IN THE SUPREME COURT OF SAMOA
HELD AT APIA

BETWEEN:

SAMOA COMMERCIAL BANK LIMITED a duly incorporated company having its registered office at Apia.
Plaintiff

AND:

PALM ISLAND TRADERS a duly incorporated company having its registered office at Matautu-uta.
First Defendant

AND:

FAGA MATAUTIA aka FANOLUA MATAUTIA of Vaivase-tai, General Manager.
Second Defendant

Counsel: S K Ainuu for plaintiff
H Hoglund for first and second defendants

Hearing: 8 October 2008

Submissions: 15 October 2008

Judgment: 13 February 2009 

JUDGMENT BY SAPOLU CJ

Introduction

1.	In this case, the plaintiff is the Samoa Commercial Bank (the SCB); the first defendant is the Palm Island Traders (PIT) which is a private company; and the third defendant is the general manager of PIT.

2.	By agreement between both counsel in this case, these proceedings were restricted to the validity or otherwise of the two personal guarantees executed by the second defendant to secure the overdraft facilities granted by the SCB to PIT.

Background 

3.	On 26 March 2004, the SCB approved an overdraft facility for $20,000 which was requested by PIT to support its working capital. This overdraft facility was for a term of three months. The interest charged by SCB was 12% pa. The agreement made between the SCB and PIT with regard to this overdraft facility was signed by the second defendant on behalf of PIT.

4.	The only security required by the SCB from PIT was a chattels mortgage over a Double Cab Suzuki vehicle.

5.	On 18 May 2004, the SCB approved a second overdraft facility for $20,000 which was requested by PIT to support personal commitments. This overdraft facility was also for a term of three months with interest at 12%. The agreement made between the SCB and PIT for this overdraft facility was also signed by the second defendant on behalf of PIT.

6.	There was no security required for this overdraft facility.

7.	I should say here that I am not able to accept the oral testimony given by the SCB manager commercial and corporate lending that the overdraft facility of 18 May 2004 was not a new overdraft facility but an extension of the overdraft facility that was granted to PIT on 26 March 2004. The documentary evidence for the SCB shows that the overdraft facility of 18 May 2004 was a separate overdraft facility from the one that was granted on 26 March 2004.

8.	On 1 December 2004, the SCB approved a third overdraft facility for $20,000 requ3sted by PIT to pay its overdue overseas accounts. Again this overdraft facility was for a term of three months at the interest rate of 12% pa. The agreement made between the SCB and PIT for this overdraft facility was also signed by the second defendant on behalf of PIT.

9.	The security required from PIT under the agreement for this overdraft facility was a chattels mortgage over a vehicle.

10.	According to the SCB, PIT defaulted on all three overdraft facilities. So on 18 May 2005, the first and the second overdraft facilities which were granted on 26 March 2008 and 18 May 2004 respectively were converted into a term loan. The third overdraft facility granted on 1 December 2004 was extended from three months to six months. The agreement made between the SCB and PIT for this arrangement was also signed by the second defendant on behalf of PIT. This agreement has not been made an issue in these proceedings.

11.	The total indebtedness of PIT at that time was $66,050. I presume this amount included interest and bank fees.

12	The securities for this new arrangement was a personal guarantee by the second defendant and a chattels mortgage over a vehicle. This personal guarantee, as it appears from the evidence, was not executed by the second defendant and it is not in issue in these proceedings.

13.	On 15 June 2005, the SCB granted a fourth overdraft facility for $15,000 requested by PIT to support its working capital. The term of this overdraft facility was six months at the interest rate of 12% pa.

14.	The SCB manager commercial and corporate lending said in evidence that the second defendant offered his personal guarantee as security for this overdraft facility. This guarantee is one of the two personal guarantees by the second defendant which are in issue in these proceedings. According to the oral testimony given by the SCB manager commercial and corporate lending, this agreement was also signed by the second defendant on behalf of PIT. The second defendant did not give evidence. Above the signature said to be that of the second defendant are the words: "We acknowledge receipt of your letter and confirm our acceptance of the terms and conditions."

