Amalgamated Investment & Property Co Ltd (in liquidation) v Texas Commerce International Bank Ltd

[1981] 3 All ER 577

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(Judgment by: Eveleigh)

Amalgamated Investment & Property Co Ltd (in liquidation)
v Texas Commerce International Bank Ltd

Court:

Judges: Lord Denning MR

EveleighBrandon LJJ

Hearing date: 30 JUNE, 1, 2, 3, 6, 7, 31 JULY 1981
Judgment date: 31 July 1981

UK

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Judgment by:
Eveleigh

The obligations assumed by Amalgamated, the plaintiffs, and the bank, the defendant, in my opinion clearly emerge from the correspondence between the parties. There would have been no problem had there not been injected into their agreement a standard banking form which has been treated in argument as being the guarantee. The phrase 'being the guarantee' would be more appropriate in the case where the guarantor has no other interest in the transaction than to guarantee the obligations of another. In such a case the document alone is treated as the agreement between the parties. As in all written contracts, however, it can embody terms previously agreed by other means. But to satisfy the Statute of Frauds (1677) it is put into writing as a written note or memorandum necessary for the enforcement of a contract of guarantee.

Where the guarantee does not stand alone but is part of a larger transaction, even an oral promise of guarantee is enforceable (see Sutton & Co v Grey [1894] 1 QB 285 ). Not unnaturally, however, businessmen like to have written evidence of their agreements whether the Statute of Frauds requires it or not.

I make these preliminary remarks because at times it seemed that we were in danger of treating the bank's printed form as though it stood alone and was to be construed in isolation as if it required the strictness of construction appropriate to commercial documents such as bills of lading which have a universally recognised character which is of importance to a number of people other than those concerned in the original contract.

Amalgamated did not come into this matter simply as guarantors after the formation of a principal contract. They and the bank were the principal negotiators in reaching an agreement whereby the bank at the request of Amalgamated agreed to provide money to be used in connection with property development in the Bahamas in which Amalgamated had a great financial interest. The Harrison Building was charged to Barclays Bank. At the request of Amalgamated the bank offered on 11 July 1969 to make available a facility of $3,000,000 for a period of five years to Gleniston Gardens Estate Ltd, a subsidiary of Amalgamated. They wrote:

'The borrowing would be secured by a legal mortgage in respect of the freehold property, the Harrison Building, now in the course of erection at Marlborough Street, Nassau, Bahamas, together with a guarantee for the full amount of the facility from Amalgamated Investment Property Co Ltd. ... Your company would be responsible for the bank's legal fees, stamp duty, etc.'

It is not clear who actually owned the Harrison Building at that stage. It does not matter. The building was charged to Barclays Bank to secure a loan and the intention was that the defendant bank should provide facilities for Barclays to be paid off and for the balance of the agreed sum to be made available to Gleniston who would be the owners of the Harrison Building. Amalgamated accepted the offer 'on behalf of Amalgamated and the Gleniston Gardens Estate Ltd'. They signed a standard guarantee, the printed terms of which were clearly appropriate.

Amalgamated themselves were asking for the money. The bank was agreeing to provide it and to allocate it as Amalgamated requested. Amalgamated were clearly undertaking to see that the defendants were repaid.

Subsequently Amalgamated asked for ANPP to be substituted for Gleniston and for the loan to be increased to $3,250,000. Amalgamated wrote to the bank on 12 May 1970: 'As discussed, I confirm that Mr Harrison wishes to transfer the Harrison Building from the Gleniston Gardens Estate Ltd to another wholly owned subsidiary of ours in the Bahamas, Amalgamated (New Providence) Property Ltd.' On 23 September 1970 the bank wrote confirming their agreement to the variation. In setting out the terms that had been agreed they stated that the borrowing would be secured by a legal mortgage in respect of the Harrison Building together with a guarantee from Amalgamated. They stated that the guarantee completed in relation to Gleniston Gardens Estate Ltd had been cancelled. Amalgamated signed another standard guarantee form which, in so far as is material, read as follows:

'We, AMALGAMATED INVESTMENT & PROPERTY CO LTD 9-10 GRAFTON STREET, LONDON, W1X 4DA, (hereinafter called "the Guarantor"), in consideration of your from time to time making or contributing loans or advances to or otherwise giving credit or affording banking accommodation or facilities to AMALGAMATED (NEW PROVIDENCE) PROPERTY LTD of PO BOX 868, NASSAU, BAHAMAS (hereinafter called "the Principal"), hereby unconditionally guarantee to and agree with you as follows:

'1. The Guarantor will pay to you on demand all moneys which now are or shall at any time or times hereafter be due or owing or payable to you on any account whatsoever by the Principal ... '

Then, for exchange control reasons and as the judge explains in detail, the bank, to use its own solicitor's word, 'channelled' the loan through Portsoken Ltd, a paper company brought into action solely for the purpose. No new standard form guarantee was signed.

Ignoring the existence of the guarantee form, in my opinion the agreement reached between the parties orally and evidenced by or contained in (it matters not) the correspondence was clearly to the effect that Amalgamated would be responsible for seeing that the bank was repaid. The subsequent negotiations between Amalgamated and the bank after the money was made available on 31 December 1970 and up to 1976 in which Amalgamated clearly recognised this obligation provides admissible and strong evidence of this. Are we driven to arrive at a different conclusion because of the existence of the standard guarantee form containing the name of ANPP?

