Spouses may not bind one another when acting as guarantors to the obligations of a limited liability company, unless proper consent is provided

In its judgement on 4 October 2019, delivered in the names of Charles Grech & Co Ltd (the ‘Appellee’) vs The Pathfinders Company Limited, Timothy Tonwuru and Marisa Tonwuru (the ‘Appellant’), the Court of Appeal (the ‘Court of Appeal), presided over by Judge Anthony Ellul held, inter alia, that when a spouse agrees to act as a guarantor to the obligations of a business or undertaking, notwithstanding that such personal guarantee was provided, it will not bind the other spouse due to the Community of Acquests being present, unless proper consent is provided.

Charles Grech & Co Ltd filed a notification with the Court of Magistrates (Malta) on 5 June, 2013 claiming that The Pathfinders Company Limited, Timothy Tonwuru and Marisa Tonwuru had to pay eleven thousand three hundred forty euro and eleven euro cents (Eur 11,340.11) (the ‘Sum’) as payment for the sale of alcoholic beverages and other goods.

In their reply, the ‘defendants’ held that:

The Pathfinders Company Limited and Marisa Tonwuru are not the legitimate defendants and thus should be liberated from any court proceedings;

The request of the ‘plaintiff’ is unfounded in its facts and lawfulness against the defendants; and

Due to the separate legal personality of the company The Pathfinders Company Limited, the request should not have extended to the Marisa Tonwuru as an individual, given that court proceedings were also initiated against The Pathfinders Company Limited.

In its decision on 16 January 2017, the Court of Magistrates (Malta) rejected all the above defences by The Pathfinders Company Limited and Marisa Tonwuru and sentenced all the defendants to jointly pay the plaintiff the Sum in full.

The Appellants filed an appeal on 31 January 2017 on the following grounds:

That the court of first instance, erred in its consideration as to the legitimate defendants of the case and that the court of first instance did not apply the correct legal basis in arriving to its conclusion. The Appellants argued that the ‘credit agreement’ signed by Timothy Tomwuru as representative of The Pathfinders Company Limited and in his personal capacity, should not bind Marisa Tonwuru in her personal capacity.

That Marisa Tonwuru never signed the credit agreement or verbally accepted any agreement or consignment from the plaintiff and in fact she had no knowledge of the consignment which was delivered to the store in St Pauls Bay and which was run by her husband, Timothy Tomwuru; and

That the court of first instance did not correctly delve into the facts of the case resulting in various aggravations.

In their reply to the appeal, the Appellee held that the guarantee provided by the husband also binds the wife in that it is a ‘Normal act[s] of management of a trade, business or profession being exercised by one of the spouses’ and ‘shall vest only in the spouse actually exercising such trade, business or profession’ as per article 1324 of the Civil Code of Malta.

The Court of Appeal in considering the facts of the case noted that, the plaintiff is requesting the payment of the Sum for the consignment of alcoholic beverages and other goods between 11 October 2011 and 13 August 2012. The Court of Appeal further noted that Timothy Tonwuru, solely signed a credit agreement with the Plaintiff as the legal representative of The Pathfinders Company Limited, which credit agreement held that:

“The Director/s and/or Shareholders of the private company signing this agreement, bind themselves personally to the Company, which accepts, in solidum together with the private company, to the performance of all the obligations under these terms and conditions of credit. In particular, and without prejudice to the generality of the above, they shall be personally liable, in solidum with the private company, for the payment of all overdue payments and interest due to the Company under this agreement”.

In assessing the argument that The Pathfinders Company Limited was not a legitimate defendant, the Court of Appeal held that this argument is frivolous and referred to the a clause of the credit agreement stating that ‘The establishment requests (one invoice in arrears) from the Company’.

In assessing the argument that Marisa Tonwuru is not a legitimate defendant, the Court of Appeal held that at the date when the credit agreement was entered into, there is no contestation that the defendants were married and that between the spouses Community of Acquests was present.

The Court of Appeal noted that in reaching its conclusion that Marisa Tonwuru was jointly responsible for the debt to be paid, the Court of Magistrates noted that when Timothy Tonwuru signed the credit agreement binding himself to pay any of the debts which The Pathfinders Company Limited may amass, he was also binding his wife since they had a Community of Acquests present between themselves and that she was also a director of The Pathfinders Company Limited.

The Court of Appeal further referred to Maria Stella Farrugia vs HSBC Bank Malta plc et (2008) where the Court of Appeal noted that the plaintiff was requesting the court of annul the guarantee provided to the bank by her husband in relation to debts incurred by a company, given that she had not given her consent to provide such. The Court of Appeal agreed with the court of first instance and held that the guarantee could not be annulled, however it further held that the actions of one spouse could only bind the spouse signing such agreement and not the other spouse.

‘Il-posizzjoni hi li meta persuna mizzewga taht ir-regim tal-komunjoni ta’ l-akkwisti tissottoskrivi dokument ta’ fidejussjoni, minghajr il-kunsens tal-konsorti fiz-zwieg, dik il-persuna li tkun dahlet ghal dik l-obbligazzjoni tibqa’ marbuta bih, filwaqt li l-konsorti ma tkunx.’

The appellant in the above case further argued that the personal guarantee provided by her husband is to be considered as a ‘normal act[s] of management of a trade, business or profession’ and should thus bind the Community of Acquests. The Court of Appeal referred to the case Claudette Gauci vs Paolo Bonnici Ltd et (2003) where it was held that the provision of a personal guarantee by a spouse is not to be considered as a ‘normal act[s] of management of a trade, business or professon’ as per Article 1324 of the Civil Code of Malta and that the provision of a personal guarantee constitutes an act of extraordinary administration, requiring the consent of both spouses as per Article 1322 of the Civil Code of Malta.

‘F’dawn ic-cirkostanzi, il-htiega li lligi thares il-parti dghajfa ssir aktar urgent, u dan certament ma jsirx billi thalli li parti li ssib ruha marbuta bla ma biss tkun taf, u bla ma qatt kient mitluba taghti la l-kunsens u lanqas il-fehma taghha’.

In reaching its conclusion with regards to the current case, the Court of Appeal held that the consignment related to the business of The Pathfinders Company Limited and not the spouses personally and that in providing the personal guarantee provided related to the business of The Pathfinders Company Limited and not to a business of the spouses in their personal capacity. The Court of Appeal further highlighted that The Pathfinders Company Limited has a personal legal personality which is distinct from that of the spouses.

The Court of Appeal held that when providing the personal guarantee, Timothy Tonwuru exercised an extraordinary administrative task and as per article 1322 (2) of the Civil Code of Malta:

‘The rights to exercise acts of extraordinary administration, and the right to sue or be sued in respect of such acts or to enter into any compromise in respect of any act whatsoever, shall vest in the two spouses jointly’.

The Court of Appeal further held that since Marise Tonwuru did not sign the credit agreement and that there is no proof that she provided her consent to act as a guarantor to the debts of The Pathfinders Company Limited she could not be a legitimate defendant and thus liberated her from the merits of the case in hand.