Re Farm Pride Foods Ltd
[1999] QSC 174
•29 June 1999
IN THE SUPREME COURT
OF QUEENSLAND No. 5641 of 1999
Brisbane
[Re Farm Pride Foods Ltd]
IN THE MATTER of Order 64 of the Supreme Court Rules
-and-
IN THE MATTER of the Land Title Act 1994
-and-
IN THE MATTER of caveat numbers 703319106, 703319101 and 703319104 lodged by Farm Pride Foods Limited ACN 080 590 030
REASONS FOR JUDGMENT - CHESTERMAN J
Judgment delivered 29 June 1999
CATCHWORDS: TORRENS SYSTEM - Caveat - application for removal.
GUARANTEE AND INDEMNITY - consideration - whether agreement referred to in guarantee was sufficiently certain to be binding - whether guarantee took effect as a deed - liability of guarantors - whether it was intended that there be two guarantors despite only one signature on the guarantee - construction and effect - whether agreement was uncertain because name of co-guarantor missing.
Counsel:Mr P Hackett for the applicant
Ms A Phillippides for the respondent
Solicitors:H Drakos & Company for the applicant
Mullins & Mullins for the respondent
Hearing Date: 25 June 1999
REASONS FOR JUDGMENT - CHESTERMAN J
Judgment delivered 29 June 1999
The applicants, Christos and Magadalene Dimitrakipolous, are directors of GCS Seafoods Pty Ltd (“Seafoods”) which bought a large quantity of eggs and egg products from the respondent, Farm Pride Foods Limited. The respondent commenced supplying goods to Seafoods in November 1998 on terms which allowed it thirty days’ credit. By 27 April, 1999, Seafoods owed the respondent about $313,000.00 which, in accordance with the terms of trade between the two companies was due and payable. On 29 April, 1999, Mr Dimitrakipolous met with officers of the respondent at its premises in Melbourne. He there signed a document entitled “Guarantee and Indemnity”, clause 13 of which provided
“In order to better secure the Deed we the Guarantors hereby charge all of our real and personal estate in favour of the Creditor with all money due and payable pursuant to this Instrument of Guarantee”.
The document identified the respondent as the “creditor”.
On 5 May, 1999 the respondent lodged three caveats in the Land Titles Office forbidding dealings with three properties, two of which are owned jointly by the applicants and one of which is owned by Mr Dimitrakipolous alone.
By their summons dated 17 June, 1999 the applicants seek an order that caveats 703319106, 703319101 and 703319104 be removed and a declaration that the guarantee dated 30 April, 1999 is void and unenforceable. The only ground advanced for the removal of the caveats is that the guarantee is ineffective. The respondent has no other basis for claiming a proprietary interest in the applicants’ property.
The first ground argued by the applicants is that the guarantee is unsupported by consideration. It recited
“IN consideration of [the respondent] agreeing with [Seafoods] ... for the payment of all monies due and owing by [Seafoods] to the [respondent] from time to time plus any interest and costs ... by instalments pursuant to a written agreement dated 30 April 1999, WE the persons whose names, addresses and descriptions are set forth in the Schedule hereto HEREBY GUARANTEE the due and punctual payment of the Debt as and when required by the [respondent] and we expressly acknowledge and declare that this Guarantee is given upon and with the benefit of the following conditions ...”
The argument is that there was no written agreement made between Seafoods and the respondent on 30 April, 1999 for the payment of Seafoods’ debt by instalments. Therefore, Seafoods remains liable under the terms of its agreement with the respondent and got no benefit from the forbearance that would have been constituted by an agreement to accept payment by instalments.
There is in fact a letter dated 30 April, 1999 from the respondent and signed by its secretary addressed to Mr Dimitrakipolous. It contains six numbered paragraphs, the last of which refers to “a detailed payment plan” which appears to contemplate the extinction of the debt by instalments. Counsel for the applicants argued that if the letter is the written agreement referred to in the guarantee it amounts to no more than an agreement to agree which does not bind the respondent to accept payment by instalments and cannot constitute valuable consideration for the guarantee.
The respondent contends that the letter is the written agreement referred to in the guarantee. In my opinion it is. Although not signed by either of the applicants the letter is in writing, is addressed to Mr Dimitrakipolous and commences
“Confirming our discussions this morning we list below the following points by which agreement was reached ...”
The applicants’ submission that the guarantee is unsupported by consideration depends then upon whether term number 6 in the agreement is unenforceable. It said
“The Accountant acting for [Seafoods] is to contact [the respondent] by 3 p.m. Tuesday 4th May 1999 for the purposes of providing a detailed payment plan, the aim of which is to have the amounts owing to [the respondent] paid in full within four to six weeks but no later than 15th June, 1999”.
The applicants’ point is that the “detailed payment plan” referred to in the agreement is devoid of content. It is impossible to know what the parties had agreed by way of a reduction of the debt by instalments. An ancillary argument is that the term contemplated a further agreement being reached between the parties who would then be bound by the payment plan. There being no detail and only a mechanism for further agreement which might not eventuate there was no obligation to accept payment by instalments.
