The issue considered by the High Court in Ravensdown Fertiliser Co-Operative Ltd v Eveleigh (HC Palmerston North, CIV 2010-454-831, 30 June 2011) was whether a guarantee given by two directors of a company was given solely in their capacity as directors and therefore did not bind them personally. Although the case involved a summary judgment application only, the judgment contains an interesting analysis of the legal principles applicable in determining whether a personal guarantee has been given.

The Court started its analysis with the principle that a guarantee must clearly show that the alleged guarantor is binding himself to repay the sum secured if the principal debtor defaults. Accordingly, the words of the guarantee are paramount, although the Court recognised that the intention of the parties is also relevant. Applying these principles to the guarantee at issue, the Court found that it was clearly signed by the directors in their capacity as directors of and on behalf of the company. In this regard, it was relevant that the guarantee contained the words "I/We the Directors of the Company agree to guarantee […]" and that in signing the guarantee, the defendants had crossed out the words "Partner" and "Trustee" from the attestation clause, leaving the word "Director".

However, the Court noted that as a person is able to sign a contract in a dual capacity, the directors may also have signed in their personal capacities. The directors denied that they had done so, arguing that they had merely signed an acknowledgment, that the wording of the documentation was unclear and should be interpreted in favour of the directors and that the plaintiff failed to draw the attention of the defendants to the guarantee requirement and clause.

In the context of the summary judgment application, the Court was unable to reach a final view. However, it noted that in the present case, the presumption that if a signer of a contract purports to sign on behalf of a company he is signing only in that capacity may very well not be displaced by the confusing wording of the document or any extrinsic evidence.

On that basis, the case was referred to a full trial. In the event that that trial proceeds, a further report will be provided in a later edition of this update.