Landlord and tenant — Assignment — Surety covenants — Whether payments by sureties in consideration of release of liability discharged liability of original tenant for arrears of rent — Whether landlord appropriated payments
By a lease
dated October 5 1973 premises were demised to the defendant for a term of 20
years from June 24 1973. By an assignment made pursuant to a licence from the
landlord dated September 10 1981 the term was assigned to MT, the licence
containing a surety covenant by DB that MT would pay the rent and perform the
covenants in the lease and in default DB would pay and make good any losses
suffered by the landlord. The term was further assigned to NO pursuant to a
licence dated December 28 1989 which contained surety covenants given by DW and
JB identical to those given by DB. The plaintiff landlord acquired the
reversion in October 1990. In 1991 NO became insolvent. The landlord served
demands for the Michaelmas quarterday rent of £19,500 on the defendant, as
original tenant, and on DW and JB, as sureties. On October 23 the landlord and
DW and JB entered into a deed by which DW and JB were released from further
liability under the lease and licence in consideration of the payment of
£50,348. The landlord then issued proceedings against the defendant claiming
arrears of rent for Michaelmas 1991 and succeeding quarter days up to June 24
1992. By a deed dated April 3 1992 the landlord released DB from his
obligations upon payment of £10,000. The defendant’s contentions, that the
payment by DW and JB and the further payment by DB was in part satisfaction of
the arrears of rent, were only partly accepted by the county court judge who
held that the sum of £50,348 paid by DW and JB, £19,500 was in respect of
Michaelmas 1991 rent; although the plaintiff could not recover that instalment
from the defendant, it was entitled to the succeeding instalments. The
defendant appealed and the plaintiff sought leave to cross-appeal in relation
to the sum of £19,500 held by the judge to be irrecoverable.
guarantor of the lessee’s rent does discharge the lessee from his liability to
pay. The proposition to the contrary in Woodfall’s Law of Landlord and
Tenant, vol 1, para 7.085, disapproved. If a lessor is entitled to be paid
a sum by way of rent for a particular period, and the original lessee, an
assignee and a surety, have all covenanted to pay that rent, the lessor may
recover it from any one of them (in the case of the surety, if the assignee has
defaulted). If the lessor does however recover that sum from any one of the
three, the rent has then been paid. The other two persons who were liable cease
to be liable to pay that rent though they are still liable for any future rents
under their respective covenants. Of the sum of £50,348 paid by DW and JB,
£19,500 could be regarded as rent for Michaelmas quarter day 1991. The balance
of £30,848 and the £10,000 paid by DB can be set off against the total of sums
payable to the landlord for rent and for breach of other covenants in the
lease. The effect of the deeds of release is that the landlord accepted
performance of the obligations in the lease in part. In the absence of of
appropriation by a debtor, the creditor is entitled to appropriate. There was
appropriation of a sum equal to the Michaelmas quarter day rent under the first
deed. In principle a landlord creditor can appropriate a payment to instalments
of rent which has not fallen due and that appropriation to any particular
instalment may be made when the landlord so decides. The defendant was not
entitled to appropriate the balance above £19,500 of the sums paid under the
deeds of release to the further instalments of rent claimed by the landlord and
the landlord had not yet appropriated the same.
The following
cases are referred to in this report.
Allied
London Investments Ltd v Hambro Life Assurance
Ltd [1984] 1 EGLR 16; (1983) 269 EG 41
City
Discount Co Ltd v Mclean (1874) LR 9 CP 692
Clayton’s
Case (1816) 1 Mer 572
Commercial
Bank of Australia v John Wilson & Co’s
Estate, Official Assignee [1893] AC 181
Hawkins, deceased, In re [1972] Ch 714; [1972] 3 WLR 265;
[1972] 3 All ER 386
Hirachand
Punamchand v Temple [1911] 2 KB 330
London
& County (A&D) Ltd v Wilfred Sportsman
Ltd [1969] 1 WLR 1215; [1969] 3 All ER 621; (1969) 20 P&CR 613
London
& County (A&D) Ltd v Wilfred Sportsman
Ltd [1971] Ch 764; [1970] 3 WLR 418; [1970] 2 All ER 600; (1970) 21
P&CR 788, CA
Martin v Breknell (1813) 2 M&S 39
Mecca, The [1897] AC 286
Richards v De Freitas (1974) 29 P&CR 1; [1975] 1 EGLR 53; 234 EG
613
Swift
(P&A) Investments v Combined English Stores
Group plc [1989] AC 632; [1988] 3 WLR 313; [1988] 2 All ER 885; [1988] 2
EGLR 67; [1988] 43 EG 73, HL
This was an
appeal by the defendant, Warner World Ltd, from a decision of Judge Quenitin
Edwards QC who, in Central London County Court, allowed, in part, a claim by
Milverton Group Ltd, for arrears of rent against the defendant.
