Junker v Hepburn [2010] NSWSC 88

In this case a loan to a company was secured by a mortgage over several blocks of land. As additional security the loan was guaranteed by the two directors of the company. Both the guarantors signed the loan and their own guarantees. However, the disbursement authority was signed by only one of the directors. Some of the loan proceeds were paid into that director’s personal bank account on his sole direction. The other director claimed that disbursement was unauthorised.

The court went to great lengths to examine the common law rules in relation to ostensible (apparent) authority which bind the company to obligations incurred by directors signing according to their apparent authority. However, this was mere nostalgia, because ss127-129 of the Corporations Act make it clear that if a director signs on behalf of a company third parties may assume the director has authority.

The guarantor also sought to argue that only 50% of the shortfall could be recovered from her. However as the drafting of the guarantee made it clear liability was joint and several, judgment was entered against both directors for the full amount. This means the lender has the option of pursuing just one of them for the full amount if he desires. In those circumstances the guarantor who is recovered against can then bring proceedings seeking contribution from the other guarantor.

Click here to read the full judgment

Scroll to Top