Citibank N.A. v Blue Chateau Ltd Blue Chateau Ltd v Citibank N.A. [Consolidated Suits]

• Jurisdiction: Jamaica
• Judge: FORTE. P: , WALKER, J.A. , LANGRIN, J.A.
• Judgment Date: 14 April 2000
• Neutral Citation: JM 2000 CA 18
• Judgment citation (vLex): [2000] 4 JJC 1407
• Court: Court of Appeal (Jamaica)
• Date: 14 April 2000

IN THE COURT OF APPEAL

COR.

THE HON. MR. JUSTICE FORTE, P THE HON. MR. JUSTICE WALKER, J.A THE HON. MR. JUSTICE LANGRIN, J.A

BETWEEN

CITIBANK, N.A.

PLAINTIFF/APPELLANT

AND

BLUE CHATEAU LIMITED

DEFENDANT/RESPONDENT

BETWEEN

BLUE CHATEAU LIMITED

PLAINTIFF/RESPONDENT

AND

CITIBANK N.A.

DEFENDANT/APPELLANT

D.A. Scharschmidt Q.C. Hector Robinson

Patrick Foster, Katherine Francis

GUARANTEES - Validity - Whether consideration moving from defendant to support the alleged guarantee

FORTE. P:

1 I have had the opportunity of reading in draft the judgment of Langrin, J.A. and am in agreement with his conclusions and the reasoning by which he arrived at these. Consequently, I agree that the appeal should be allowed and that the orders proposed by Langrin, J.A. should be granted. Costs of course will go to the appellants, both here and below and to be taxed if not agreed.

WALKER, J.A.

2 I agree with the reasoning and conclusion of Langrin, J.A. and also with the Order proposed in disposing of this appeal.

LANGRIN, J.A.

3 This is an appeal by Citibank N.A. which was both plaintiff and defendant in two consolidated Originating Summonses from an order of Hibbert, J (Ag.) made on 16 ^th June, 1999 as follows:

"1. That the Originating Summons filed in Suit No. E 248 of 1998 is hereby dismissed with costs to the Defendant to be agreed or taxed.

In Suit No. E. 564 of 1998 it is hereby declared that:-

• (i) The guarantee which the Defendant alleges that the Plaintiff gave to the Defendant between the 30 ^th day of January, 1998 and the 3 ^rd day of February 1998 to secure advances made by the Defendant to Caldon Finance Group limited is invalid and void because there was no consideration moving from the Defendant to support the alleged guarantee.

• (ii) The equitable mortgage which the Defendant alleges that the Plaintiff created in support of the alleged guarantee by depositing with the Defendant the duplicate Certificate of Title registered at Volume 1105 Folio 581 of the Register Book of Titles is also invalid and void because there was no valid guarantee and further because an equitable mortgage was not authorised by the Directors of the Plaintiff.

IT IS HEREBY ORDERED THAT:-

• 1. That an injunction be issued restraining the Defendant, whether by itself, its Directors, servants, agents or otherwise howsoever from disposing of, mortgaging assigning, charging or otherwise dealing with the property or the duplicate Certificate of Title for the said property.

• 2. The Defendant deliver to the Plaintiff the duplicate Certificate of Title for the said property.

• 3. Costs to the Plaintiff to be agreed or taxed.

• 4. Certificate for Counsel granted.

• 5. Stay of execution granted in respect of Order Numbered 2 for a period of six (6) weeks".

4 There is also a respondent's notice from the order by Blue Chateau Limited which was both the defendant and plaintiff in the Originating Summonses.

5 This appeal raises important questions of principle relating inter alia to the doctrine of consideration in respect to guarantees and the capacity and powers of companies incorporated under the Companies Act and the authority of directors.

6 The appellant, Citibank, N.A. is a company duly incorporated in the state of New York, United States of America and is licensed under the Banking Act to carry on the business of banking in Jamaica. The respondent, Blue Chateau Limited is a limited liability company duly incorporated under the Companies Act and is the registered proprietor of all that parcel of land part of Constant Spring Estates, comprised in Certificate of Title registered at Volume 1105, Folio 581 of the Register Book of Titles. The Company is comprised of 200 shares, 198 of which are held by Caldon Finance Group Limited (in Liquidation) hereinafter referred to as 'Caldon' and one share by Henry Fullerton, the Executive Chairman of Caldon and one share by Cynthia O'Sullivan, secretary of Caldon.

7 Dorothy Parkins a vice President of the Jamaica branch of Citibank swore to an affidavit on 7 ^th May, 1998 stating that from and since the 29 ^th March, 1994, Caldon opened a current account with Citibank. On the 27 ^th January, 1998 Caldon's account became overdrawn in the sum of Seven Million, Seven Hundred and Eighteen Thousand, Five Hundred and Sixty Eight Dollars and Fifty Cents ($7,718,568.50). By agreement made on the 29 ^th January, 1998 between Citibank and Caldon further advances were made to Caldon by Citibank by way of overdraft on Caldon's account. On that date the total advances amounted to Thirteen Million, Nine Hundred and Eleven Thousand One Hundred and Eighty Nine dollars and twenty four cents ($13,911, 189.24). It was agreed between Caldon and Citibank that interest would be charged on the overdraft on Caldon's account at the rate of 38 per cent per annum.

