John Lysaght Australia Limited Trading As Lysaght Building Industries v Jeff Hausia Trading As Jh Contractors [1993] ACTSC 69 (30 July 1993)

SUPREME COURT OF THE ACT

JOHN LYSAGHT AUSTRALIA LIMITED trading as LYSAGHT BUILDING INDUSTRIES v. JEFF
HAUSIA trading as JH CONTRACTORS
No. SC105 of 1990
Number of pages - 4
Contract

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
MASTER A. HOGAN

CATCHWORDS

Contract - Sale of goods - Guarantee - Sole trader - Business name - Business taken over by company - Whether sole trader is "firm or partnership" - Estoppel - No implied representation - No reliance on any representation if made - Estoppel not made out - No issue of principle.

HEARING

CANBERRA, 21 April 1993
30:7:1993

Counsel for the Plaintiff: B. Salmon QC

Instructing Solicitors: Higgins Solicitors

Counsel for the Defendant: J. Pappas

Instructing Solicitors: Pappas J Attorney

ORDER

I direct the entry of judgment for the plaintiff for $100,936.10.

DECISION

MASTER A. HOGAN By its Amended Statement of Claim the plaintiff in this action sues for the price of goods sold and delivered, and alternatively on a written guarantee alleged to have been signed by the defendant.

2. The Further Amended Defence first effectively alleges that the goods were not supplied to the defendant personally, but to a company called Vathsia Pty Ltd ("the company") which traded as JH Contractors, and for which at all times he acted as agent, his principal being the company, a named principal. Next the defendant admitted entering into a written agreement with the plaintiff, but denied that the document had the effect of making him a guarantor of the company's debts. Lastly the defence raised an estoppel against the plaintiff's reliance on the guarantee, based on a representation said to have been made in January 1987.

3. The plaintiff is a company which sells building materials.

4. In 1986 the defendant began business on his own account as a roofing contractor. On 22 July 1986 he registered the business name "JH Contractors". Between that date and the end of 1986 he purchased products from the plaintiff, using that business name.

5. On 8 August 1986 the defendant signed a document headed "Credit Application". The signature was witnessed by Mr Wassell, a manager of the plaintiff. The name of the company or proprietors was given as "JH Contractors trading as JH Contractors". The defendant's name was entered in the space provided for "Full name/s of Director/s". To the question "Are Directors - Proprietor's agreeable to guarantee this account?" the answer "Yes" was given. The type of guarantee to be given was described as "Personal".

6. Also on 8 August 1986 a "Form of guarantee and indemnity" addressed to the plaintiff was signed by the defendant. That signature was also witnessed by Mr Wassall. The document set out that in consideration of the plaintiff supplying goods to the customer named in the schedule the defendant agreed to guarantee the due payment by the customer of any amount owing or thereafter to become owing in respect of sales to the customer, and to indemnify the plaintiff against any loss or damage sustained by the plaintiff as a result of any default by the customer in due payment.

7. There was a clause providing that the guarantee and indemnity should be a continuing guarantee.

8. A further clause provided:

"In this agreement "customer" means any of the customers named in
the schedule hereto and (where the customer so names (sic) is a
company) any company which under the laws relating to companies for
the time being in force in the State where this is signed is related
to the customer, or (where the customer is (sic) so named is a firm
or partnership) any company which acquires or takes over the
principal business of the firm or partnership and any company which
as aforesaid is related to the company so acquiring or taking over."

9. On 11 September 1986 the plaintiff's credit manager, Mr Harris, wrote a letter, addressed to "The Manager, JH Contractors, 4 Lamond Place, McKellar, 2617" setting out the terms of trade, which were that payment was required by the 30th day of the month following the month of delivery, with a 2 1/2 percent discount for payment within time. A limit of $5,000 was placed on the account.

10. Later, towards the end of 1986, the plaintiff had discussions about his business with a Mr Horvath, a roofing administrator employed by another company. Instructions were given to a solicitor, and on 22 December 1986 there was incorporated the company by the name of Vathsia Pty Limited of which the defendant and Mr Horvath became directors.

11. The company then carried on business as a roofing contractor, with Mr Horvath concentrating on the administration and the defendant supervising the actual work on the various sites.

12. The business, to use a neutral word, continued to purchase materials from the plaintiff. Some payments were made by the company.

13. Both Mr Hausia and Mr Horvath gave uncontradicted evidence that early in 1987 Mr Wassell was informed that the business was then being conducted by a company.

14. Mr Wassell asked for a fresh credit application to be signed in the name of the company. Mr Hausia left the details of that matter to Mr Horvath.

15. The company continued to purchase materials from the plaintiff. There is no evidence that any fresh application, in the name of the company, was ever signed. The company's name appeared on the order forms and cheques used by it in its dealings with the plaintiff.

16. It is obvious that the defendant would succeed on the first matter of defence, which is no doubt the reason why the claim on the guarantee was added to the Statement of Claim, and it was the only claim pressed at the hearing.

