Follacchio v Harvard Securities

REASONS FOR JUDGMENT 1 A company called Westgarth Development Pty Ltd constructed a number of residential units in Northcote. By several agreements, it engaged the respondent, Harvard Securities (Aust) Pty Ltd, a real estate agent, to sell the units. The engagements were in the form of the General Sale Authority published by the Real Estate Institute of Victoria Ltd. That authority contains the following provision: "Any signatory for a proprietary company Vendor will be personally liable for the due performance of the Vendor's obligations as if the signatory was the Vendor. If required by the Agent the signatory will procure the execution by all Vendor company directors of a guarantee to be prepared by or on behalf of the Agent." 2 Each authority made provision for signature "by or for the Vendor". The appellant, Mr Follacchio, a director of Westgarth Development, signed the authority. The agent found purchasers for units 8, 13 and 14 and became entitled to its commission. When the commission was not paid it brought proceedings in the Federal Magistrates Court to recover the amounts due, which totalled $43,740, from both Westgarth Development and the appellant. It obtained judgment for the amount claimed (less $26), together with interest. That is the judgment from which this appeal is brought. 3 The reason the magistrate found against the appellant was that he was personally liable for the commission. The magistrate said: "There is then an issue of the basis on which the second Respondent might be liable. Provisions such as clause 6 [the reference should be to clause 5] may be a guarantee or might impose personal liability. The distinction between a guarantee and personal liability is well understood. It depends on the meaning of the words used. The wording of this clause is clear. It imposes personal liability on the signatory. Consequently, the second Respondent is personally liable for the debt of $43,740.00." 4 The appellant challenges this finding on a number of grounds. The main argument is that the general sale authorities upon which the respondent based its claim for commission only created contractual relations between the agent and Westgarth Development, and that the appellant was not a party to those contracts. The point the appellant makes is that when he signed the contracts he did not do so on his own behalf, but only on behalf of the vendor. 5 The foundation for this argument is the proposition that the appellant had only executed the authorities in a qualified way and did not intend to assume any personal liability under the contracts created by the authorities. To make good this argument the appellant points to the fact that on each contract his signature appears adjacent to the words "Vendor Signs" and the words "Signed by or for the Vendor". He says that this shows that his signature was not unqualified and that he did not intend to assume any personal liability. Put another way, the appellant says that the expression "signed by or for the vendor" and similar expressions such as "as agent", "on account of", "on behalf of" and "for" are conclusive when qualifying a signature to negative responsibility of the signatory as a contracting party. 6 The appellant's argument finds support in a number of authorities. One case is Ariadne Steamship Co v James McKelvie & Company [1922] 1 KB 518. There, according to the dicta of Atkin LJ (as he then was), the question whether a person has executed a document as agent for another or personally does not depend upon the construction of the agreement as a whole but only on whether the words, if any, which qualify the signature are sufficient to negative assent to the contract by the signing party. That is to say, the court should not have regard to the terms of the contract when deciding whether or not the signatory intended to be bound by it. Ariadne Steamship Co has been followed in Australia in National Commercial Banking Corporation of Australia Ltd v Cheung (1983) 1 ACLC 1326. 7 On the other hand there are cases which have doubted Ariadne Steamship Co or have refused to follow it. The correctness of the decision was questioned by the Court of Appeal in New South Wales in Scottish Amicable Life Assurance Society v Reg Austin Insurances Pty Ltd (1985) 9 ACLR 909 and it was rejected in Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 160. In this latter case, after an extensive review of the authorities, Giles J held that the inquiry whether a person signing a contract intended to be personally bound thereby, was not limited by qualifications which attached to the signature. To determine whether the person who had signed a contract intended to be bound by it required the court to consider the contract as a whole. I adopt the analysis undertaken by Giles J which I need not repeat. I will merely restate his conclusion (at 174) with which I respectfully agree: "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 the 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." 8 On this view it is not only the qualification attached to the appellant's signature that must be taken into account. It is also necessary to have regard to cl 5. Once that clause is taken into account it is clear that the qualification to the signature of a person who signs on behalf of the vendor is only intended to operate where the vendor is not a proprietary company. In those cases where the vendor is a company the qualification to the signature is not intended to have effect. It follows, therefore, that on the proper construction of the general sale authorities, the appellant did evince an intention to be bound by them. 9 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. 10 This brings me to the next task, which is to identify the nature of the obligation which the appellant assumed. According to the magistrate it was as a principal contracting party. I doubt, however, whether this conclusion is correct, notwithstanding the language of cl 5. 11 In this context I should refer to Heald v O'Connor [1971] 1 WLR 497. It is not necessary to go into the facts of the case. It is sufficient to note the appellant's argument that, under the provisions of the relevant agreement, the respondent had agreed to provide an indemnity and the respondent's answer that the provision was a guarantee which was void by reason of s 54 of the Companies Act 1948 (UK). That section prohibits a company from giving financial assistance in connexion with dealings in its shares. According to the agreement the respondent was described as "a primary obligor and not merely as a surety". Fisher J said of this provision (at 503): "In my judgment [these words are] merely part of the common form of provision to avoid the consequences of giving time or indulgence to the principal debtor and cannot convert what is in reality a guarantee into an indemnity." 12 It seems to me that there is much to be said in favour of the view that cl 5 imposes a secondary and not a primary obligation on the person who signs on behalf of a corporate vendor. The provision states that the signatory "will be personally liable for the due performance of the Vendor's obligations". This assumes that there is a real vendor, who has engaged the agent to sell the property. I do not read the provision as substituting the signatory for the vendor as the contracting party when the vendor is a proprietary company. Nor do I think it makes the signatory a co-obligor. In reality it is intended to create a guarantee. However, even if this is the proper construction of cl 5, it is of no assistance to the appellant. He has committed himself to pay the amount of the commission in some capacity, and the commission has not been paid. 13 The only other basis upon which the appellant sought to avoid liability as a guarantor is his assertion that there was no consideration for his promise. I do not think there is anything in the point. First it is not necessary for the consideration to appear on the face of the instrument of guarantee. In any event it is apparent from the body of the authority that there is consideration for the promise, namely the respondent agreeing to act as agent on the sale. This is a sufficient consideration to support a guarantee. 14 Accordingly I will order that the appeal be dismissed with costs. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.