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Discuss whether easyloan bank ltd can enforce the guarantee

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Reference no: EM13492321

ABC Pty Ltd is situated in Australia. It has three directors: David, Sarah and Chen. David had signed a mortgage and guarantee in favour of Easyloan Bank Ltd on behalf of ABC Pty Ltd. The guarantee secured a personal loan made by Easyloan Bank Ltd to David. The mortgage was over ABC Pty Ltd's land in Ballarat. Both documents were signed by David and appeared to have been signed by Sarah. However, David had forged Sarah's signatures on the documents and Sarah was completely unaware of the transaction.

ABC Pty Ltd's constitution provided that such loan agreements could only be executed if authorized by directors' resolution. No such resolution had occurred, and indeed neither Sarah nor Chen knew about the mortgage and guarantee.

Easyloan Bank Ltd had not undertaken searches to determine whether David and Sarah were directors of ABC Pty Ltd prior to accepting the mortgage and guarantee as security and making the loan to David.

David has failed to repay the loan and has now left Australia. Easyloan Bank Ltd is attempting to enforce the guarantee and mortgage against ABC Pty Ltd.

Required:

(a) Discuss whether Easyloan Bank Ltd can enforce the guarantee and mortgage (contracts) against ABC Pty Ltd. You should support your answer with reference to relevant sections of the Corporations Act 2001 and to relevant cases.

(b) Would your answer to question (a) above be different if ABC were the partnership firm of David, Sarah and Chen? Justify your answer.

Reference no: EM13492321

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