Graham (James) and Company (Timber) Ltd v Southgate-Sands
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE O'CONNOR,LORD JUSTICE BROWNE-WILKINSON |
| Judgment Date | 18 February 1985 |
| Judgment citation (vLex) | [1985] EWCA Civ J0218-1 |
| Date | 18 February 1985 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 85/0057 |
[1985] EWCA Civ J0218-1
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM DARLINGTON COUNTY COURT
Royal Courts of Justice.
Lord Justice O'Connor
and
Lord Justice Browne-Wilkinson
85/0057
MR. S. LIGHTWING (instructed by Messrs. Church Adams Tatham & Co., Agents for Messrs. Cohen Jackson Scott & Simon Stockton-on-Tees) appeared for the First Defendant (Appellant).
MR. J. BARRY (instructed by Messrs. Latimer Hinks Marsham & Little, County Durham) appeared for the Plaintiff (Respondent).
This is an appeal by the first defendant from a judgment of His Honour Judge Wrightson given in the Darlington County Court on 11th October, 1983, whereby he was ordered to pay to the plaintiffs the sum of £5,522.18 under a guarantee in writing dated 22nd February 1980.
The facts giving rise to this litigation are simple. The plaintiffs supplied timber to a company called Dupaco Cabinets Ltd. The defendants Southgate-Sands, Maher and Whitfield were directors of Dupaco and held most of the shares between them. Early in 1980 Dupaco were in financial difficulties. They owed six suppliers some £30,000,including the plaintiffs who were owed £3,589. Dupaco asked for a moratorium for a year. Mr. Morley of the plaintiffs received the request on 21st February. He spoke to Mr. Maher at once and his contemporary note shows that he agreed to suspend the existing account for twelve months, provided the three directors jointly and severally guaranteed the existing debt with interest at 16%, and that Dupaco agreed to pay the interest quarterly and to pay cash against future orders. This having been agreed, Mr. Morley instructed the plaintiffs' solicitors to prepare the necessary documents and to send them to Dupaco. The solicitors sent the draft documents to Dupaco on 22nd February. The draft guarantee addressed to the plaintiffs was in these terms:
"Dear Sirs,
.
In consideration of your agreeing at our request to refrain from taking proceedings or applying sanctions to recover payment of the debt of £3,589.03, which the above named principal owes you, we jointly and severally guarantee payment of the said sum of £3,589.03 together with interest at a fixed rate of 16% per annum thereon from 1st February, 1980 such interest to be paid quarterly and calculated by quarterly rests. It is agreed that all sums received by you from the above named principal or from the credit of its account after today's date will be first applied by you towards payment of goods delivered after today's date. This guarantee is not to be impaired by any time or indulgence you may grant or by any change in the constitution of your firm. Moreover, our right to be subrogated to you in respect of payments received from, or from the resources of, the principal is not to attach until you have received the full amount of your claim to which this guarantee relates.
Yours faithfully,
D.J. Southgate-Sands
P.J. Maher
B.H. Whitfield"
Mr. Morley asked for the documents on Dupaco letterhead. This was done and on 14th March the plaintiffs received the guarantee apparently signed by all three guarantors. Dupaco's agreement to pay interest and cash was received at the same time.
Unfortunately the rescue operation failed and Dupaco went into liquidation on 3rd October 1980. The plaintiffs applied to the guarantors for payment. After receiving a photocopy of the guarantee, Mr. Whitfield denied that he had signed the document or, indeed, had ever seen it. On 30th October 1980, the plaintiffs issued their writ against the three guarantors. Judgment was signed against Mr. Maher on 16th February in default of appearance. He was adjudicated bankrupt in January, 1983. Before the case came to trial, examination of Mr. Whitfield's questioned signature by handwriting experts, coupled with his affidavit in Order 14 proceedings, made it quite certain that the signature was a forgery and that no one had been authorised to sign on his behalf. The plaintiffs abandoned their claim against him. When the trial began in April 1984 Mr. Southgate-Sands was the only remaining defendant. I shall refer to him as the defendant hereafter.