I do not accept the argument. Commercial contracts, especially those drawn up by businessmen without legal assistance should be construed “fairly and broadly, without being too astute and subtle in finding defects” per Lord Wright in Hillas & Co Ltd v. Arcos Ltd (1932) 147 LT 503 at 514; Australian Broadcasting Commission v. Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109 per Gibbs J.
In my opinion term 6 of the agreement is sufficiently certain to be binding. By it the parties agree that the whole of Seafoods’ debt was to be paid on or before 15 June, 1999. Payment was to be by way of instalments but any partial reduction of the debt by the payment of one or more amounts in the period between 4 May and 15 June, 1999 would satisfy the agreement. The parties contemplated that they may reach agreement on a more regular regime for the payment of instalments, but in the event they did not, the agreement, in the sense I have described, would be effective.
In my opinion there was valuable consideration for the guarantee.
This makes it unnecessary to determine a submission advanced by the respondent that the guarantee took effect as a deed and was effective without consideration. Section 45 of the Property Law Act 1974 provides that:
“(2) An instrument expressed -
(a)to be ... a deed; or
(b)to be sealed;
shall, if it is signed and attested by at least 1 witness not being a party to the instrument, be deemed to be sealed and, subject to section 47, to have been duly executed.”
I have already set out the terms of clause 13 of the guarantee which designates the instrument to be a deed. Similarly clause 12 commences
“Despite any other provision in this Deed ...”
On the third page of the document there is provision for its execution and attestation. Adjacent to the designated places for signature appear the words “SIGNED SEALED AND DELIVERED”.
The guarantee is therefore a deed if it were witnessed by someone not a party to it. The signature of the male applicant was in fact witnessed by Paul Buffey, whose exact relationship with the respondent is uncertain. He described himself as a consultant to the respondent. Mr De Lacey, the respondent’s secretary, described him as “an agent for the respondent ... who liaises between the respondent and [Seafoods]”. The scope of the agency is not more particularly set out. Mr Dimitrakipolous described Mr Buffey as “the representative” of the respondent who had authority to accept Seafoods’ claims for a reduction in price for the eggs delivered because of their defective condition.
I understand that “party” where it is used in section 45(2) of the Property Law Act means someone who by reason of capacity or status is identified with a party to a deed. Given Mr Buffey’s connection with the respondent and the lack of clarity of the nature of the connection I would be reluctant to find on the present materials that he was not sufficiently identified with the respondent as not to be a party for the purposes of the section.
The applicants’ second ground is that it was the intention of the parties, apparent from the terms of the agreement itself, that both applicants would become guarantors. Only Mr Dimitrakipolous has signed. When it is contemplated that two or more guarantors will become parties to the contract but some do not, all are discharged. The principle is stated by Rowlatt on Principal and Surety, 4th edition at p. 182:
“... a surety is not bound if the instrument, when signed by him, is drawn in a form showing himself and another or others as intended joint and several guarantors, and any intended surety does not sign. ... In such cases, the creditor must show that the surety consented to dispense with the execution of the document by the other or others ... The principle is, that the arrangement to which the surety consented to become a party has been left incomplete, and has, in equity, never become binding upon him”.
The consideration which underlines the principle is that sureties are entitled to contribution from each other. If the number of sureties is reduced so is the value of the right to contribution and the obligation which one surety undertook becomes more onerous if there are fewer guarantors to share it.
The principle was discussed in Stramit Industries Limited v. Reinhardt [1985] 1 Qd R 562. Matthews J (with whom Campbell CJ and Carter J agreed) having reviewed the authorities concluded that the question to be addressed when deciding whether a guarantor is to be released from liability by reason of another guarantor not becoming a party to the guarantee is this:
“From the form of the document did the [guarantor] understand that he would be one of two known sureties?”
Matthews J earlier referred to Hansard v. Lethbridge & Ors (1892) 8 TLR 346 in which Lord Esher MR had said:
“This document, on its face, required all the sureties to sign. ... When this document was laid before the defendants, it appeared upon its face that all the directors were to sign. They had a right to insist upon all signing before becoming liable themselves.”
In the same case Fry LJ said
“The knowledge that all the sureties were to sign the document might be communicated to the obligee, either by words or by the form of instrument itself. Here the form of the instrument showed that the intention was that all the directors should sign it and therefore knowledge of that in the obligee must be assumed.”
The applicant submitted that the form of the guarantee here in question showed that there were to be two guarantors. Their counsel referred to the language of a number of the clauses of the guarantee which appear to contemplate a plurality of sureties. The recital which I have set out refers to “we the persons whose names, addresses and descriptions are set forth ... hereby guarantee the payment of the debt”. Most of the clauses refer to the guarantor by the use of plural pronouns. The words “we”, “us”, and “our” abound.
The schedule contains express provision for two guarantors to be named, both of whom are to execute the document in the presence of an attesting witness.
Counsel for the respondent has a complete answer. Clause 14 provides that:
“In consideration of this Guarantee (unless repugnant to the context) the singular shall include the plural, ... and where there is more than one Guarantor the covenants herein expressed shall bind them jointly and severally.”
