BACKGROUND

A fruit and vegetable supplier supplied the defendants’ company with fruit and vegetables over a number of years.  The defendants, who were brothers, were the directors of the company to whom the fruit and vegetables were supplied.

The company fell behind in its payments to the fruit and vegetable supplier.  A guarantee was provided by the brothers in order to secure the payment of debts owed by their company and ensure further supply.

The company subsequently went into liquidation owing the fruit and vegetable supplier over $680,000.

The fruit and vegetable supplier sought to rely on the guarantee given by the brothers in order to recover the amount owed to it.  The brothers denied liability.

At trial, it was found that the signature on the guarantee which supposedly belonged to the first brother was in fact a forgery.   The second brother argued that because the first brother’s signature was forged, the guarantee could not be enforced against him as it was always intended that both brothers would be bound.

DECISION

In rejecting the second brother’s arguments, the Court held that:

  • There was no absolute rule that a guarantor will never have any liability under a guarantee if it was intended that one or more co-guarantors would execute guarantees, and that did not occur.
  • The express terms of the guarantee can displace the proposition that all guarantors must sign in order for any to be bound. 
  • In this case, the guarantee contained a provision that:

“Each Guarantor executing this Deed agrees that the liability of such Guarantor is not contingent upon the execution of this or any other guarantee by any other Guarantor…”

  • There was no reason not to give that provision its ordinary literal meaning and accordingly, the second brother was liable under the guarantee.

COMMENT

This decision demonstrates the importance of including express terms in a contract of guarantee which provide that one guarantor’s execution of the document is not contingent on execution by any other guarantor – particularly in the context of fraud.