High Court enforces verbal guarantee

In this case¹, the High Court considered whether a statement assuring payment was an enforceable guarantee.

A vendor agreed to supply goods to a purchaser. The goods were shipped to New Zealand in reliance on a promise by the purchaser to pay for them on delivery.

The goods remained on the wharf pending payment, and incurred significant demurrage costs.

The vendor finally agreed to release the goods to the purchaser on the basis of:

• a promise to pay given by the purchaser;
• a guarantee of payment given by a supplier to the purchaser; and
• a guarantee of payment given by a principal of the supplier to the purchaser.

The promises and the guarantees were never formally documented.

Prior to the debt being created, the vendor had entered into a debt factoring facility, pursuant to which the debt was assigned to the factor, which subsequently assigned its interest to a third party (the plaintiff in this case).

The issues for consideration by the court were:

• Was a guarantee given by either, or both, the supplier to the purchaser or the supplier's principal?
• If so, was there a valid assignment of the guarantee (as distinct from the debt) from the vendor to the plaintiff?

Guarantee

The court determined that a valid and effective guarantee given by the supplier's principal to the vendor was created, stating that there is no need for any particular form of words in a contract of guarantee. It held that the substance of what was agreed was that, in the event of the purchaser not paying the vendor, the supplier's principal would personally ensure that the vendor was paid. The contract of guarantee was created at the time of an oral exchange, and subsequently confirmed in an email.

Assignment

The assignment agreement did not specifically refer to assignment of the guarantee. However, the court decided that it was a clear intention of the agreement, considered objectively and in light of the commercial background, to assign the guarantee. This was because the debt that was factored in the agreement included "any guarantee".

¹ Sanson v Parval Marketing Ltd & Ors, High Court, Auckland, 11 February 2008, CIV 2006-404-007231

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