Archer v Benchmark Building Supplies Ltd HC Hamilton AP61/99
- Court
- High Court
Areas of law
Judgment analysis
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Facts
In 1993, the appellant N. Archer, a builder, and his brother formed a company, Discovery Homes Ltd. To set up a trading account with the respondent, the appellant obtained a pre-printed form titled "Limited Liability Company application for trading account". The form was partially completed by his wife, and the appellant signed and dated it on 16 August 1993. The form contained personal guarantee clauses. Crucially, the section for the guarantor's full name and address was left blank at the time of signing. This section was later filled in by one of the respondent's clerks. In early 1994, the appellant and his wife resigned from Discovery Homes, transferred their shares, and had no further involvement with the company. They believed the only guarantee they had given was to a bank, which they arranged to have released. Discovery Homes' account with the respondent later went significantly into arrears, exceeding its credit limit. The company went into liquidation in July 1997, owing the respondent $75,731.25. The respondent sued the appellant on the guarantee contained in the application form.
Held
- A person who signs an unqualified signature on a document that is both a company credit application and a personal guarantee is bound in a dual capacity as both company agent and personal guarantor, even if the section identifying the guarantor's name and address is left blank, where the guarantee clauses are written in the first person singular ('I', 'my').
- The failure to complete a section of a form for the guarantor's name and address does not create an ambiguity sufficient to admit parol evidence of the signatory's subjective intention, especially when that party has failed to read the document.
- Merely providing a standard form document that includes a personal guarantee without an express explanation does not amount to misleading or deceptive conduct under s.9 of the Fair Trading Act 1986. A party cannot claim to have been misled by a document they did not read.
- It is not unconscionable for a creditor to enforce a guarantee containing a 'principal debtor' clause against a guarantor, even after the guarantor has ceased involvement with the debtor company and the creditor has allowed the debt to exceed the initial credit limit.
The appeal is dismissed. The appellant is to pay the respondent costs of $1500 plus disbursements.
Key passages10
A signature on a document which contains provisions for both a company application and a personal guarantee may be found to be in a dual capacity, binding the signatory both on behalf of the company and personally.
“Read as a whole, it is my judgment that Mr Mistry signed the agreement in a dual capacity both for the company and on his own behalf as personal guarantor.”
The capacity in which a person signed a document should be ascertained from a consideration of the document itself.
“The first principle which emerges from these decisions is that the Court will endeavour to ascertain the capacity in which a particular person signed the document from a consideration of the document itself and the cases illustrate various matters which have assumed importance in the particular cases.”
The principle of commercial certainty requires that the intention of a party, objectively ascertained from the document, must prevail.
“The principle of commercial certainty underlies the rules of construction which are applicable to the issue presented for decision. In this case. The intention of the appellant objectively ascertained from the document must prevail.”
Where a contract is ambiguous, parol evidence may be admissible to determine the parties' true intention.
“On the other hand where words or a clause or indeed a contract as a whole is ambiguous or the result of a literal construction gives rise objectively to ambiguity or absurdity, then the authorities allow the true intention to be elucidated by the admission of evidence directed to that end.”
A party's uncommunicated intentions are not admissible for the purpose of construing a document.
“Whatever the intention of the respondent may have been, on the evidence it was certainly not communicated to the appellant nor did it form part of the negotiations between the parties. From the approach adopted in the cases to which reference has already been made then it would not be admissible for the purposes of construing the document itself.”
A document is to be construed objectively from the words used, and subsequent declarations of the parties as to their intentions are not admissible.
“It is elementary that this document is to be construed objectively. The parties' intentions to be gathered from the words used, given their ordinary meaning. Subsequent declarations of the parties as to what they intended or understood are not admissible”
For certainty in contractual dealings, people must generally be bound by what they have signed.
“The law has always recognised that for the sake of certainty in contractual dealings people must in general be bound by what they have signed.”
Whether conduct is misleading or deceptive under s.9 of the Fair Trading Act 1986 is an objective question of fact.
“Whether any particular conduct is misleading or deceptive or likely to mislead or deceive is essentially a question of fact. The test is objective.”
A 'principal debtor' clause in a guarantee can preclude a guarantor from relying on defences that would ordinarily be available, such as material variation of the primary contract.
“It is well established that a clause of this nature will normally preclude a guarantor from relying upon a range of matters which would ordinarily entitle the guarantor to be discharged from responsibility...”
The equitable jurisdiction to set aside unconscionable bargains does not protect parties from their own foolish undertakings.
“The equitable jurisdiction to set aside unconscionable bargains is not a paternal jurisdiction protecting or assisting those who repent of foolish undertakings.”
Cases mentioned in judgment
Legislation mentioned
- Contracts Enforcement Act 1956, s.2(2)
- Fair Trading Act 1986, s.9
- Credit Contracts Act 1981