17. The business did not prosper. A meeting of creditors was held on 31 August 1988. The plaintiff was represented at that meeting by Mr Wassall. The amount owing by the business to the plaintiff on that date was $57,876.33. A schedule of proposed repayments was put to that meeting. It provided for a payment of $3,970 to the plaintiff in October 1988. The instalment was paid on about 24 October 1988. During October 1988 further goods were purchased to the value of $3,101.63. No further instalments were paid. At 28 October 1988 the net amount owing to the plaintiff for goods supplied to the business was $57,007.96. That is the sum sought to be recovered, together with interest.

18. This Court made an order winding up the company on 16 October 1989.

19. Mr Horvath gave evidence that when Mr Wassall sent the credit application form to him he spoke to Mr Wassall to inform him that he, Mr Horvath, was not prepared to sign any personal guarantee. There were further discussions with a manager from Sydney and in the event Mr Horvath did not sign any guarantee. He suggested that the plaintiff may have been motivated in that decision by a desire to use the business as a means of increasing the plaintiff's market share for roofing materials in the Canberra area. Mr Wassall is no longer employed by the plaintiff, and was not called to give evidence.

20. I do not think that anything turns on that fact, as there was no conflict in the evidence about any substantial matter of fact.

21. The defendant's contention about the guarantee is based on the proposition that at the time it was given it amounted to no more than a promise by the defendant personally to pay his own personal debts. There being then in existence no third party whose debts were being guaranteed, the document could not operate as a guarantee, the essence of which is that the guarantor promises to pay, in the defined circumstances, the debt of some other person.

22. It was put that the definition clause did not operate to have the effect that he guaranteed the debts of the company when it acquired or took over the business because he was not a "firm or partnership".

23. Those words could be read as a composite phrase, to mean a business being conducted by more than one person, whether that business entity be called a firm or a partnership.

24. They could also be construed as contrasting concepts. One concept would be a partnership, that is, a business conducted by more than one person, and not being a company, having the meaning given to it in the Partnership Act. The other would be a firm, being a business carried on by any other type of entity, whether a person trading on sole account or any other possible entity.

25. Looking at the commercial realities, and the purpose for which the document was being used, I am of the opinion that it should not be read in the first of those two ways.

26. A company such as the plaintiff, selling materials to all kinds of business enterprises engaged in the building industry, would need to protect itself in giving credit to them against changes in the ownership of the entity with which it was dealing. That, in broad terms, is the purpose of the definition clause. There is no reason why it would want to exclude from that system a sole trader who later was joined by another partner, while protecting itself in the case of a partnership of two persons who later took on a third partner, or incorporated themselves. And there is no commercial reason why a sole trader should expect that he would not be bound by the terms of such a document if he later formed a corporation to take over the business.

27. In my opinion the word "firm" is apt to describe the entity with which the plaintiff was dealing in this case, namely a sole trader carrying on business under a registered business name. For so long as he continued to operate as a sole trader the guarantee had no practical effect beyond his already existing obligation to pay. But as soon as there was a company which acquired or took over his principal business there was a third party whose debts he guaranteed, and the guarantee took effect according to its terms. It is, in the circumstances of this case, necessary to read the document in that sense in order to give it any commercial or practical efficacy.

28. That aspect of the defence, therefore, does not succeed.

29. The estoppel is said to be based upon an implied representation. The representation was that the plaintiff would not rely upon the guarantee previously signed by the defendant. The facts and circumstances said to give rise to the implication are those surrounding the discussions in early 1987, when the plaintiff's manager, Mr Wassall, was informed that the business was being conducted by a company, and did not insist on the signing of a personal guarantee by Mr Horvath. The detriment suffered by the defendant as a result of his reliance on that representation is said to be that the terms of the credit obtained as a result of giving the guarantee in August 1986 were limited to $5,000. The plaintiff made no complaint, and took no action, to restrict the credit given in fact to the company, and permitted its debt to expand to over $50,000.

30. The plaintiff did not give any evidence at all that in trading so that the debt extended to over $50,000 he relied in any way on any such implied representation. I am not prepared from the evidence given in this case to draw the inference that he did so.

31. But also, I am not prepared to hold that the conversations in early 1987 and the facts and circumstances surrounding them gave rise to any such implied representation. One possibility, not explored in the evidence, is that the plaintiff was content with the guarantee that it already had.

32. But whether it was so content or not, or whether neither Mr Wassall or anyone else in authority in the company adverted to the matter, there was nothing in what was said or done which could have led anyone to believe that the document already signed would not take effect in the circumstances for which it was designed.

33. The estoppel alleged is therefore not made out. There will be judgment for the plaintiff.

34. Interest calculated from 28 October 1988 to the date of judgment in accordance with the Practice Direction is $43,928.14.

35. I direct the entry of judgment for the plaintiff for $100,936.10.

36. I will hear submissions of counsel about the appropriate order for costs.