Electronic signatures on personal guarantees: are they binding?

Posted on Nov 28, 2016 by Janine Wilson   |   Categories: Commercial & Business Law

It is becoming more and more common for companies to send out documents which contain an electronic signature of a director.

What happens when a staff member includes your electronic signature on an important document without your knowledge or approval?

The NSW Court of Appeal has recently dealt with a case where an administration officer of a company included an electronic signature of one director on a personal guarantee document. The personal guarantee was given by all three directors in support of a credit application that the company gave to a material supplier.

The company debt to the material supplier was in excess of $800,000 at the time that the company was placed into liquidation.

The material supplier sought to recover the debt from each of the directors pursuant to the personal guarantee “signed” by each of the company directors.

One of the directors successfully escaped liability in respect of the personal guarantee document. The director argued:

  1. He was unaware that his electronic signature had been placed on the guarantee document;
  2. The use of his electronic signature was unauthorised and its use amounted to a forgery;

 

The Court found that the use of the electronic signature did NOT necessarily bind the director.

The material supplier argued that the company had ostensible authority to affix the electronic signature, that the signature had been ratified by the director and that the director was estopped from denying that his signature had been properly affixed.

All three of those arguments failed. The Court found that no ostensible authority could arise in the circumstances of the case without some representation by the director giving authority for some other person to affix his electronic signature.

The Court found that there was no conduct that would establish a subsequent ratification of the electronic signature by the director and specifically that the facts did not establish that the director had shut his eyes to the obvious, such as to justify fixing him with knowledge that a personal guarantee had been given in his name.

Further, the evidence did not establish a representation by the director as to the genuineness of his signature on the guarantee or as to his authorisation of anyone else to place his electronic signature on the guarantee, the mere representation to the material supplier that the director’s signature was on the guarantee, conveyed by the purported witnessing of his signature by the company’s administration manager, did not give rise to an estoppel precluding the director from denying personal liability on the guarantee.

Unfortunately, the Court did not find the need to consider whether the placement of an electronic signature on a document without any authority could amount to forgery at common law.

Make sure your guarantee documents are reliable.

This is a very important warning for anyone obtaining personal guarantees in respect of third party debts.

The Court has made it very clear that an electronic signature provided by or on behalf of a director may not be enough.

You will need to pay very careful attention to the form of the signatures that have been provided on any guarantee document and, if there is an electronic signature, you will need to take additional steps to make sure that the person providing the guarantee is aware of their obligations and that they directed the use of an electronic signature.

Reference: Williams Group Australia Pty Limited v Crocker [2016] NSWCA 265