Mark Warwick
(instructed by Frere Cholmeley Bischoff) appeared for the defendant; Jonathan
Ferris (instructed by HM Rose & Co) appeared for the plaintiff.
Giving the
first judgment, GLIDEWELL LJ said: This appeal concerns the question
whether a lessor, who has received from a guarantor of the lessee’s covenant to
pay rent a payment in consideration of his releasing the guarantor from his
obligations under the contract of guarantee, is obliged to give credit for that
payment when seeking to enforce against the lessee (whether the original lessee
or a lessee by assignment) the covenants contained in the lease to pay rent and
to make other payments.
By a lease
dated October 5 1973 the then owner of a commercial building known as 54 Greek
Street, London W1, leased that property to the appellant company, Warner World
Ltd (which then had a different name), for a term of 20 years from June 24
1973. Warner World assigned its interest in the lease to Marketing Trends Ltd
in September 1981, which company further assigned the lease to Network One Ltd
on December 22 1989.
The first
assignment by Warner World to Marketing Trends was made with the consent of the
lessor granted in a licence made on
been made at the request of Mr Donald Osmond Bailey, and contained a guarantee
by Mr Bailey that the assignee (Marketing Trends) should pay the rents reserved
and perform the covenants contained in the lease, and provided that if the
assignee should make default in payment of the rents or its observation of the
covenants
The surety
will pay and make good to the lessors on demand all losses, damages, costs and
expenses sustained by the lessors in respect of any of the before-mentioned
matters.
The clause
also expressly provided that:
This covenant
on the part of the surety shall be deemed to impose upon the surety the same
obligations … as if the lease had been
granted direct to the surety as tenant.
The second
assignment by Marketing Trends to Network One was similarly made pursuant to a
consent granted by the lessors by a licence under seal made on December 28 1989
in similar form to the earlier licence. In the second licence the sureties were
Desmond John Wilcox and John Beveridge, who guaranteed the performance of the
assignee’s obligations in the same terms as, and committed themselves to
obligations identical to those contained in, the guarantee given by Mr Bailey
in the earlier licence.
The owner’s
freehold reversion in the building was assigned to the plaintiff company in
October 1990.
To quote the
judgment of Judge Quentin Edwards QC in the court below:
In the summer
of 1991 Network One became insolvent. By this time the rent under the lease was
£78,000 a year payable in quarterly instalments in advance of £19,500. The
instalment due on Midsummer Day was not paid by Network One, and the plaintiffs
sought it from Messrs Wilcox and Beveridge. They did not pay the sum demanded
and by writ dated 21 August 1991 the plaintiff claimed from them £19,338 88 and
interest.
The sum was
slightly less than the rent due because there had been a small overpayment of a
sum due for insurance. On September 24 1991 the solicitors acting for Messrs
Wilcox and Beveridge satisfied the claim made in the writ by paying the sum
claimed together with interest and fixed costs.
