be sureties stating:
"I am of the opinion that the document is one single and indivisible whole, and that the signatures of the defendants, even as directors merely, would be sufficient to bind them as sureties ... The question is not one of intention, but simply one of evidence against them. The Court is in quest of evidence, under the hands of the defendants, that they in fact entered into the contract of suretyship. The document signed by them and containing the contract is sufficient for the purpose."
Australian courts have differed in their interpretation of the principles discussed in Ariadne Steamship Co v James McKelvie & Co [1922] 1 KB 518. Analysis of these interpretations is helpfully set out in Padstow, supra, (at [14]-[16]) by Gzell J as follows:
"[14] In National Commercial Banking Corporation of Australia Ltd v Cheung (1983) 1 ACLC 1,326 the document was in terms a guarantee by the defendant directors of their company. It was not a party to the document. It was signed by each of the directors and the common seal of the company was affixed to it. The second defendant's interest had been bought by the first defendant and he played no further part in the proceedings. The bank manager crossed out the seal of the company and had the first defendant initial the amendment. Clarke J held that each defendant signed in order to validate the affixation of the company seal and the only intention that could be imputed to the second defendant was that of participating in the execution of the document by the company.
[15] In Ariadne Steamship Co v James McKelvie & Co [1922] 1 KB 518 at 535-536, Atkin LJ had said:
Signature unconditionally appended is proof of unconditional assent to the terms recorded in the body of the contract. If the body of the contract records that the signer is a party, or leaves the name of the party to be inferred from the signature, the signature will be proof that the signer has assented to a contract made with him. The contract may, however, record that the contract is made between A. and B. acting by his agent C. and may be signed by C., in which case C. has assented to a contract between A. and not C. but C.'s principal B. But the assent signified by the signature may be qualified so as to show that the signer is not assenting unconditionally to the contract, but is assenting in a representative capacity on behalf of a principal. "B. by C. his attorney" written by C. is plainly an assent only by B. "C. on behalf of B." is, I think, equally plainly an assent of C. to the contract not so as to bind himself but bind B. If the assent to the contract clearly appears from the form of the signature to be qualified, it appears to me to be impossible to charge the signer on the footing that there is an unqualified assent by him.
[16] In Cheung at 1,330, Clarke J followed this dictum and concluded that the question with which he was confronted was not one of construction of a document but whether a person who placed his name on the document together with a common seal or an endorsement indicating a qualification of the capacity in which he signed the document, should be taken to have signed it personally so as to become bound thereby, or merely to have signed either in the qualified capacity or as witness to the affixing of the common seal."
In NEC Information Systems Australia Pty Ltd v Linton (1985) NSW ConvR 55-240, Wood J explained:
"The decisions to which I have referred, and in particular the passages cited by Clarke J, emphasize the need to bear in mind the differences which may arise depending on whether the contract is signed by a person unconditionally and without qualification, or with an expressed qualification showing that his assent is not unconditional but made on behalf of another, or with words appended which leave it doubtful whether a qualified or unqualified assent is intended. I do not read the dicta of Atkin LJ, the passages in the speeches in the House of Lords in Universal Steam Navigation Company; or the passages in the judgment of Lord Goddard C.J, in Lester v Balfour Williamson Merchant Shippers (1953) 2 QB168, as excluding reference to the surrounding circumstances or to the terms of the document, when consideration is given to the manner of execution of a document. I do not think that Clarke J intended the contrary. Rather, it appears to me that his Honor was at pains to reject the proposition that the answer could be determined by simply disregarding any qualifications affixed to a signature out of Accord with the body of the contract. Although his Honor did use language suggesting that the question was not one of construction, and that regard should be had only to the actual signature placed on the document, I do not think that this was intended as a general statement of principle. The test propounded in the passages in his judgment which I have set out earlier, to my mind involves acceptance of a wider inquiry in appropriate cases in determining what was the objective intention of the parties.
I have accordingly reached the conclusion that the question in the present case is not to be determined by regard solely to the attestation clause and the actual signature placed on the document. In my assessment, the weight of authority favors the view that the question remains one of construction. As a result, despite the presumption attached to the actual signatures and the presence of the common seal, I consider that regard should be had to the remaining provisions of the deed, and to the circumstances surrounding its execution.
