Law discussions--- What are the issues and the law applicables?

Craig & Sons Pty Ltd has never appointed a CEO. On several occasions over the past three years, Ben has entered into contracts on behalf of the company, Craig & Sons without first seeking authorisation from the company’s board. However on each of the occasions, Ben has later obtained board approval for the contracts. Craig & Sons common seal was not used in any of these contracts.

Clause 10 of Craig & Sons Pty Ltd constitution says “the directors shall provide for safe custody the company’s common seal. The seal shall be used only by the authority of the board of directors. Every document to which the seal is fixed shall be signed by the director and counter signed by another director or company secretary.”

Ben is also director of Apex Pty Ltd. Craig & Sons Pty Ltd does not hold any shares in Apex and Apex does not hold any shares in Craig & Sons Pty Ltd. Three months ago, Apex borrowed $500,000 from ANZ Bank. ANZ approved the loan to Apex only after Ben agreed that Craig & Sons Pty Ltd would guarantee repayment of the loan. Sally & Jessie know nothing about the loan or the guarantee document. The guarantee was signed by an ANZ loans officer, Peter. The common seal of Craig & Sons Pty Ltd was fixed to the guarantee document by Ben, who signed next to it. Ben’s brother, Sam counter-signed and wrote company secretary. Peter asked Ben whether Sam was company secretary and Ben said “Yes”. Peter did not perform a search of the ASIC data base to check who were the properly appointed officers of Craig & Sons Pty Ltd.

APEX has defaulted on loan repayments to ANZ bank with $300,000 plus interest still owing on the loan. ANZ is seeking to enforce the guarantee given by Craig & Sons Pty Ltd.

Sally and Jessie seek your advice. They would like to know whether Craig & Sons Pty Ltd is liable under the guarantee document. Clause 10 was not complied with when the guarantee document was signed. Advise whether Craig & Sons must pay $300,000 plus interest owing to ANZ bank.

Law discussions--- What are the issues and the law applicables?

louiz

Joined April 2008

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