The trial started on 27th April 1984 and was adjourned to 10th October when the evidence was concluded. Judgment was given on 11th October. By his defence the defendant admitted signing a guarantee in favour of the plaintiffs but asserted that it was a document under seal and not the letter relied upon. Paragraphs 3 and 4 of his defence plead: "3. This defendant further contends that his signature to the said agreement under seal referred to in paragraph 1 above and his consent to indemnify the plaintiff was conditional upon the execution of any form of indemnity or guarantees by all three of the present defendants so as to create in favour of any one signatory a right of contribution against the other two. 4. This defendant further contends that the purported signature B.H. Whitfield on the said letter of 22nd February 1980 is not the signature of the third defendant and in the premises the said letter is void and unenforceable against the first defendant."
By way of reply the plaintiffs pleaded: "2. Further if (which is denied) the defendants made any arrangements amongst themselves as to any conditions precedent to the said guarantee or as to contribution whether as alleged by the first defendant or at all the plaintiffs were not party to the same and were: not given notice of the same and the plaintiffs rights against the defendants severally are unaffected thereby."
At the trial the defendant accepted that he had signed the letter. Once it was accepted that Mr. Whitfield never signed the guarantee there were two issues for trial: did the failure of Mr. Whitfield to sign nullify the agreement in law, or did it give the defendant an equitable defence on the ground that he was deprived of his right to contribution against the missing guarantor? Unfortunately, it seems that the learned judge did not appreciate that these were the issues for trial, although we are told he was referred to the leading case of Evans v. Bremridge. After setting out the evidence at great length, and making no finding of fact, the learned judge concluded his judgment in three paragraphs: "Now this case turns very largely upon the construction of this contract and I have received great help from both counsel in the case in regard to the law which must be applied by the court. In the paragraphs in Chitty on Contracts which dealt with the construction of the contract namely paragraph 4425, it is stated as follows: 'Difficult questions frequently arise as to the extent of the liability which the surety has undertaken. These are essentially questions as to the true construction of the contract in each particular case, and it is sufficient here to indicate the general approach of the courts to these questions and to draw attention to some principal types of difficulty which have arisen. Despite some contradictory dicta in the cases the general approach seems to be that Contracts of this kind must be strictly construed in favour of the surety and that no liability is to be imposed on him which is not clearly and distinctly covered by the contract. The reasons for this strict construction are that in general the surety receives no benefit from the Contract.' My conclusion is that in this particular case there was a very real benefit to the sureties namely the forebearance of the creditor. They were not sued for their debt, they were given the opportunity of carrying on business with the Plaintiff Company. Accordingly in this particular case it is not necessary in my judgment that this particular contract should be strictly construed. In paragraph 4425 it is stated: 'All cases of construction. The Court is entitled to look to the surrounding circumstances in order to see what was the subject matter which the parties had in contemplation at the time the Contract was made and to determine the scope and object of the Guarantee.'
"Now in this particular case the Court does look at the surrounding circumstances in and that which the parties had in contemplation at the time the contract was made. Having listened with great care to all the evidence in the case and having given very serious consideration to it, I have come to the conclusion that what the parties had contemplated was the making of a guarantee in the terms in which the fact it was made.
"The Plaintiff Company was prepared to accept the Guarantee and 2 of the Directors were prepared to accept the offer and they put their signatures to this written Guarantee at a time when they each of them knew precisely what was involved. In particular they both knew what was involved in this: 'We jointly and severally guarantee payment of the debt.' They were each prepared, both jointly and severally to guarantee at the time that they each signed it. There is a problem over the signature of Mr. Whitfield. The plaintiffs have conceded that it is not his signature which appears on this document. They have not pursued the case against him but in my judgment it would be wholly inequitable for the other 2 Directors who knowingly signed this document, knowing the implications of it, to be relieved of their obligations under it. On the strength of the Guarantee, the Plaintiff Company could expect payment from either Mr. Southgate-Sands or Mr. Maher together or each jointly and severally and in my judgment it would be wholly wrong and inequitable to deny the Plaintiffs the money which is clearly...
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