From this it appears that the guarantee is a standard form document which is to be used indifferently whether the transaction was one in which there was to be one guarantor or more than one. The plural pronouns which might otherwise support the applicants’ submission lose their distinctiveness. There is nothing else in the guarantee document itself which indicates that the respondent had agreed that both applicants should become guarantors.
The written agreement referred to in the consideration clause throws a different light upon the subject. The agreement provided:
“3.Both Christos Dimitrakipolous and Magadalene Dimitrakipolous both directors of [Seafoods] ... will sign a Guarantee and Indemnity.
4.The Guarantee and Indemnity signed by Magadalene Dimitrakipolous will be received by [the respondent] no later than Monday 3rd May 1999.”
It is quite clear from this that the agreement was a tripartite one involving the respondent, Seafoods and Seafoods’ directors, both of whom were to become guarantors.
Does it matter that the instrument of guarantee itself does not make it plain that both applicants were to become guarantors? I think the answer is no. It will be recalled that Fry LJ in Hansard thought that a communication by means other than the instrument of guarantee that “all the sureties were to sign” would be sufficient. In Stramit the court answered the question; “did the guarantor understand from the form of the document that he would be one of two known sureties?” by reference to the credit application, a separate document, which appeared on the obverse side of the paper to that containing the guarantee. The application showed that all the directors of the debtor company were to become guarantors. The guarantee was said to be meaningless without reference to the agreement between debtor and creditor which gave rise to the liability which was to be guaranteed and which specified the parties to the guarantee. From this it would seem to follow that the “form of the guarantee” includes a document with which the guarantee is connected and the terms of which are necessary to render the guarantee complete.
In Marston v. Charles H Griffith & Co Pty Ltd (1985) 3 NSWLR 294, Powell J reformulated the principles found in Rowlatt, op cit. His Honour said (at 300):
“1.if it is a term, whether express or implied, of the arrangements pursuant to which a parol contract of guarantee is executed, that there will be another co-surety ... then, unless the intended surety who has executed the guarantee consents to the other co-surety ... not ... executing the guarantee ... the intended surety never becomes liable under the guarantee ...
2.if a parol contract of guarantee which is executed by an intending surety is drawn in a form showing another or others as intended joint and several sureties, it will be presumed in the absence of acceptable evidence to the contrary, that the execution of that other ... was a condition precedent to the surety who has signed the guarantee becoming liable under it ...”
By “parol contract of guarantee”, his Honour apparently meant a simple contract.
This expression of the principle allows the intention, that there be numerous sureties, to be found in a source other than the instrument of guarantee itself. It must, of course, be a source which on ordinary principles of construction is to be regarded as part of the record of the parties’ transaction.
In this case the intention that both applicants were required to be guarantors appears in the agreement recorded in Mr De Lacey’s letter. This agreement is linked to the guarantee by express reference. It was not necessary for the guarantee to contain the consideration for the guarantors’ promise (section 56(2) of the Property Law Act) but it is necessary to look to the agreement identified to see if there was in fact consideration. When one looks at that agreement it becomes clear that the parties intended that Mr and Mrs Dimitrakipolous would guarantee their company’s debt. The relevant intention sufficiently appears from a document the terms of which are included in the guarantee by specific reference.
It has not been shown that Mr Dimitrakipolous consented to being a guarantor in the event his wife did not. It follows that he is not bound by his execution of the guarantee.
Counsel for the respondent argued that the principle had no application because the material established that Mrs Magadalene Dimitrakipolous was to sign a guarantee separate from the one signed by her husband. It followed that Mr Dimitrakipolous was to be the only signatory to the guarantee he in fact signed so there was no scope for the application of the principle explained in Hansard. This submission appears to mistake form for substance. Had Mrs Dimitrakipolous signed another document of guarantee it would have been a counter-part to that signed by her husband. The promises and obligations made and undertaken by both applicants would have been identical. The guarantee would have been given in respect of the same debt. The guarantors’ liability would have been joint and several. The obligations might have arisen from signatures on different pieces of paper but Mr and Mrs Dimitrakipolous would have become bound by the same contract to the same creditor. When a contract for the sale of property is constituted by the exchange of documents, each signed by one party only, there is one contract, not two.
The applicants raise two other points. One was that the agreement was uncertain because the form of guarantee expressly contemplated two signatories and only one had signed. The identity of an essential term, the name of the co-guarantor, was missing. There is nothing in that point. The agreement contained in Mr De Lacey’s letter, referred to in the guarantee, identifies the intended sureties.
The last point was that when Mr Dimitrakipolous signed the guarantee he did not intend to create a legally binding relationship. This argument could not be satisfactorily resolved on affidavits on a Chamber summons. It would require the resolution of disputed questions of fact. I express no opinion on it.
For the reasons I have identified the applicants are entitled to the declaration and order sought.
I declare that the guarantee dated 30 April, 1999 signed by Christos Dimitrakipolous is unenforceable. I order that caveats 703319106, 703319101 and 703319104 be removed. I order the respondent to pay the applicants’ costs of an incidental to the application to be taxed.
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