15.	What happened, according to the evidence given by the SCB manager commercial and corporate lending, was that this fourth overdraft facility for $15,000 was approved on 15 June 2005 and the total funds were released to the second defendant on behalf of PIT at the same time without the second defendant signing any guarantee. The reason given for this is that there was no guarantee ready for the second defendant to sign at that time but there was urgency in the request for an overdraft facility to support PIT’s working capital. So the second defendant was asked to come back at a later date to sign his personal guarantee.

16.	The SCB manager commercial and corporate lending further testified that this was contrary to the bank’s normal practice and procedure that no funds are to be released unless a guarantee which is required as security for a loan or overdraft facility has been executed. In fact one of the special conditions of the fourth overdraft facility agreement provides that no part of the facility will be made available until all the Bank’s security documentation is completed in a form satisfactory to the Bank.

17.	The second defendant, however, did not return to sign the guarantee. PIT then defaulted on the overdraft facility at the end of six months which was the term of the facility. The SCB then started to chase up the second defendant with phone calls to come and sign his personal guarantee. Eventually, the second defendant signed his guarantee on 24 February 2006 some eight months after the fourth overdraft facility was approved and the funds released to him on behalf of PIT on 15 June 2005.

18.	The relevant parts of this guarantee read as follows:

"IN CONSIDERATION of the SAMOA COMMERCIAL BANK LIMITED (hereinafter called ‘the Bank’) accepting and acting on this guarantee and of all or any advances or other banking accommodation now or at any time hereafter made or afforded by the Bank (whether by way of overdraft or otherwise howsoever) to PALM ISLAND TRADERS (hereinafter called ‘the Principal Debtor’) … the undersigned FANOLUA MATAUTIA (hereinafter called ‘the Guarantor’) HEREBY GUARANTEES AND AGREE with the Bank as follows:"

19.	Clause 1 of the guarantee then provides:

"1. The Guarantor HEREBY GUARANTEES payment to the Bank on demand…of all sums of money whatsoever in which the Principal Debtor…now is or may at any time become indebted or liable directly or contingently to the Bank"

20.	There was no further overdraft facility granted by the SCB to PIT after the fourth overdraft facility as PIT was in default on all its overdraft facilities. There is no evidence that PIT ever made any payment towards any of its overdrafts

21.	On 19 April 2007, the SCB and PIT signed a loan agreement which consolidated all of its overdrafts facilities and other debts of PIT for a term of 36 months. This loan agreement was also signed by the second defendant on behalf of PIT. Above the signature of the second defendant are the words: "I/We acknowledge receipt of your letter and confirm our acceptance of the terms and conditions herein".

22.	Even though the second defendant is shown as borrower in this loan agreement, counsel proceeded on the basis that the true borrower is PIT and the second defendant is the guarantor.

23.	The second defendant at the same time he signed the loan agreement, also signed a personal guarantee for the sum of $100,000 as security for the consolidated loan. This is the second of the second defendant’s personal guarantees which are in issue in these proceedings.

24.	In so far as relevant, this second guarantee also reads as follows:

"IN CONSIDERATION of SAMOA COMMERCIAL BANK LIMITED (hereafter called ‘the Bank’) accepting and acting on this guarantee and of all or any advances or other banking accommodation now or at any time hereafter made or afforded by the Bank (whether by way of overdraft or otherwise howsoever) to PALM ISLAND TRADERS (hereinafter called ‘the Principal Debtor’) … the undersigned FANOLUA MATAUTIA (hereinafter called ‘the Guarantor’) HEREBY GUARANTEES AND AGREE with the Bank as follows:"

25.	Clause 1 of the guarantee then provides:

"The Guarantor HEREBY GUARANTEES payment to the Bank on demand…of all sums of money whatsoever in which the Principal Debtor…now is or may at any time become indebted or liable directly or contingently to the Bank". 

26.	The two personal guarantees by the second defendant are apparently in standard form and are substantially identical in wording.

27.	No further overdraft facility was granted to PIT after this restructuring of its indebtedness to the SCB.

28.	In spite of what is expressly provided in the second guarantee, when the SCB manager commercial and corporate lending was asked by the Court as to what was the consideration for the second guarantee, she replied PIT had not paid its debts for a while and it was in default status. The SCB therefore wanted to consolidate PIT’s debts so that it would not be in default status and be able to afford to pay its debts. In other words, as the SCB manager commercial and corporate lending put it, the new arrangement would make it affordable for PIT to pay its indebtedness to the Bank and to take PIT out of its default status.