The inquiry to be made by reference to these matters concerns what the parties must objectively and fairly be understood to have intended by the document once executed. Evidence of subjective intention is to be disregarded."
In Scottish Amicable Life Assurance Society v Reg Austin Insurances Pty Ltd (1985) 9 ACLR 909 ("Scottish Amicable") the appellant agreed to the appointment of a company as agent but said that it would require personal guarantees from the directors. The directors attested the affixation of a common seal of the company to the agency agreement. McHugh JA considered that one should go beyond the qualification of a signature and regard the contents of the document and surrounding circumstances which may indicate a signatory is bound even though a qualification attached to his signature, stating at 923-924:
"But if that dictum is correct I think it should be confined to the special case of the agent who signs for an undisclosed principal. It cannot be accepted as applicable in all cases. In some cases the contents of a document may indicate that the signatory is bound even though a qualification attaches to his signature. Expressly or by implication the body of the document may make it plain that the signatory is a party to the contract. In the examples given by Atkin LJ, it would usually follow that there was no liability on the part of the person signing. But this is because the express disavowal of responsibility in those examples is so strong that no other consideration, based on the terms of the document, can overcome it. In other cases, however, the qualification to the signature may be overcome by the terms of the document and the surrounding circumstances. In the end the decision must depend upon the terms of the document including the qualification attaching to the signature together with the surrounding circumstances."
The decision in National Commercial Banking Corporation of Australia Ltd v Cheung (1983) 1 ACLC 1326 ("Cheung") was doubted and not followed in Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 160 ("Clark Equipment"), where it was held that signatures to a factoring agreement did not bind the signatories as guarantors. Giles J, rejecting the dictum of Atkin LJ in Ariadne Steamship Co v James McKelvie & Co [1922] 1 KB 518 ("Ariadne Steamship") at 535-536, said at 174:
"In the result, I conclude that the proper approach is to inquire whether there is to be found an intention that the signatory be personally bound to the contract evidenced in the document, meaning thereby not a subjective intention but an intention to be found objectively, notwithstanding a qualification attached to the signature. That intention, or lack thereof, is to be found upon the construction of the document as a whole, including but not being limited to the qualification attached to the signature, in light of the surrounding circumstances to the extent to which evidence thereof is permissible. The inquiry is not limited to consideration of the signature and its qualification in order to determine whether or not the signature indicates an assent to be personally bound."
In Clark Equipment, a factoring agreement was entered into in respect of a company's debts. The surrounding circumstances indicated the directors were to provide personal guarantees for the company. However, the form of agreement in that case made no provision for execution by any guarantor. The signature of a key director appeared alongside an attestation clause which read "signed by [name] for and on behalf of [company]". The named directors were referred in the body of the agreement to guaranteeing the obligations of the company.
Giles J gave a number of reasons for declining to find that these named directors were personally bound. These included that the form of the signing clause made it clear that one of them was signing for and on behalf of the company, while the other director was only the witness.
In Follacchio v Harvard Securities (Aust) Pty Ltd [2002] FCA 1067 ("Follacchio"), an agreement provided that any signatory for a proprietary company vendor would be personally liable for the due performance of the vendor's obligations. Finkelstein J noted the uncertain history of Atkin LJ's statement of the law in Ariadne Steamship in Cheung, including its doubting in Scottish Amicable and its rejection in Clark Equipment. At [9], Finkelstein J held that a person might sign a document in more than one capacity:
"Mr Simon for the appellant sought to avoid this result by arguing that it is not permissible for a person to affix one signature to a contract and have that signature operate in, say, two capacities: one as agent for a principal and another to assume personal responsibility. But I see no reason in principle why this could not occur. All that is necessary is that the capacity or capacities in which the person is placing his signature on a contract be clear. If it is clear that he intends to sign the contract in two or more capacities, there is no reason why that intention should not be given effect."