By letters
dated September 26 1991 the plaintiff company gave formal notice to the
solicitors for Messrs Wilcox and Beveridge that if payment of the rent due on
Michaelmas Day were not made promptly, further proceedings would be taken against
their clients. On the same day the plaintiff company also wrote to the
defendant company, making a demand upon it as the original lessee for the
instalment of rent due on Michaelmas Day. On October 18 1991 by separate
letters the plaintiff company made formal demand from Messrs Wilcox and
Beveridge for payment of £19,500, the rent due on Michaelmas Day. On October 23
1991 the plaintiff company and Messrs Wilcox and Beveridge entered into an
agreement under seal described as a deed of release. The deed briefly recited
the grant of the original lease, the fact that the plaintiff company was now
the owner of the freehold reversion, the guarantee by Messrs Wilcox and
Beveridge under the licence of December 28 1989 and the demand made on them to
pay the outstanding rent on October 18 1991. The recital concluded
The landlord
has agreed that he will, upon receipt of a total of £50,348 from the
guarantors, abandon the demand on the guarantors and will release the
guarantors from all obligations to the landlord in respect of the lease,
whether arising under the licence or otherwise.
The operative
clauses of the deed provided that in consideration of the payment on or before
November 20 1991 by the guarantors to the plaintiff company of the sum of
£50,348,
The landlord
releases the guarantors from all obligations and liability to the landlord or
any person deriving rights or title from the landlord in respect of or in
relation to the lease, whether arising under the licence or otherwise.
On the same
day, October 23 1991 the plaintiff company issued a writ against the defendant
company claiming payment of the rent due on Michaelmas Day, £19,500, with
interest. By a writ dated April 6 1992, the plaintiff similarly claimed from
the defendant the rent due under the lease at Christmas Day 1991, £19,500, and
by a county court summons issued on July 9 1992 the plaintiff claimed against
the defendant the rent due at March 25 1992 and June 24 1992, £39,000 in total,
together with interest.
In the
meantime Messrs Wilcox and Beveridge had duly paid the £50,348 under the deed
of release dated October 23 1991. Moreover by a similar deed dated April 3 1992
the plaintiff company agreed to release Mr Bailey from his obligations under
his guarantee in consideration of his payment of a sum of £10,000, which was
also duly paid.
The High Court
actions were transferred to the county court, the three actions were
consolidated, and the defendant company then entered a defence to the
consolidated actions, which after amendment pleads that as the result of the
receipt by the plaintiff company of the sums of £50,348 from Messrs Wilcox and
Beveridge and of £10,000 from Mr Bailey, the rent due in September 1991,
December 1991 and March 1992 had all been paid and a part of the rent due in
June 1992 had been paid. The pleading also asserts that the defendant cannot
now claim in respect of those quarters’ rents or that part quarter rent
because:
1. It is
estopped from doing so;
2. It has
waived its claim;
3. It would be
unjustly enriched if it recovered all or part of that sum;
4. Equity
will restrain such a claim and/or recovery pursuant to such a claim.
I think it
helpful first to consider some basic propositions about the obligations owed to
a lessor by the original lessee, and assignee of the lease, and a guarantor of
the obligations of the assignee.
(i) An
original lessee remains liable to pay the rent due under the lease until the
end of the contractual term, even though he may have assigned the benefit of
the lease to another.
(ii) After an
assignment, the lessor may lawfully demand the rent from either the assignee or
the original lessee as it falls due.
(iii) If the
lessor demands rent from an assignee, who pays the amount due, the original
lessee is discharged from his obligation to pay that rent, ie the rent for the
same period.
These
propositions are not contentious and are indeed trite.
That brings me
to the first question the judge considered — does payment by a surety of an
instalment of a lessee’s rent discharge the lessee’s obligation to pay the same
rent? In his judgment the judge quoted a passage to which he had been referred
from the then current edition of Woodfall’s Law of Landlord and Tenant.
In the most recent edition, the material part is contained in para 7.085 and
reads:
Payment of
arrears of rent by a guarantor of the lessee’s rent does not discharge the
lessee.