29.	Furthermore, in response to questions from counsel for the SCB, the manager commercial and corporate lending said that if the overdraft facilities and other financial obligations of PIT had not been consolidated, the SCB would have pursued legal action against PIT for its indebtedness.

Submissions by counsel for the plaintiff

30.	Counsel for the plaintiff SCB submitted that the first personal guarantee executed by the second defendant to secure the fourth overdraft facility for $15,000 granted by the SCB to PIT is valid even though that personal guarantee was executed eight months after the overdraft facility was granted. The reason for this, according to counsel for the plaintiff, is because the second defendant had agreed at the time he signed the overdraft facility agreement on behalf of PIT and the funds were released to him on behalf of PIT, that he was required to execute a personal guarantee as security for that overdraft facility. He also agreed to sign a personal guarantee but because of the urgency of the request for an overdraft facility and the fact that the personal guarantee was not ready for signing at that time, the second defendant was required to come back at a later date to sign the guarantee. This he did not do until eight months later when PIT was already in default on the overdraft facility.

31.	In respect of the second personal guarantee, counsel for the plaintiff submitted that in law forbearance to sue may provide sufficient consideration for a contract of guarantee. He then submitted that the SCB had agreed to forbear from taking legal action against PIT in return for the new term loan agreement supported by a personal guarantee from the second agreement. That personal guarantee was executed by the second defendant at the same time he executed the new term loan agreement on behalf of PIT.

Submissions by counsel for the defendants 

32.	Counsel for the defendants submitted that the two personal guarantees which were executed by the second defendant were made without consideration. Both guarantees are therefore not binding on the second defendant. The plaintiff’s action must therefore fail.

33.	There are two grounds advanced by counsel for the defendants in support of his submission that there was no consideration to support the two guarantees.

34.	The first is that the two guarantees are based on past consideration which is insufficient to support a contract and the two guarantees are contracts. Counsel for the defendants elaborated on this in relation to the first guarantee by saying that the overdraft facility to which the first guarantee relates was approved and released on 15 June 2005 but the first guarantee was not executed until 24 February 2006 which was eight months later. So the first guarantee was executed in relation to the approval and disbursement of an overdraft facility which had taken place eight months before on 15 June 2005. This is past consideration which is no consideration at all.

35.	In relation to the second guarantee, counsel for the defendants elaborated that this guarantee was executed by the second defendant on 17 April 2007 in relation to the four overdraft facilities which were granted to PIT on 26 March 2004, 18 May 2004, 1 December 2004 and 15 June 2005. All these overdraft facilities had been approved and fully disbursed. So the second guarantee was executed in relation to past consideration which is no consideration at all.

36.	The second ground advanced by counsel for the defendants in support of his submission is that the wording of the two guarantees refers to any advances or other banking accommodation "now or at any time hereafter made or afforded by the Bank…to Palm Island Traders". This wording would include an overdraft facility granted at the time of the execution of the guarantee or at a future time. It does not relate to a past overdraft facility. However, the SCB is in effect saying that these guarantees were executed as security for past overdrafts consolidated into a term loan which is inconsistent with the wording of the two guarantees. 

Relevant law

37.	I will set out what I conceive to be the legal principles that are relevant to the facts of this case.

(a)	Past consideration

38.	It is a well-established principle of contract law that past consideration is no consideration. It follows that a guarantee given simply for past consideration will fail: See, for example, The Modern Contract of Guarantee (1992) 2nd ed by Phillips and O’Donovan at p.55.

39.	However, there are exceptions to the principle that past consideration is no consideration. For example, in Pao On v Lau Yiu [1979] 3 AII ER 65, Lord Scarman in delivering the judgment of the Privy Council stated at p.74: 

"An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. The act must have been done at the promisor’s request, the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit, and payment or the conferment of a benefit, must have been legally enforceable had it been promised in advance".