In Howhua Steel Door Frames Pty Ltd v O'Leary [2008] NSWSC 1185 ("Howhua"), Harrison AsJ helpfully summarises the authorities set out above and notes that these analyses involved a two-step process (at [20]), referring to the approach of Mahoney JA in Scottish Amicable and to a passage from the text The Interpretation of Contracts by Sir Kim Lewis, Sweet & Maxwell [2007] where it was said:
"The proper construction of a written contract is a question of law. However, the ascertainment of the meaning of a particular word is a question of fact. The division between what is a question of law and what is a question of fact is extremely difficult to draw. However, it has been said on many occasions that the a proper interpretation of a contract is a question of law."
Harrison AsJ held (at [24]) that whether the document constituted both the company and personal guarantee was "not determined solely by the attestation clause and the actual signature placed on the document", but was a question of construction of the document. Harrison AsJ found that the magistrate had erred in failing to construe the documents and the express words relating to personal guarantee in this fashion (at [35] and [42]).
Palindrome Holdings Pty Ltd v Wass [2009] NSWSC 797 ("Palindrome") is relied upon by Mr Davidovic as supporting his contentions that failure to sign a guarantor is decisive. Palindrome was an application for summary judgment which was refused. The facts in that case were far removed from the present, in that there was no reference to the guarantors (either by name or otherwise) other than a statement that "the indorsers, sureties and guarantors hereof" jointly and severally waived certain requirements (at [51]). The question of who the guarantors were, what their obligations were and whether there was a document of guarantee were unknown (at [57]). Nevertheless, the court declined to dismiss the proceedings on the basis that no guarantee could be proved (at [66]). This case is of limited assistance.
Finally, in Padstow, supra, Gzell J, in his careful review of the authorities set out above, rejected a submission that the lack of a separate signature of a director as guarantor, when coupled with the qualification to his signature as a company director suggested a lack of objective intention that he should be bound by a personal guarantee. The wording of the contract clearly identified him as a guarantor. The terms of the document were clear and by operation of its provisions he became a guarantor upon signing the lease.
A similar process of reasoning, and result, may be seen in a recent Western Australian case, Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168 ("Alonso"), which refers to the decision in Padstow (at [56]), as well as tracing the principles back to the earlier decision of Scottish Amicable. The fact situation of Alonso was similar to Padstow, in that the second defendant signed above the word "director" but denied that she was the author of the neatly handwritten words "Sara Sandford" (at [13]-[14]). Edelman J considered that the lease, construed in its surrounding circumstances, manifested an objective intention for the second defendant to be legally bound as a guarantor, for the following reasons:
(a) The second defendant was specifically identified as the guarantor and, apart from the absence of any signature, the guarantee and indemnity provisions applied to her "directly and in plain terms". Other clauses had been amended and initialled by the second defendant, but this guarantee provision had not been altered or removed;
(b) Although the second defendant did not sign in the marked place, there was "a peculiarity about the execution page which contradicts the suggestion that there is a clear absence of any signature by the second defendant in her personal capacity" (at [59]);
(c) The existence of the handwritten words, and the fact that there was no signature in the blank space, appeared to be witnessed.
Edelman J concluded that a reasonable person in the position of the person seeking the guarantee would have inferred that the second defendant had signed in her personal capacity, and in particular, in light of the other handwritten changes and initials in the document.
The application of these principles to the facts in this case
The following are cumulative (Alonso at [57]) as well as separate reasons as to why the agreement in this case, construed in its surrounding circumstances, manifested an objective intention for Mr Davidovic, the second defendant, to be legally bound as guarantor.
First, Mr Davidovic is specifically identified by the name "Michael Davidovic" (which I find he in fact changed to "Miroslav Davidovic" on the first page of the subsequently prepared two-page document, this being information previously unknown to Mr Diaz) in the heading to the sale agreement. Apart from the absence of signature in the footer section to the page on which the signatures appear, the guarantee, in recital C and clause 7, applies to him directly and in plain terms. While the change to the name of the company on the signature page was initialled by Mr Davidovic, these other references to him as a guarantor were not crossed out (Alonso at [58]).
