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Company directors and their wives ordered to pay the bank

Mr Justice Gino Camilleri on 20 December 2013 ordered the former directors of Direct Marketing Services Limited together with their wives to pay the Company’s unpaid overdraft account after their signed as personal guarantees.

6 January 2014, 12:00am
This decision was delivered in a lawsuit in the name of Bank of Valletta plc -v- Direct Marketing Services Limited, Dr Renzo Porsella Flores and PL Rose Sciberras as curator of absentee Martin Schembri; Joan Schembri, Alex Zammit; Martin Zammit and Roger and Marie Therese Scotto.

BOV claimed in their writ that they are owed Lm25,599.14 for an overdraft facility it gave to Director Marketing Services Limited together with interest from 1 October 1998. On 29 April 1995 the parties entered into a public deed in the acts of Notary Richard Vella Laurenti. They also signed four private writings in October 1992, 1993 and in August 1995. Martin and Joan Schembri, Alex Zammit, Marina Zammit and Roger and Marie Therese Scotto guaranteed in solidum the Company's debts towards the Bank. The defendants received a judicial letter dated 24 July 1998 from the Bank calling upon them to pay the outstanding bill, but this has not been paid.

Marina Zammit defended the claim that she was forced by her husband Alexander to sign the guarantee. Roger and Marie Therese Scotto stated that the Bank deceived them when they signed because it should have known that the accounts presented were not truthful. Furthermore, they guaranteed a limit of Lm15,000 and the guarantee which did not have a guarantee was for Lm5,000. Alex Zammit claimed that he had resigned as a director of the company due to the financial problems it had ran into. He was not informed of the auditor's report.

Mr Justice Camilleri examined the pleas raised by the defendants. He first examined Marina Zammit, who claimed that although she did sign the guarantee, that she only did so because she was forced by her husband. The Court examined Article 974 of the Civil Code to determine whether if the consent is given by mistake or through violence, that consent is not valid at law. 

This must be proven by the party who is claiming violence, but the Court held that there was no evidence presented. There was no evidence of moral or physical violence and if the violence did occur it must be proved that it is a determining factor, as stated in Article 978 of the Civil Code. The Court therefore turned down this plea.

The court then examined the Scotto pleas in that the Bank deceived them in signing the guarantee, when it should have known that the company's accounts were irregular and did not reflect the true situation. However, Mr Justice Camilleri did not see that the Bank did not withhold any information from them. The Scottos further pleaded that their guarantee was limited and this was upheld by the Court since they presented the documents that showed this and they are bound only by Lm15,000 and Lm5,000. 

Giovanna Schembri held that she had no connection with the company, however, the court held that Article 1925 of the Civil Code states that a guarantee is a contract with the credit that the guarantor will pay the debt if the principle debtor fails to effect payment. Since she signed the guarantee, she became bound to pay the company's debt once the company did not pay itself. Therefore, the bank had a right to seek payment from her.

Alex Zammit was held to be in default, since he did not defend that Bank's action.

The Court therefore, concluded that all the defendants had to pay €59,646 in solidum to BOV together with interest from 1 October 1998.

Malcolm Mifsud is a partner with Mifsud & Mifsud Advocates

DealToday
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