40.	Lord Scarman then went on to refer to Re Casey’s Patents, Stewart v Casey(1892) 1 Ch 104, at 115-116 by saying:

"The modern statement of the law is in the judgment of Bowen LJ in Re Casey’s Patents, Stewart v Casey (1892) 1 Ch 104 at 115-116. Bowen LJ said:

"‘Even if it were true, as some scientific students of law believe, that a past service cannot support a future promise, you must look at the document and see if the promise cannot receive a proper effect in some other way. Now, the fact of a past service raises an implication that at the time it was rendered it was to be paid for, and, if it was a service which was to be paid, when you get in the subsequent document a promise to pay, that promise may be treated either as an admission which evidences or as a positive bargain which fixes the amount of the reasonable remuneration on the faith of which the service was originally tendered. So that here for past services there is ample justification for the promise to give the third share"

41.	In Chitty on Contracts 25th ed, the learned authors state at para 165:

"Past act done at promisor’s request. Even an act done before the giving of a promise to make a payment can be consideration for the promise when three conditions are satisfied. First, the act must have been done at the request of the promisor; secondly, it must have been understood that payment would be made; and thirdly, the payment, if it had been made promised in advance, must have been legally recoverable".

42.	In Chitty on Contract 24th ed, it is stated at para 152:

"When consideration is past. In determining whether consideration is past, the Courts are not, it is submitted, bound to apply a strictly chronological test. If the giving of the consideration and the making of the promise are substantially one transaction, the order in which these events occur is not decisive. A manufacturer’s ‘guarantee’ is sometimes given to a customer after he has bought the goods. But is submitted that the consideration for these guarantees is not merely on that ground, past, for the sale and the giving of the ‘guarantee’ will often in substance be a single transaction".

(b)	Principles of contractual interpretation

43.	The modern principles to be applied to the interpretation of contractual documents have been stated in two recent decisions of the House of Lords.

44.	In Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, Lord Steyn stated at pp 770-771:

"Since then [Hankey v Clavering [1942] 2 KB 326] there has been a shift from strict construction of commercial instruments to what is sometimes called purposive construction of such documents…It is better to speak of a shift towards commercial interpretation. About the fact of the change in approach to construction there is no doubt. One illustration will be sufficient. In Antaios Compania Naviera S.A. v Salen Rederierna A.B. [1985] AC 191, 201 D, Lord Diplock in a speech concurred in by his fellow Law Lords observed that:

" ‘…if a detailed semantic and syntactical analysis of a word in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense’.

"In determining the meaning of a commercial contract, and unilateral contractual notices, the law therefore generally favours a commercially sensible construction. The reason for this approach is that a commercial construction is more likely to give effect to the intention of the parties. Words are therefore interpreted in the way in which a reasonable commercial person would construe them. And the standard of the reasonable commercial person is hostile to technical interpretation and undue emphasis on niceties of language. In contradistinction to this modern approach, Lord Greene’s judgment in Hankey v Clavering is rigid and formalistic".

45.	In Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 A11 ER 94, Lord Hoffman said at pp 114-115:

"[I] think I should preface my explanation of my reasons with some general remarks about the principles by which contractual documents are nowadays construed. I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v Simmonds [1971] 3 A11 ER 237 at 240-242…and Reardon Smith Line Ltd v Hansen-Tanyan, Hansen Tangen v Sanks Steamship Co [1976] 3 A11 ER 570…, is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by Judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of ‘legal’ interpretation has been discarded. The principles may be summarised as follows:

"(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

"(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

"(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

"(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax (see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 3 A11 ER 352, [1997] 2 WLR 945).

"(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly informal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Cia Naviera SA v Salen Rederierna AB, The Antaios at 233, [1985] AC 191 at 201:

"…if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense".

46.	See, however, the comments of Staughton LJ in Scottish Power plc v Britoli (Exploration) Ltd [1997] EWCA 2752 about the use of surrounding circumstances, background and matrix for the purpose of contractual interpretation.

(c)	Extrinsic evidence in contractual interpretation

47.	Under the parol evidence rule, extrinsic evidence is not admissible to ‘add to, vary or contradict’ the language of a written contract. However, there are a number of exceptions to the rule: see Cheshire & Fifoot Law of Contract (1992) 6th Australian ed at pp 190-199; Law of Contract in New Zealand (1997) pp 161-166.

48.	It is now clear from the judgment of Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 A11 ER 98 that extrinsic evidence of background and surrounding circumstances is admissible for the purpose of construing a contractual document. The exception is extrinsic evidence of previous negotiations of the parties and their declarations of subjective intent which are only admissible in an action for rectification.