Secondly, although Mr Davidovic did not sign in the place on the execution section opposite the words "signed, sealed and delivered by the said Michael Davidovic and Silvana Davidovic", which appears in both documents, the circumstances concerning the change of the name of the second defendant from "Michael" to "Miroslav" on the front page, and change of the word "guarantors" to "guarantor" in recital C and clause 7, contradict the suggestion that there is a clear absence of any signature by the second defendant in his personal capacity (Alonso at [59]). While I should not read too much into typographical errors, the fact that "they" and plural verbs still appear, the only change being to the first word ("guarantor" replaces "guarantors") suggests that these changes were not made by Mr Budd, but by one or both of the parties to the agreement.
Thirdly, the second defendant made a handwritten change to the name of the borrower and, on his own evidence, drew attention to the wrong first name typed for himself as guarantor. The fact that the second defendant made alterations to some provisions of the document but left the guarantee provision unaffected demonstrates what Edelman J in Alonso considered was "an objectively manifested intention to be bound by those provisions" (at [62]). In addition, the additional reference to "concrete fencing panels (M7 surplus panels)" to clause 5 is an indication that the second document represents refinements to the first, which included the removal of Mrs Davidovic's name as a guarantor, but which did not extend to the removal of Mr Davidovic as the guarantor, hence the use of a singular person ("guarantor") in the revised document despite the use of plurals in the rest of clause 7.
Fourthly, the factual matrix whereby the agreement came into being is of importance. The contract was for a substantial sum of money and Mr Diaz consulted his solicitor to obtain a contract setting out his requirements as to guarantees in clear and unambiguous terms. While that document underwent some changes, at all times it was the activities of the two men who represented their respective companies who dealt with each other about these changes. These changes were the subject of agreement, and I find that they preserved Mr Davidovic's role as guarantor.
Fifthly, subsequent to the agreement being entered into, the plaintiff sought to follow up on failure to make payments. In the course of this correspondence, and in particular in the letter from Rosier Partners set out above, no challenge was made to statements concerning the liability of Mr and Mrs Davidovic as guarantors. I also take into account, in favour of the second defendant, that Mrs Davidovic was not in fact a guarantor, and has since been agreed not to be a guarantor by Mr Diaz. However, this does not affect the position of Mr Davidovic, for the reasons set out above.
Sixthly, I reject the evidence of Mr Davidovic that he told Mr Diaz he would not give a guarantee. Mr Davidovic's affidavit of 16 February 2012, which he relied upon to set aside the judgment, and his proposed defence, stated that Obnova Concrete Pty Ltd was the correct defendant, not Davidovic Holdings Pty Ltd and that the goods were faulty. These statements were untruthful, and known to him to be untruthful. These were statements made under oath for the purpose of setting aside a default judgment, which makes it all the more serious. This must significantly damage his credit on all issues.
The third defendant
Although not referred to by Mr Badarne in submissions, I should also take into account that at this time the defendant sought to enforce a guarantee against Mrs Davidovic even though she was not a guarantor. However, this is not in the same category as the untruthful statements of Mr Davidovic. The circumstances in which the amendments to the sale agreement came to be made were highly informal, and neither party seems to be sure who was responsible. As indicated above, I have accepted the evidence of Mr Budd, the conveyancing solicitor, that he did not make these amendments, or know about the contents of the sale agreement. On the authorities set out above, there was an arguable case (although a faint one) that Mrs Davidovic could also be a guarantor, particularly since the language in clause 7 referred to "they" and used plural verbs.
The failure of Mrs Davidovic to sign raises another issue about which I was not addressed. A guarantor may not be liable under a guarantee unless all intended guarantors have signed the guarantee: Marston v Charles H Griffith & Co Pty Ltd (1982) 3 NSWLR 294 at 300; Bleyer v Neville Jeffress Advertising Pty Ltd (New South Wales Court of Appeal, Kirby P, Hope and Mahoney JJA, 15 December 1987, unreported).
In Prosilis v Double Bay Newspapers Pty Ltd [2000] NSWCA 30, in circumstances highly similar to the present (a husband and wife as co-guarantors where only the husband signed) an appeal from the finding that the husband was still bound as a guarantor was dismissed. Mason P explained (at [41]-[48]) as follows:
"[41] In Marston, Powell J said (at 300-301) that his consideration of the authorities led to the following conclusion (among others):
if a parol contract of guarantee which is executed by an intending surety is drawn in a form showing another or others as intended joint and several sureties, it will be presumed, in the absence of acceptable evidence to the contrary, that the execution of that other, or three others, was a condition precedent to the surety who signed the guarantee becoming liable under it, and their failure to execute the guarantee will afford to the intending surety who executed the guarantee a defence at law to an action on the guarantee.
