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Which case won? Could a bank enforce a loan agreement where one of the signatures was forged?
23 Jan | Which Case Won

Which case won? Could a bank enforce a loan agreement where one of the signatures was forged?

By Geoffrey Mark Roberson

The Facts

Dispute concerning mortgages and loan documents with allegedly forged signatures

A company was established in 1991 and operated a paintball field on a property in Sydney. In 2004 and in 2009 the company entered into loan agreements with a bank. The amounts totalled approximately $100,000, with a further advance of $50,000, and two overdraft facilities of $15,000 and $20,000.

The company had two directors, who had both personally guaranteed an overdraft facility provided by the bank in 1996, and this same guarantee was used as security for both the 2004 and 2009 loans.

Company defaults on loan and bank commences legal proceedings

The bank commenced proceedings against the company as principal debtor, and against the two directors under their personal guarantees, following a default by the company.

One of the directors claimed that although he was liable to the bank under his guarantee for the sum outstanding from the 2004 loan, he was not liable in respect of the 2009 loan – which had subsumed the 2004 loan – as he had not signed the letter of offer, the letter of acceptance or the guarantee acknowledgement for the 2009 loan. He contended that the signatures on those documents were not his.

casea
The case for the bank
  • We now concede that the signatures on those documents were not those of the director and were forgeries. However, we did not know this at the time the funds were advanced.
  • We dealt with the company via the other director, who was the intermediary between us and the company and acted as the company’s agent, and our staff had no reason to suspect that there was anything irregular about the 2009 loan documents.
  • ASIC records showed the other director was properly appointed and so we were entitled to assume that he had authority to act and that the documents were properly executed.
  • Further, the original guarantee provided by the directors in 1996 was an unlimited guarantee, which means that in the event of default by the company they must pay all the money owing at that time.
  • The company has defaulted and both directors are personally liable for the outstanding debt.
caseb
The case for the dissenting director
  • I agree that the signatures on the 2004 loan and the document to increase the overdraft to $20,000 were mine, and that I was therefore liable to the bank under the guarantee for those loans.
  • However, any liability I might have had under the 2004 loan was discharged when the company entered into the 2009 transaction.
  • I believed the transaction in 2004 was a one-off loan and no funds would ever be redrawn on it.
  • The 2009 transaction, the further overdraft of $15,000 and the various redraws made by the company all occurred without my knowledge or consent. I was not a party to the 2009 transaction.
  • The bank’s officers were wilfully blind to the possibility that my signature had been forged and therefore the bank cannot rely on the assumption that the 2009 documents were properly executed.
  • The bank should be able to recover the outstanding debt from the company and the other director, but not from me personally.

So, which case won?

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b47%

Expert commentary on the court's decision

Geoffrey Mark RobersonPrincipal
“The court found that there was no evidence that any officer of the bank knew or suspected that Mr Woollard’s signatures were not genuine, so the bank was entitled to rely on the assumption that the documents were properly executed.”
Supreme Court finds in favour of bank

In Australia and New Zealand Banking Group Limited v Adventure Quest Paintball- Skirmish Pty Limited [2016] NSWSC 188, the Supreme Court of NSW found in favour of the bank, ANZ, with the dissenting director, Mr Woollard and the other director, Mr Hodgson having equal liability to the bank in respect of the outstanding debt of the company, Adventure Quest Paintball-Skirmish.

This decision confirms that a lender can rely on documents bearing allegedly forged signatures where the documents appear to be compliant with section 127(1) of the Corporations Act and the lender has no knowledge nor suspicion of the forgery.

The most significant issue in this case hinged on whether Mr Woollard was bound by the 2009 loan agreement, and whether ANZ was entitled to enforce the security against him – which he had previously provided in 2004 – despite the fact that he alleged he was unaware of the subsequent transaction and not a party to the agreement.

Could the bank claim that it had dealings with the company over the 2009 loan?

A point which had to be established by ANZ was that it had had “dealings” with Adventure Quest regarding the 2009 loan, as defined within the meaning of section 128(1) of the Act.

The court found there was no issue that ANZ had dealt with Adventure Quest in relation to the 2009 agreement, through communications with Mr Hodgson who was its intermediary with the bank, and acted as the company’s agent.

Was the bank entitled to assume that the documents were executed correctly?

While ANZ had not disputed that the signatures on the 2009 loan documents were not Mr Woollard’s, it sought to rely on the so-called “statutory assumptions of regularity”, being sections 127, 128 and 129 of the Corporations Act.

These sections state that if a company executes a document by having it signed by two directors of the company, people who have dealings with the company are entitled to make certain assumptions.

Specifically, people are entitled to assume that a director or company secretary as listed in ASIC records has been properly appointed and has the authority to act; that anyone held out by the company to be an officer or agent of the company has been properly appointed and has the authority to act; and that the document has been properly executed.

These assumptions apply even if an officer or agent of the company acts fraudulently or forges a document. However, if a person knows or suspects that an assumption is incorrect at the time of the dealings, that person is not entitled to make that assumption.

In this case, the court found that there was no evidence that any officer of the bank knew or suspected that Mr Woollard’s signatures were not genuine, so the bank was entitled to rely on the assumption that the documents were properly executed.

The court found that ANZ was entitled to rely on the provisions of section 129(5), being the assumption that the acceptance of the letter of offer had been duly executed, as it appeared – on the face of it – to have been signed by the two directors of Adventure Quest in accordance with section 127(1) of the Act.

Consequently, the two directors were found to have equal liability to ANZ for Adventure Quest’s outstanding debt.

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