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New Guinea Company Ltd v Thomason [1978] PNGLR 33 (3 February 1978)

Papua New Guinea Law Reports - 1978

[1978] PNGLR 33 - New Guinea Company Ltd v Kenneth George Thomason 

[1978] PNGLR 33

N149

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

NEW GUINEA COMPANY LIMITED

V

KENNETH GEORGE THOMASON

Waigani

Saldanha J

5 December 1975

8 December 1975

19 December 1975

23 December 1975

5 September 1977

3 February 1978

INTERPRETATION OF INSTRUMENTS - Admissibility of extrinsic evidence - Guarantee - Separate agreement for supply of goods on credit - Intention of parties and guarantee clear - Extrinsic evidence not admissible - Agreement not to be read into guarantee.

Where in a written guarantee, the intention of the parties has been reduced to writing, extrinsic evidence to show that intention or to vary or add to the terms of the guarantee will not be allowed.

Held

Accordingly, that where an agreement for the supply of goods on credit was quite separate and distinct from a guarantee “for all goods” supplied on credit, although signed by the same parties, and where there was no reference in the guarantee to the agreement, the intention of the parties was clear and the agreement could not be read into the guarantee.

Action

This was an action for the price of goods sold and delivered by the plaintiff to a social club, of which the defendant was Chairman of the Management Committee, and in relation to which the defendant had signed a guarantee.

Counsel

R. H. B. Wood, for the plaintiff.

M. J Wright, for the defendant.

Cur. adv. vult.

3 February 1978

SALDANHA J: The plaintiff is a company duly incorporated under the Companies Act, trading as Carpenters. The defendant is an accountant employed in the Auditor-General’s Department. He was Chairman of the Management Committee of Pagini Club Inc., a social club of which one Hila Morea was President.

The club sold alcoholic drinks, light refreshments, cigarettes, etc. to its members and wanted to buy these goods on credit. The plaintiff company sold such goods and provided credit facilities. On 3rd August, 1973 the club made an application for credit facilities by completing a cyclostyled form headed “Company Application for Credit Account”.

Among others it contained the following particulars:

Principal Officers: Hila Morea

President

Kenneth George Thomason

Chairman, Management Committee

Authority to Operate: Either of the above officers

Credit limit required: $250 per month maximum

Additional Particulars: Note: Only either of the above named officers + signatures to operate on account (sic)

It was signed by Hila Morea and K. G. Thomason on behalf of the Pagini Club Inc. Counsel for the defendant maintained that this constituted an agreement between the plaintiff company and the club and counsel for the plaintiff appeared to agree albeit I am not sure that he agreed that the terms of this document had the legal effect which counsel for the defendant sought to give them. Counsel for the plaintiff company did not bother a great deal about the legal effect of the agreement because it was his contention throughout that the guarantee was to be construed as a document on its own and not by reference to the agreement. This guarantee under seal guaranteeing the debt contracted by the club in respect of goods supplied to it by the plaintiff was signed by the defendant and Morea on the same day.

Until the end of April 1973 the club duly paid for the goods ordered and supplied on credit, but after this, although goods continued to be ordered and supplied each month, the payments ceased. No payments were made in May, June, July, August and September. By the end of September the club owed $1,586.63. The plaintiff stopped supplying any more goods. The club paid $100 in December 1973. On 7th May, 1975 the plaintiff sued the defendant on the deed of guarantee claiming $1,486.63, this being the amount owing by the club.

The defence is summarized in par. 5 of the defendant’s amended defence, which reads:

“If the plaintiff sold and delivered goods to the Pagini Club Inc. as alleged in the Statement of Claim (which is denied) then the Defendant says that such sale and delivery was in breach of the terms of agreement between the Plaintiff and the Defendant in that:

(i)       such sale and delivery was not at the request of the Defendant or the said Hila Morea, and

(ii)      goods were supplied on credit by the Plaintiff to a value in excess of two hundred and fifty kina (K250.00) as agreed.”

In the course of the hearing it was conceded by counsel for the defendant that the value of the goods supplied to the club by the plaintiff on credit and not paid for was $1,081.20. This concession was made without prejudice to his contention that the defendant would be liable only if goods worth not more than $250.00 were supplied per month and those goods had been ordered by either the defendant or Morea. Counsel for the plaintiff, who had difficulty in proving that goods of the value claimed had been supplied, has abandoned his claim for the balance.