[42] Here there was evidence to the contrary, which showed that the single guarantee was executed by the appellant and proffered by him on the basis that it was offered for acceptance as the sole collateral support for the credit terms sought by the principal debtor. The two interrelated documents were each dated 14 September 1994 and were faxed back together that day to the creditor. Without further communication, credit was thereafter provided.
[43] Evidence of the subjective intention of the parties is not admissible to construe their contract, particularly their written contract. However, it is permissible to have regard to the "objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting" (Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352 per Mason J. See also Prenn v Simmonds [1971] 1 WLR 1381 at 1385 per Lord Wilberforce ("matters known to the parties at or before the date of the contract").
[44] This is not a case where there was proof that all parties intended subjectively not to enter into immediately binding contracts (cf Air Great Lakes Pty Ltd v KS Easter Pty Ltd (1985) 2 NSWLR 309). Indeed, there was no direct evidence as to the subjective intention of any party apart from inferences capable of being drawn from the objective events. Reasoning by reference to such inferences illustrates the confluence of subjective and objective analyses on the present facts.
[45] On this basis it is relevant to have regard to the fact that there were no pre-contractual discussions about personal guarantors (CB 244), and that the composite document seeking $30,000 credit was forwarded to the respondent with the appellant's knowledge and authority (RB 24) in a form that contained a single completed guarantee. Some time later, the offers implicit in the forwarding of the completed documents were accepted by conduct, without further communication as to terms. These facts require the rejection of the appellant's alternative submissions that no contract of guarantee was ever formed and that, if it were, it contained a condition in accordance with the third of the Credit Terms.
[46] The appellant submits that the accepted offer was to the effect that the proffered guarantee would have no effect unless and until identical guarantees were received from the appellant's wife. This strikes me as unrealistic and uncommercial. It ignores the fact that the single guarantee and the application were each dated and sent on 14 September 1994. It treats the printed Credit Terms as a procrustean straitjacket, whereas each of the three terms (para5, above) is capable of being read as a reservation of right by the company to which there was an "application for credit account". The circumstances in which all parties dealt with each other prior to acceptance of the credit application disclose those associated with the principal debtor, Australian Catalogue Corporation Pty Ltd proceeding on the basis that only one guarantee was offered, effectively on a "take it or leave it basis". None of this reasoning involves reference to purely subjective intentions. Nor does it contradict the written terms of the guarantee, assuming for the purpose of argument that the third of the Credit Terms is part of the guarantee. That is because the guarantee contract that was formed upon acceptance of the principal debtor's credit application did not (when construed in the light of its manner of formation) itself stipulate that such guarantee was conditional upon execution of an identical guarantee by the appellant's fellow director.
[47] My own preference is to see the third Credit Term as different in nature to the six printed conditions of the proffered guarantee. In my view, it was no more than the reservation of a right to decline to treat with the principal debtor unless the minimum number of guarantees were proffered. But let it be assumed that I am wrong. Even if cl3 were (as Mahoney JA in Bleyer) a term of the proposed contract between the creditor and the principal debtor, that term never became part of that contract because the creditor accepted the proffered counter-offer from the principal debtor. That counter-offer was represented by the company's Application which was accompanied by a single guarantee in circumstances inviting acceptance on that basis. In Bleyer, the pre-contractual communications stressed adherence to cl3 of the Credit Terms. In the present case, they demonstrated departure.
[48] Herron DCJ distinguished Bleyer and rejected the appellant's principal argument on the basis that the appellant's intention was obviously to give a guarantee in the way he indicated and that he did not intend that his fellow director should sign a guarantee. I agree with this conclusion of fact and with this point of distinction from Bleyer. However, I have thought it necessary to express my reasoning differently because of my understanding of the rules excluding certain types of extrinsic evidence in construing contracts."
