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
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
In rejecting the second brother's arguments, the Court held
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
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
There was no reason not to give that provision its ordinary
literal meaning and accordingly, the second brother was liable
under the guarantee.
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Do not depart from the contract terms, or encourage the other party to do so, unless you plan to alter the contract.
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