The Supreme Court has ruled against the owners of the White and Sons Supermarkets, finding that a guarantee to cover the debts of one of the closed stores applied to all three stores.

Wholesalers Pitt & Co and the BGA Group of Companies alleged that store owners Gary and Michael White misrepresented the terms of the 2011 guarantee, claiming well over $1 million in damages.

However, the Whites had argued that the plaintiffs were aware the three companies were separate, noting conversations in which they offered to purchase one of the three.

The chain was wound up in 2012 after amassing more than $1.8 million in debt to the complainants.

During a two-day hearing in January, the plaintiffs said Michael White agreed during a meeting in August, 2011 to bring the accounts to a “current plus 30 day” condition by the end of the month, but he said they merely agreed to come up with a payment plan by that time.

At the end of the month the status of the accounts was unchanged and no payment plan had been created, with Michael White saying the group’s accountant had been on vacation for four weeks.

Another meeting was held on September 11 to address the issue. Puisne Judge Stephen Hellman said that at the end of the meeting, the plaintiffs believed the brothers had reluctantly agreed to provide the guarantee, while the Whites believed they had not agreed to anything.

The plaintiffs wrote up a 60-day guarantee which listed “White & Sons Limited” as the customer involved, which was signed by the defendants on November 17. The plaintiffs, believing it covered all three stores, continued to trade with all three.

When the sum was not paid, they filed a writ against the White & Sons Supermarket, Southside Supermarket and Haywards Supermarket — only to be informed by the Whites lawyer that the three companies were separate and the guarantee had only covered one.

On August 14, 2012 the plaintiffs obtained judgment by consent against that company under the guarantee in the sum of $750,859 together with costs and interest, and filed separate writs against the remaining companies.

In a written judgement dated March 5, Mr Justice Hellman ruled that by signing and returning the guarantee, the defendants impliedly represented to the plaintiffs that they had guaranteed the accounts receivable of all three supermarkets.

“That is what the plaintiffs understood the guarantee to mean and that is what the defendants intended that the plaintiffs should understand it to mean. However the representation was false,” Mr Justice Hellman said.

“As the defendants, who had taken legal advice, well knew, the guarantee only covered the accounts receivable of White & Sons. As the defendants intended, the plaintiffs were induced by this representation, upon the truth of which they relied, to continue supplying goods to all three supermarkets.”

He ruled that the plaintiffs had sought a guarantee for all three accounts, and there was no suggestion that they were willing to retreat from that position.

“There would have been no commercial rationale for the plaintiffs to seek a guarantee in respect of the accounts receivable for only one of the supermarkets if they were to continue to supply goods to all three,” Mr Justice Hellman said.

“I therefore find that the defendants are liable to the plaintiffs under the guarantee for damages to be assessed. The measure of damages will be the amounts outstanding under the accounts receivable of the other two supermarkets owned by Haywards and Southside together with interest.

“In the circumstances it is unnecessary for me to consider further the claim for fraudulent misrepresentation. However I am satisfied that the defendants acted only after taking legal advice and did not consider they were doing anything dishonest or unethical.”

Mr Justice Hellman said he would hear from the parties as to the cost of damages and interest, if the parties cannot agree.