A loan agreement that was invalidly executed was held to be unenforceable, leading to arguments about whether the money advanced was secured by the mortgage or attracted interest.
Mr Weir was one of two directors of a company, and he used his connections to borrow money in the name of the company. The loan and the recovery of money were the subject of the proceedings in Parramatta Co-Operative Housing Society t/as Co-Operative Housing Society v Yabbyland Pty Ltd t/as Yabbyland Unit Trust [2026] NSWSC 656.
At the commencement of the proceedings in March 2025, the lender sued for possession of the property given as security for the loan and $645,848.50.
The loan was entered into in October 2021, and $430,000 was advanced to the defendant. Under the transaction documents, the lender registered a mortgage over a property at Karuah on the Mid North Coast of NSW.
The first argument, after some agreed amendments were made to the pleaded case, was whether the loan agreement was binding. Mr Weir signed the agreement for the borrower without the knowledge of the second director, Mr James Lavatar-Williams; he also arranged for some payments to be made in reduction of the loan. Mr Lavatar-Williams believed that the money in the account was paid by Mr Weir personally to meet an agreed obligation.
Section 127 of the Corporations Act provides that when executing a document without a common seal, a company with two directors must have the document signed by two directors, or by one director and the company secretary. The lender had been told there were two directors but did not conduct a company search. His Honour held that the lender’s primary argument—that the loan agreement had been validly executed—must fail.
The lender then argued that the company, by its actions, had ratified the agreement and was therefore bound by its terms. His Honour held that in circumstances where the signing of the loan agreement and the repayments made were done by Mr Weir without the concurrence of Mr Lavatar-Williams, there were no clear adoptive acts that could be relied on to support the argument.
This argument failed.
The lender next argued that it was entitled to restitution. This doctrine is traditionally relied on to recover money that is paid by a mistake of law or fact. The borrower conceded that there was an entitlement to restitution but proposed a figure of $7,680. This figure was arrived at in part by deducting $356,613 from the advance because this money was spent on the yabby farm, giving rise to a defense of “change of position.” It was argued that this defense was available because Mr Lavatar-Williams acted in good faith and the company did not have the money to repay the loan. His Honour rejected the defense because he was not satisfied that the company’s position had changed to such an extent that it established it was substantially worse off. The court ordered restitution of $364,275 (being the advance of $429,879 less the repayments made of $65,604).
The lender sought a declaration that the restitution amount was secured by the mortgage. His Honour refused to make this declaration because of the lender’s failure to do a company search, having ignored information that there was a second director. By recklessly or negligently ignoring the provisions of the Corporations Act, the restitution amount could not be regarded as part of the secured debt in the loan document.
Finally, following a review of the authorities, the court refused to award interest on the restitution amount.
This decision shows that taking care in the early stages of a transaction may avoid expensive litigation.