Matouk v The Entrance Seabreeze [2010] NSWSC 649

The lender sought to recover the outstanding loan amount from the guarantors. The money had been lent to a development company with personal guarantees given by the directors.

Although the lender had not signed the loan agreement the evidence of receipt of funds and repayments, as well as the fact that guarantees had been signed by the directors, was sufficient to constitute a binding agreement. In any event, a variation of the agreement which was later entered into by the parties amounted to an affirmation of the loan agreement.

Whilst it was argued by the guarantor that no consideration passed to him from the lender to support the guarantee, Justice Ward found there was ample consideration in the advance of funds to the borrower, which the guarantor understood to be the purpose of entering into the contract of guarantee.

The guarantee of the performance of the borrower’s obligations under the loan contract when properly interpreted included a guarantee to make the payments of principal and interest that the borrower failed to make.

A formal demand is not required to the trigger the guarantor’s obligation to repay, as Justice Ward stated:

Unless, on the terms of the guarantee there is a requirement for notice or for a demand to be made, it is not otherwise necessary for a demand or notice to be given before a guarantor becomes liable under a guarantee, as the guarantor’s obligation to pay arises on the debtor’s failure to fulfil its guaranteed obligations (Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245, at 256; 77 ALR 205; Palindrome Holdings Pty Ltd v Wass [2009] NSWSC 797, at [73]; [87];Clyde Industries Ltd v Dittes (unreported, NSWSC, 5 June 1992); Re Taylor (1995) 130 ALR 723).

Justice Ward found the guarantor liable to repay the principal and interest that the borrower had failed to pay.      

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