As it happens, I am satisfied that in the present case the parties did in fact revise the contract which is Exhibit A to produce the contract which is Exhibit B, which provides for Mr Davidovic to be the sole guarantor. Whether this document was prepared by someone on behalf of Mr Diaz, or someone else on behalf of Mr Davidovic, is not the issue; neither party now says that Mrs Davidovic was a guarantor. It is clear from the evidence of both these witnesses that the parties had concluded an agreement in circumstances where the nature of these alterations is clear.
A reasonable person who saw the documents signed by the parties would have inferred that the signature "Miroslav Davidovic" served also to be a signature in his personal capacity, and that the absence of a second signature, and the placement of the witness' signature in this position, were not intended to convey otherwise (Alonso at [61]).
Is Mr Davidovic bound by the agreement notwithstanding his failure to sign as guarantor?
The test for determining whether a guarantee is binding where a dedicated signature has not been prescribed is of necessity a strict one and the circumstances must be clear, as is evident from the authorities set out above. As Stephen E Jones notes in his review of the authorities ("One size fits all: when 'unsigned' lease guarantees can still bind company directors: Padstow Corp Pty Ltd v Fleming (No 2) [2011] NSWSC 1572" (2012) 26(6) APLB 74), the evidence will need to be strong (Mr Jones uses the word "overwhelming").
Mr Badarne submits that this is a case where a director of a company signed on behalf of that company "and no more". It was submitted that Mr Diaz could remember very little, his evidence was unreliable, and he was agitated in the witness box. Mr Badarne put to me that the inability of Mr Diaz to explain the amendments to the sale agreement, and his general unreliability and poor memory, were such that his evidence should be disregarded.
I do not accept these submissions. Mr Budd stated he never made these changes to the sale agreement. I accept that evidence. Mr Diaz says that he did not make them. The likelihood is that they were made at or shortly after the parties' 1 May meeting. This document, and not Mr Diaz's memory, is the best evidence of what the parties actually agreed upon.
I am satisfied that, notwithstanding the fact that the first two pages were revised, the sale agreement documentation functions as a "single and indivisible whole" (Delaney v Purves, supra) and that, as Macrossan SPJ held in Delaney v Purves, the signature of Mr Davidovic even as a mere director is sufficient to bind him as a surety. All of the evidence points to Mr Davidovic giving the guarantee, and to any informality in relation to the signing as being carelessness or oversight, rather than the result of a considered decision by anyone, including Mr Davidovic, to remove or render a nullity the provisions of the sale agreement referring to Mr Davidovic as guarantor.
This brings me to the second issue for determination, namely the second defendant's claim that clause 7 (or alternatively the whole loan agreement) is void for ambiguity or uncertainty.
Is the contract void?
Mr Badarne submits that a claim against a surety is to be construed strictissimi juris and contra proferentem: Ankar Pty Ltd & Arnick Holdings Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 561; Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 at 433. It was not necessary for Mr Davidovic to rescind, or alter the contractual clauses referring to him as guarantor, because the circumstances of his liability as surety simply failed to exist.
Mr Badarne asserted that the contract was ambiguous or void for uncertainty due to the asserted inadequate drafting of the provision of clause 7 of the agreement, which provides:
"7. The guarantor(s) hereby guarantee(s) the performance of this agreement by the purchaser and acknowledge(s) [sic] that should circumstances arise where the purchaser fails to comply with the terms of the agreement then they [sic] will make good that default by payment of the balance of funds or otherwise."
Mr Badarne submitted that the reference to "payment of the balance of funds or otherwise" was, in his words, vague and ambiguous. He submitted that this phrase should state that the guarantor was obliged to pay the balance of monies outstanding and that the phrase "the balance of funds or otherwise" was unclear and therefore void for uncertainty.
I do not accept this argument. The terms are clear. As to the reference to "or otherwise", this is an agreement which provides not only for the sale of a property, but the carrying out of the work provided in paragraph 5, namely the supply and erection of four concrete fencing panels (M7 surplus panels). The guarantor was guaranteeing the performance of the whole of the contract.
