Valassis v Valverde

The New South Wales Court of Appeal considered a dispute between Valassis and Valverde concerning the enforceability of a guarantee. The central issue was whether the guarantor, Valverde, was bound by a guarantee given in favour of Valassis, despite allegations that the guarantee was procured by misleading or deceptive conduct.

The Court was required to determine whether the conduct of Valassis in obtaining the guarantee amounted to misleading or deceptive conduct in contravention of section 52 of the Trade Practices Act 1974 (Cth). Further, the Court had to consider whether, if such conduct was established, it rendered the guarantee void or unenforceable, and whether Valverde had affirmed the guarantee after becoming aware of the alleged misleading conduct.

The Court found that Valassis had engaged in misleading or deceptive conduct by representing that the principal debtor had a certain level of financial capacity, which was not true. However, the Court held that Valverde had subsequently affirmed the guarantee after gaining knowledge of the true financial position of the principal debtor. This affirmation, the Court reasoned, meant that Valverde could not rely on the misleading conduct as a defence to the enforcement of the guarantee. The legal principle applied was that a party who affirms a contract or guarantee after becoming aware of misleading conduct may be precluded from later seeking to set it aside on that basis.

Consequently, the Court of Appeal ordered that the appeal be dismissed and that Valverde was liable under the guarantee.