49.	The approach to contractual interpretation in Investors Compensation Scheme has also been adopted in New Zealand in Boat Park Ltd v Hutchinson [1999] 2 NZLR 74.

Discussion

(a)	The first guarantee 

50.	As it appears from the uncontested evidence of the SCB manager commercial and corporate lending, PIT requested from the SCB a further overdraft facility for $15,000 in June 2005 to support its working capital. This was after three previous overdraft facilities granted by the SCB to PIT. It also appears from the evidence that it was the second defendant who was dealing with the SCB, on behalf of PIT, in respect of all the overdraft facilities.

51.	The second defendant, who is the general manager of PIT, offered his personal guarantee as security for this fourth overdraft facility. An agreement was then executed between the SCB and PIT on 15 June 2005 for this facility. It shows a personal guarantee by the second defendant as the sole security for the overdraft facility. This means that the SCB must have accepted the second defendant’s offer of his own personal guarantee as the security for the overdraft facility.

52.	One of the special conditions of the agreement was that no part of the facility was to be released until all the SCB’s security documentation had been completed. However, contrary to that special condition, the SCB released funds up to the limit of the facility to the second defendant on behalf of PIT on the same date, 15 June 2005, that the agreement was executed. This was notwithstanding the fact that the second defendant had not executed a written guarantee at that time.

53.	When the SCB manager commercial and corporate lending was questioned about this, she said that there was urgency in PIT’s request for an overdraft facility to support its working capital. However, there was no guarantee ready at that time for the second defendant to sign. So the facility was released to the second defendant but he was asked to come back later to sign his personal guarantee. The second defendant never did until eight months later when PIT was in default on the facility and the SCB was chasing up the second defendant to come and sign his personal guarantee. It was then on 24 February 2006 that the second defendant signed his personal guarantee.

54.	It would seem from the evidence that given the fact that the second defendant is the general manager of PIT and his involvement in all four overdraft facilities granted by the SCB to PIT, it was the second defendant who requested all four overdraft facilities from the SCB. It would also seem in relation to the fourth overdraft facility that the SCB might not have granted that overdraft facility if the second defendant had not offered to give a personal guarantee of his own as security. However, due to the urgency of the request made by the second defendant for an overdraft facility to support PIT’s working capital, the facility was released to the second defendant even though no guarantee was ready at that time for the second defendant to sign. That was done on the basis that the second defendant was to return later to sign his personal guarantee. This he never did until eight months later upon being chased up by the SCB to come and sign the guarantee. The second defendant is now claiming, through his counsel, that because he signed the guarantee eight months after the facility was released to him the guarantee is not binding on him as it was given for past consideration which is no consideration at all.

55.	Applying the approach stated by Lord Scarman in Pao On v Lau Yiu [1979] 3 A11 ER 65, 74, which is a modern application and extension of the principle stated by Bowen LJ in Re Casey’s Patents, Stewart v Casey (1892) 1 Ch 104, 115-116, I am of the view that the second defendant’s personal guarantee is binding on him and legally enforceable against him.

56.	In the first place, the overdraft facility that was granted by the SCB to PIT under the agreement executed between the SCB and PIT was at the request of the second defendant, the general manager of PIT. Secondly, the parties understood at the time the agreement was executed that the overdraft facility granted to PIT was to be compensated for by the benefit of the personal guarantee offered by the second defendant against any default by PIT under the overdraft facility. And, thirdly, such a personal guarantee would be legally enforceable. So all the three features of the approach in Pao On v Lau Yiu are, in my view, present in this case.

57.	Perhaps, I should note here that estoppel was not raised as an issue on the facts of this case. I say this because of the on-going developments in the doctrine of estoppel.

58.	However, if I am mistaken in the view that I have taken on the first guarantee, the position of the SCB is still protected under the second guarantee by the second defendant.

(b)	The second guarantee

59.	As already explained, the SCB granted four overdraft facilities to PIT upon request by PIT. PIT defaulted on all these overdraft facilities. There is no evidence that PIT ever made any payment towards its overdraft facilities.