8 By an agreement made orally and supported by memoranda in writing between the 30 ^th day of January, 1998 and the 3 ^rd day of February, 1998 it was agreed between Citibank and Blue Chateau that in consideration for the former making the aforementioned advances by way of overdraft to Caldon, Blue Chateau would guarantee the payment of all sums of money up to a limit of Nine Million Dollars ($9,000,000) due by Caldon to Citibank by virtue of the overdraft on Caldon's account. The said agreement was arrived at in telephone conversations on the 30 ^th January and the 2 ^nd February, 1998 between Henry Fullerton a director of Blue Chateau on the one hand and Gerald Wight and Dorothy Parkins on behalf of Citibank.

9 As security for the said guarantee, Blue Chateau by its servant agent Henry Fullerton on the 3 ^rd February, 1998 deposited the duplicate Certificate of Title registered at Volume 1105, Folio 581 in respect of the mortgaged property with Citibank.

10 A resolution of the Board of Directors of Blue Chateau dated February, 1998 was duly signed by Henry Fullerton and Cynthia O'Sullivan.

11 For ease of reference I set out below a copy of the resolution.

"RESOLUTION OF BLUE CHATEAU LIMITED

RESOLVED:

THAT BLUE CHATEAU LIMITED do guarantee the financial obligation to CITIBANK, N.A. of CALDON FINANCE GROUP LIMITED which financial obligation arises as a result of temporary facilities provided by CITIBANK, N.A. in the sum of NINE MILLION DOLLARS ($9.0M).

WE, Henry A. Fullerton the Chairman and Cynthia O'Sullivan the Secretary of BLUE CHATEAU LIMITED HEREBY CERTIFY that the above is a true copy of a resolution duly passed by the Directors of the Company at a board meeting duly convened by the Directors and held on the Third day of February, 1998.

Henry Fullerton

CHAIRMAN

Cynthia O'Sullivan

SECRETARY"

12 A valuation report dated 22 ^nd August, 1996 prepared in respect of the mortgaged property by D.C. Tavares & Finson Co. Ltd. Real Estate Appraisers was sent by Blue Chateau to Citibank in support of the security being provided by Blue Chateau for its guarantee.

13 On the 19 ^th February, 1998 Citibank registered the equitable mortgage as a charge against Blue Chateau Ltd. at the office of the Registrar of Companies. Citibank has also lodged at the office of the Registrar of Titles a caveat against any dealing with the mortgaged property without first advising the Plaintiff. On the 20 ^th February, 1998 Citibank's attorneys-at-law prepared and sent to Blue Chateau an instrument of mortgage in the form of a guarantor's mortgage for its due execution by Blue Chateau and return to sender but up to the present Blue Chateau has failed or refused to return the instrument of mortgage duly executed. On the 12 ^th March, 1998, by a resolution passed by creditors of Caldon, Raphael Gordon of KPMG Peat Marwick was appointed Liquidator to wind up the affairs of Caldon.

14 Citibank in a letter to the Liquidator dated March 24, 1998 made a formal demand for the sum of Five Million Nine Hundred and Fifty Nine Thousand Five Hundred and Ninety Two Dollars and Sixty Three Cents ($5,959,592.63) which was currently due. On the following day Citibank wrote to Blue Chateau making a formal demand and referred to the equitable mortgage created by the deposit of the Title Deed. In addition Citibank also gave formal notice pursuant to the Registration of Titles Act, indicating that if payment was not made within one month after service of the notice the Bank would exercise its powers of sale.

15 By 6 ^th May, 1998 the balance due by Blue Chateau to Citibank by virtue of the guarantee was Six Million and Sixty Nine Thousand, Four Hundred and Ninety One Dollars and Seventeen Cents ($6,069,491.17) comprising principal of Five Million Nine Hundred and Ninety Three Thousand Five Hundred and Seventy Two Dollars and Fifty Seven Cents ($5,993,572.57) and interest of Seventy Five Thousand Nine Hundred and Eighteen Dollars and Sixty Cents ($75,918.60). The interest continues to accrue at the rate of Six Thousand Three Hundred and Twenty Five Dollars and Fifty Five Cents ($6,325.55) per day.

16 On the 8 ^th May, 1998 an Originating Summons was filed by Citibank seeking an order for the sale of the mortgaged premises so as to satisfy the sum due to them. Blue Chateau, on the 27 ^th November, 1998, filed an Originating Summons seeking declarations that both the guarantee and the equitable mortgage were invalid and requested the Court to make an order of injunction and delivery of title.

17 On the 18 ^th September, 1998 and further to Dorothy Parkin's earlier affidavit, she said on oath:

"...by way of additional consideration for the Defendant issuing the guarantee the Plaintiff at the time, the guarantee was being given at the request of the Defendant agreed to forbear to demand immediate payment by Caldon of its indebtedness to the Plaintiff and agreed to permit Caldon to maintain the overdraft...