SONNTAG v GRAZIANO [1994] NSWCA 291

SONNTAG v GRAZIANO SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

MAHONEY, CLARKE and SHELLER JJA 18 February 1994, 15 April 1994 [1994] NSWCA 291

Action for recovery of money lent to company and on guarantee by director — terms of loan agreement not followed — whether director released from liability on guarantee — construction of loan agreement

APPEAL FROM COMMON LAW DIVISION — Action for recovery of money lent to company and on guarantee by director r Terms of loan agreement not followed — Whether director released from liability on guarantee.

CONSTRUCTION OF LOAN AGREEMENT — Grant of security not condition precedent to operation of Loan Agreement or of Guarantee.

GUARANTEE ~— Solicitor acting for lender, borrower company and director — Solicitor failed to prepare security documents — Director cannot rely on solicitor's actions to avoid guarantee.

Mahoney JA Rohalo Pty Ltd proposed to develop certain land. The plaintiff Paul Graziano agreed to lend money to the company. On 4 December 1990 a loan agreement was made between Mr Graziano and the company. The loan agreement was supported by "an agreement of guarantee and indemnity" given by Lionel Russell Sonntag, one of the two directors of the company.

The company defaulted in repayment of the amount lent to it. Mr Graziano sued it and recovered judgment. He also sued Mr Sonntag upon the guarantee. On 5 July 1993 McInerney J gave judgment for Mr Graziano. No appeal has been brought by the company. However, Mr Sonntag has appealed to this Court against the judgment given against him on the guarantee.

Mr Sonntag's appeal is based essentially upon the way in which the loan and guarantee transactions were carried into effect. Having regard to the form which ultimately the submissions took, it is sufficient to state briefly the relevant parts of the transactions and what was done.