It might have been possible to have approached this case on the basis that the form was not introduced into the final contract. In that case the position would be as I have stated above. However, this case has been argued on the basis that it formed part of the final agreement. In that case the undertaking by the guarantor must be construed in the general setting of the transaction. It was a document that had been used by the bank to secure its own position in relation to the facilities it was affording. I think that the reference to 'all monies ... payable to you ... by the Principal' (ie ANPP) can only refer to the facility which the bank was affording. In the context of the whole transaction, it can in my opinion have no other meaning. The fact that the money could be legally demanded in the first instance by Portsoken does not rob it of its character of moneys payable to the bank, and the fact that Portsoken would first receive it and hand it over to the bank does not rob it of the description of moneys payable by ANPP. To deny this result by an analytical examination of the different legal liabilities engendered by the form which the transaction ultimately took is to deprive the words of the guarantee of a wider meaning which they are fully capable of bearing. It runs counter to all principles of construction to give the words a meaning that would defeat the clear intention of the parties as revealed by the rest of the relevant evidence of the agreement. I too am of the opinion that Amalgamated's claim fails on this ground.

As the question of estoppel has been argued before this court, I think I should say a few words on that matter on the assumption that the guarantee was so worded as not to cover the transaction. After 31 December 1970 changes were made in the arrangements by which a number of properties had been charged to secure to the bank two separate loans, namely one of $US3,000,000(called the UK loan) and one of $3,250,000 (the Nassau loan). These loans were quite independently secured, the UK loan by a number of properties and the Nassau loan by the Harrison Building. It seems probable that the bank at all times thought that the charges were related in that they supported an all moneys guarantee covering both loans. The negotiations which took place and the subsequent agreements arrived at were clearly based upon the common understanding that the guarantee in relation to ANPP made them liable to the bank in respect of the Nassau loan. In so far as it is said that the bank acted to its detriment in relying on that assumption, I find it difficult to say that Amalgamated were responsible, therefore, simply on the basis that their mistake might be said to have strengthened the bank's assumption. Furthermore, I find it difficult to see how the substitution of properties in the list of those charged to the bank and their revaluation was detrimental to the bank's interests. The only property charged to secure the Nassau loan was the Harrison Building. The revaluation showed that that building would no longer realise an amount sufficient to cover the loan. The bank required a 150% cover on the joint value of the two loans. A variation in the list of properties was designed not only to release some at the request of Amalgamated but also, on the bank's insistence, to provide that 150% overall cover. Ex hypothesi, the ANPP guarantee being worthless, the only guarantee which the bank was entitled to enforce, namely in respect of the UK loan, now became more firmly secured. Therefore the guarantee position was more favourable to the bank than it had been. However, in the later stages of the negotiations the bank refrained from calling in the loan, and in particular the Nassau loan, at a time which might have been more favourable from its point of view and also extended the time for repayment so that increased interest charges were incurred. In this respect it can be said that the bank acted to its detriment. With some hesitation, I think it may be right to conclude that when Amalgamated asked for further time they were asserting that they themselves were ultimately liable for the Nassau loan and can be said to have induced the bank to act to their detriment partly as a result of their assertion, and therefore a case of estoppel in pais can be made out. However, I would prefer to treat this case as one of estoppel by convention.

Counsel for the bank referred us to a passage in Spencer Bower and Turner on Estoppel by Representation (3rd Edn, 1977, p 157):

'When the parties have acted in their transaction upon the agreed assumption that a given state of facts is to be accepted between them as true, then as regards that transaction each will be estopped against the other from questioning the truth of the statement of facts so assumed.'

It is clear that the parties negotiated on the agreed assumption that Amalgamated guaranteed the Nassau loan. The detailed negotiations are set out in the judgment of the judge. Suffice it to say that there came a time when the parties agreed that all the properties should be available to secure both the liability of Amalgamated in respect of the UK loan and also their liability in respect of the Nassau loan, which latter liability was assumed to exist. The bank sold the properties. They claimed the right to appropriate the proceeds of both loans. As I have said, the proceeds of the Harrison Building would not satisfy the Nassau loan. Amalgamated challenge this, saying that the properties were charged to secure their liability and that they were not liable under the guarantee for ANPP. In my opinion, they cannot be allowed to say this. The bank had been given the right to sell the properties and satisfy both loans on the agreed assumption that Amalgamated were liable for the Nassau loan. The bank sold and appropriated the proceeds on that assumption. Amalgamated cannot deny the truth of it.

It is important to appreciate that the transaction with which we are concerned is the realisation of the securities by the bank. We are not concerned to decide whether Amalgamated would have had a defence to an action on the ANPP guarantee itself if the security had proved insufficient. For myself I do not think that the bank could have succeeded in a claim on the guarantee itself. Estoppel operates so as to prevent a party from denying a representation or an assumed state of facts in relation to the transaction supported by that representation or assumed state of facts. The estoppel does not go beyond the transaction in which it arose. The representation or assumed state of facts are not to be held irrefutable beyond the purpose for which the representation or assumption was made. In the present context the representation is not made for the purpose of establishing its own truth but as a part of the whole transaction. An assumption is not to be treated as having the effect of an assumpsit .

However, I too would dismiss this appeal.