Guarantor allowed to set-off amount owed by creditor to debtor

This case¹ outlines the general principle that, in the absence of anything to the contrary, a guarantor may take advantage of any set-off or counterclaim that the principal debtor has against the creditor.

Two companies had a trading arrangement. The obligations of one of the companies to the other was guaranteed. The guarantee was of:

"the due and punctual payment by [company A] to [company B] in the manner and at times agreed upon ... of all moneys which are now or may hereafter from time to time be owing by [company A] to [company B]".

Summary judgment was entered against the guarantor and the guarantor brought this case, arguing that the company whose obligations he had guaranteed had been overcharged by the other company.

The High Court determined that in order to establish a claim against the guarantor, it must be proved that the moneys are owing. Any defence that might be available to resist a claim for the amount owing must also be available to the guarantor.

The appeal against the summary judgment was allowed.

¹ Ryan v Acme Supplies Limited, High Court, Wellington, CIV 2007-485-1096

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