60.	So on 19 April 2007, the SCB and PIT entered into a term loan agreement which consolidated all of PIT’s overdraft facilities and other debts. This loan agreement was signed by the second defendant on behalf of PIT. As explained by the SCB manager commercial and corporate lending, the purpose of this new arrangement was to make it affordable for PIT to pay its indebtedness to the SCB and to take PIT out of its default status. By consolidating all of PIT’s overdrafts and other debts, PIT had only one debt to pay instead of several debts which it was not able to pay. This is the term loan under the new agreement. 

61.	In my view, the consolidated loan agreement which was an amalgamation of all PIT’s indebtedness to the SCB was a new and separate contractual arrangement to replace previous contractual arrangements between the SCB and PIT. This consolidated loan agreement was executed contemporaneously with a personal guarantee by the second defendant as security for the consolidated loan agreement for the sum of $100, 000.

62.	With respect to counsel for the defendants who is one of the more industrious members of the Samoan bar as it is also obvious in this case, I do not agree that this second guarantee by the second defendant related to the past overdraft facilities so as to make it based on past consideration and therefore unenforceable. The second guarantee relates to the new consolidated loan agreement which is separate from past contractual arrangements between the SCB and PIT. It follows that the said guarantee is not based on past consideration.

63.	In relation to the interpretation of the second guarantee, the modern approach to contractual interpretation is explained by Lord Steyn in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, 770-771 and by Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998], All ER 94, 114-115. Applying the modern approach to the relevant matrix of fact in this case which consists of the background and surrounding circumstances in which the consolidated loan agreement was entered into by the SCB and PIT, the real consideration from the SCB for the guarantee by the second defendant was the conclusion of a consolidated loan agreement which makes it affordable for PIT to pay its indebtedness to the SCB and takes PIT out of its default status. This would, in my view, be the meaning of the guarantee conveyed to a reasonable commercial person having all the background knowledge which would reasonably have been available to the parties in the circumstances they were in at the time the guarantee was executed: Investors Compensation Scheme per Lord Hoffman. 

64.	In any event, the expressed words of the guarantee do cover the situation in this case. The opening words of the guarantee provide, inter alia, that in consideration of any "banking accommodation" made or afforded "now or at any time hereafter" by the SCB to PIT, the second defendant as guarantor agrees to guarantee payment by PIT to the SCB.

65.	The consolidated loan agreement would be a "banking accommodation" that was afforded by the SCB to PIT. The consolidated loan agreement and the guarantee were executed at the same time. So the "banking accommodation" was afforded by the SCB to PIT at the same time that the guarantee was signed. This would be consideration afforded "now" by the SCB to PIT in terms of the second guarantee.

66.	For these reasons, I conclude that the second guarantee signed by the second defendant is binding on him and enforceable against him.

67.	Counsel for the SCB had submitted that there was forbearance by the SCB to sue PIT on its outstanding debts and such forbearance constitutes good consideration. I am not satisfied on the evidence that there was such forbearance to sue. But if there was in fact such forbearance on the part of the SCB, there is no evidence that it was ever communicated to PIT or to the second defendant.

Further comments

68.	It appears from the consolidated loan agreement and the SCB’s statement of claim that the second guarantee is for the amount of $100, 000. There is no mention of any interest. Under cross examination, the SCB manager commercial and corporate lending also said that the $100,000 guaranteed all the overdrafts. Applying the modern approach to contractual interpretation, this is a specific guarantee rather than a continuing guarantee. This means that the liability of the second defendant under the second guarantee is limited to $100, 000 and no more. I would also have thought that if the real intention of the parties was for the second guarantee to be a continuing guarantee, it would have been unnecessary to state a specific amount such as $100,000. The second defendant is therefore not liable for the total amount of $104, 334.25 plus interest claimed against him.

69.	Furthermore, as the overdraft facility for $15, 000 has been amalgamated under the subsequent consolidated loan agreement which is secured by the second guarantee, the first guarantee would appear to serve no more useful purpose. 

Conclusions

70.	Judgment is given for the plaintiff against the second defendant in the sum of $100, 000 which is the limit of the second defendant’s liability under the second guarantee.

71.	If the parties desire any further orders, they should advise the Court in 10 days.

72.	In all the circumstances of this case, there will be no order as to costs.

CHIEF JUSTICE

Solicitors
Meredith & Ainuu Law Office for plaintiff
Vaai Lawyers for first and second defendants