Mr Badarne also relied upon the uncertainty in the contract by reason of the revision of its terms. I am satisfied, by reason of the authorities set out above, that the revision of the contract's terms confirmed that Mr Davidovic should be considered a surety. The fact that the contract was revised does not make it void for uncertainty. Each of the amendments to the sale agreement, including the removal of Mrs Davidovic as a guarantor, the change of name to Miroslav Davidovic and change of name for the borrower of the funds, was made in accordance with the intention of the parties. The terms of the contract are clear. Although these were material alterations, they did not change the meaning or nature of the liability or render the sale agreement or the guarantee void for uncertainty: Smart v Australia and New Zealand Banking Group Ltd [2002] VSCA 111.
While it is desirable that all the terms of the guarantee should appear in one document, it is permissible, where there is more than one document, to identify a document referred to in that document. That is the case here.
I am satisfied that the terms of clause 7 of the sale agreement, and indeed the agreement as a whole, are neither ambiguous nor void.
Unenforceability for want of consideration
Mr Badarne relied upon McKay v National Australia Bank Ltd [1998] 1 VR 173 in submitting that the guarantee was unenforceable for want of consideration. He drew my attention to the statement by Winneke P at 177 as follows:
"It is, of course, well established that a contract of guarantee, if not under seal, must be supported by consideration and that the onus of proving that there is consideration to support it is on the party who seeks to rely upon it: J. O'Donovan & Phillips, The Modern Contract of Guarantee, 3rd ed., (1996) pp. 52-3). The consideration relied upon to support the guarantee must be real and valuable and not illusory or a sham: Reid Murray Holdings Pty Ltd. (in liquidation) v David Murray Holdings Pty Ltd (1972) 5 SASR 386. Thus the mere recitation in a document of guarantee that the guarantee was given in consideration for "advances to be made" by the person to whom the guarantee was given will not, by itself, be sufficient to support the guarantee if the evidence demonstrates that no such advances were, or were intended to be made: Elder Smith & Co Ltd v McKellar (1895) 21 VLR 664 at 668, per Hood, J.
Furthermore, "past" consideration is not sufficient consideration. A guarantee given to secure a debt already incurred, but unsupported by any further consideration, will fail for want of valuable consideration:
"... if it is evident that the guarantee was intended to be limited to past transactions alone, for example, because the surety knew that the principal debtor was already indebted to the creditor in an amount exceeding the limit of the surety's guarantee, the guarantee will be void as being given without consideration."
Chitty on Contracts, 27th ed., (1994), p. 1314: see also Halsbury's Laws of England 4th ed., re-issue, vol 20, para. 140."
The facts in this case were, in the words of Ormiston JA at 184, "so unusual that this decision should not be taken as representing any hardening of view, or indeed any change in the law, as to what amounts to consideration in relation to guarantees given to banks or other lenders". The nature of this guarantee related to existing indebtedness, or past consideration. The bank proffered nothing (at 185) and the guarantors neither sought nor obtained anything in return. It is upon this factual basis that the court held there was no consideration for the giving of the new guarantee. Mr Badarne's submission that the guarantee failed for want of consideration because Mr Davidovic (as opposed to Davidovic Holdings Pty Ltd) did not receive any consideration under the contract misconceives the nature of the law of guarantee. This argument also fails.
Concluding remarks
No challenge had been made as to the quantum of the sum claimed. The plaintiff is therefore entitled to an order for judgment against the second defendant, Mr Davidovic, for the sum in paragraph 2(b) of the statement of claim, being the payment due on 1 May 2010 ($187,000.00) plus interest at 10% p.a. (paragraph 2(c) of the statement of claim) from 1 May 2010 to 19 September 2012. In accordance with Exhibit J, the total sum for interest is $44,675.07 as at 19 September 2012, accruing at $51.23 per day. As at the date of this judgment (Wednesday 26 September 2012), the total interest figure should be $44,675.07 plus $358.61, being a total of $45,033.68.
Therefore, the plaintiff is entitled to judgment in the sum of $232,033.68.
Orders
(1) Judgment for the plaintiff for the sum of $232,033.68.
(2) Second defendant to pay the plaintiff's costs.
(3) Exhibits retained for 28 days.
(4) Liberty to restore re costs and interest.
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Decision last updated: 02 October 2012
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