Signed on the dotted line? Proving execution of personal guarantees

This week’s TGIF considers Singh v De Castro [2017] NSWCA 241, where the New South Wales Court of Appeal held that five directors of an insolvent corporate borrower had executed and were bound by personal guarantees.

BACKGROUND

The decision was an appeal from a decision of the District Court of New South Wales finding that five directors of an insolvent corporate borrower had executed and were bound by personal guarantees.

The lenders, a husband and wife, advanced $300,000 to a business providing education services. When the company defaulted and the guarantors refused to pay, the lenders commenced proceedings.

The lenders tendered a copy of the brief five-page loan agreement. On its face, the agreement contained clear guarantee provisions, it identified each of the alleged guarantors by name, and it appeared to be signed by each the guarantors.

However, the five guarantors asserted they were not bound for two different reasons:

• Two of them asserted that they did not recall signing the document and that the lenders failed to prove that they did; and

• The other three admitted signing the fifth page but asserted that the first four pages had been removed and replaced with pages containing the guarantee provisions.

At trial, the primary judge held that the guarantors had all signed the document and were bound by the guarantees. Relevant factors were that the guarantors had failed to produce the alternative version of the agreement, they could not identify its terms in oral evidence, and “commercial probabilities” were against the allegations of tampering.

The guarantors appealed and argued, among other things, that the primary judge had impermissibly reversed the onus of proof by requiring that the guarantors prove the existence of the alternative agreement.

COURT OF APPEAL’S DECISION

The New South Wales Court of Appeal unanimously held that the guarantors had signed the document and were bound by the personal guarantee within it.

In relation to the guarantors who alleged they had not signed, the Court held there was sufficient evidence to establish that they had. The lenders had tendered other loan agreements with the guarantors’ signatures that closely resembled those in the document. The Court held that the primary judge was entitled to inspect and compare the signatures, even without expert handwriting evidence.

In response, the guarantors’ case went no higher than that they “could not recall” signing the document. This could not overcome the other evidence indicating they had signed.

In relation to the guarantors who admitted signing the document but alleged that its pages had been substituted, the Court held that “objective circumstances and commercial probabilities” as well as adverse findings about the guarantors’ credibility indicated this was not the case.

Importantly, the Court held that the primary judge had not reversed the onus of proof by relying on the guarantors’ failure to produce the alleged alternative agreement. Once evidence was put against the guarantors indicating they had signed, their positive case that pages of the document had been substituted required evidence to support it. They failed to provide that evidence and so their defence failed.

COMMENT

The execution of guarantees and other loan documents is routinely a crucial issue in banking and insolvency litigation. This decision shows that both sides must adduce persuasive evidence to support allegations that documents have or have not been signed. More precisely, it shows that merely denying execution or a refusing to give evidence will likely not suffice to defend claims that a party is bound by a signed document.

Further, this decision demonstrates the potential relevance of obtaining additional documents on which a party’s signature appears – including by way of subpoenas to third parties. Such documents may be used for comparison where there is some reliable evidence that they were written by a particular person. Even in the absence of expert handwriting evidence (as here), such documents can be persuasive in establishing that a document has been signed by a particular person.