The point at issue between the parties is a very simple one. The plaintiff maintains that in order to ascertain whether the defendant is liable on the guarantee, and if so, to what extent, one must look only at the deed of guarantee and nothing else. He is relying on the law regarding the construction of written documents to the effect that where the intention of the parties has been reduced to writing extrinsic evidence to show that intention or to contradict, vary or add to the terms of the document will not be allowed. The defendant on the other hand maintains that in order to ascertain what was agreed to between the parties one must look not only at the deed of guarantee but also at the agreement between the club and the plaintiff. He says that the deed of guarantee and the agreement were both signed on the same day and the defendant and Hila Morea were signatories to both documents. He says further that from a perusal of the deed of guarantee it is clear that the agreement forms a part of the guarantee and must be read with the guarantee in order to ascertain the intention of the parties. He contends that as the plaintiff company supplied goods in excess of the value of $250.00 per month and supplied them when they were ordered by persons other than Thomason or Hila Morea the defendant is not liable on the guarantee.

The law relating to the admission of extrinsic evidence to vary or add to a document is stated in Halsbury’s Laws of England, 3rd ed., vol. 11 at p. 396 as follows:

“Where the intention of the parties has been reduced to writing it is, in general, not permissible to adduce extrinsic evidence, whether oral or contained in writings such as instructions, drafts, articles, conditions of sale or preliminary agreements, either to show that intention, or to contradict, vary, or add to the terms of the document. This principle applied to words, arbitrators’ awards, bills of exchange and promissory notes, bills of lading and charterparties, descriptions of boundaries, guarantees, leases, contracts for the sale of goods, and wills. ... Extrinsic evidence cannot be received in order to prove the object with which a document was executed; or that the intention of the parties was other than that appearing on the face of the instrument.”

Now the relevant parts of cl. 1 and cl. 2 of the deed of guarantee provide as follows:

“1.      That I will at all times be answerable and responsible to you for the due payment by the said The Pagini Club Inc. for all goods as you may from time to time at its request supply to it on credit ...

2.       That this Agreement by me shall be a continuing guarantee to you for the whole debt that shall be contracted by the said The Pagini Club Inc. with you in respect of goods supplied to it as aforesaid.”

Applying the abovementioned principles of the law regarding the interpretation of written documents it is clear that as the intention of the parties has been reduced to writing extrinsic evidence to show that intention or to contradict vary or add to the terms of the document will not be allowed. In cl. 1 of the agreement the defendant has made himself answerable and responsible for all goods supplied to the Pagini Club on credit and in cl. 2 he has guaranteed the whole debt (emphasis mine).

The agreement between the plaintiff and the Pagini Club for the supply of goods on credit is quite separate and distinct from the guarantee between the plaintiff and the defendant. The fact that the defendant and Morea signed both documents is purely a coincidence. They signed the agreement as officers of the club but they signed the guarantee purely because they happened to be acceptable as guarantors. The guarantors could have been some other persons. Even if the defendant thought that as the agreement provided for a credit limit of $250.00 per month his guarantee was limited to that amount — but I do not necessarily make such a finding — his mistake does not affect the situation at law, which is that on a correct interpretation he is answerable and responsible for all goods supplied on credit and that he guaranteed the whole debt.

If the parties had sought to make the guarantee subject to the agreement this could have been done easily by referring to the agreement in the guarantee or vice versa or possibly by cross-reference in both documents in clear and unequivocal language. But such is not the case here. I find that the agreement cannot be read into the guarantee.

“In case of ambiguity when all other rules of construction fail, the rule expressed by the maxim verba chartarum fortius accipiuntur contra proferentes is applicable, as much to guarantees as to other contracts”. (Halsbury’s Laws of England 3rd ed., vol. 18, p. 441). But I find no ambiguity. To me the intention of the parties is clear and unambiguous.

I am not at all sure that the legal effect of the words in the application form “Credit limit required: $250 per month maximum” is that the club was not to be held liable if the plaintiff company supplied goods in excess of the value of $250.00 per month. But I shall assume for the moment that the words do have this legal effect, that the application once accepted became a binding agreement and that the guarantee is to be read as subject to the agreement.

[His Honour then concluded that on the evidence even if the assumption made was correct that the defendant was liable in equity because of the course of conduct.]

I give judgment for the plaintiff company in the sum of $1,081.20 with taxed costs.

Judgment accordingly.

Solicitor for the plaintiff: McCubbery Train Love & Thomas.

Solicitor for the defendant: Craig Kirke & Wright.