For that
proposition the editors quote two authorities, the decision of Buckley J in London
& County (A&D) Ltd v Wilfred Sportsman Ltd [1969] 1 WLR
1215, reversed on a different point by the Court of Appeal, and Richards
v De Freitas (1974) 29 P&CR 1. The judge said of the decision of
Buckley J and certain other cases to which he had been referred:
These cases
undoubtedly decide that if payment of an instalment of rent is made by a
stranger or by a tenant’s surety the tenant cannot set up a defence that he has
paid the debt. He cannot therefore claim that if the landlord distrains for
rent which he has not paid the distress is unlawful nor that because the landlord
has received an equivalent sum the lease (assuming it contains the usual
proviso for forfeiture for non-payment of rent) is not forfeited. What the
cases do not decide is whether or not the tenant may set up the equitable
defence that the landlord, having received a sum in respect of the debt, cannot
recover it over again from the tenant.
The judge was
not referred to the decision in Richards v De Freitas. That was a
decision of May J to the effect that, when a lessor was in a position to
forfeit the lease for non-payment of rent, he was not obliged to accept an
offer of payment by the receiver of a company which was occupying the premises
under licence and thus deprive
those cited to the judge, I agree with him as to the effect of the authorities.
In my judgment, they do not support the proposition for which they are cited at
para 7.085 of Woodfall.
The judge
relied on the decision of this court in Hirachand Punamchand v Temple
[1911] 2 KB 330, a case in which a creditor accepted in satisfaction of his
debtor’s debt an offer of a smaller sum made by the debtor’s father and was
then held not entitled to recover the balance from the debtor. The judge
derived from that authority the proposition that the payment by a surety for an
assignee of an instalment of rent due on which the assignee had defaulted and
which the original lessee was liable to pay, discharged the liability of the
original lessee. Thus if Milverton had sought to recover from Warner World the
payment of £19,500 for June 1991 quarter day made by Messrs Beveridge and
Wilcox in September 1991, it would not have been entitled to succeed. I agree
with the judge’s conclusion on this issue. I would express the proposition
which produces this result as follows. If a lessor is entitled to be paid a sum
by way of rent for a particular period, and the original lessee, an assignee
and a surety have all covenanted to pay that rent, the lessor may recover it
from any one of them (in the case of the surety, if the assignee has
defaulted). If the lessor does however recover that sum from any one of the
three, the rent has then been paid. The other two persons who were liable cease
to be liable to pay that rent though of course they are still liable for any
future rent under their respective covenants.
The judge then
applied this principle to hold that, even though the payment of £50,348 by the
sureties for Network One was expressed to be paid as consideration for their
release from their obligations, £19,500 out of that total could properly be
regarded as payment of the rent due at Michaelmas 1991 which had already been
demanded of the sureties. I also agree with the judge in this respect.
What of the
remainder — the balance of £30,848 of the payment made by Messrs Wilcox and
Beveridge and the payment of £10,000 by Mr Bailey? This is the most difficult
issue in this appeal.
In my view,
the proper approach is to consider the potential liabilities of the defendant
and of Messrs Wilcox, Beveridge and Bailey to the plaintiff before the first
deed of release was executed. They were all four under an immediate obligation
to pay the rent for the Michaelmas quarter day in 1991, which had fallen due,
and potential future obligations to pay the rent as it fell due each quarter
until the end of the lease on June 24 1993, ie rent for a further six quarters.
Moreover each was under a potential liability to pay the cost of, or damages
for failure to make good, dilapidations at the end of the lease. The extent of
this last liability has not as yet been quantified, but is capable of
quantification.
The sureties
have each made a payment as consideration for being released from these
obligations. If those payments (or the balance of £30,848 in the case of Messrs
Wilcox and Beveridge) are not set off against any part of the total liability
of the defendant as original lessee, then the defendant will not only remain
liable under its covenants in the lease, but will be obliged to pay a sum equal
to the whole of the rent due up to the expiration of the lease, plus any other
sum which is due for dilapidations or indeed other breaches of the lessee’s
covenants. Such a result, in my judgment, would be so unjust that equity would
prevent it. The sums paid by the sureties would then truly result in unjust
enrichment of the plaintiff. So I conclude that the defendant is, or will be,
entitled to set off the £10,000 paid by Mr Bailey and the £30,848 balance of
the sum paid by Messrs Wilcox and Beveridge against the total of the sums
payable to the plaintiff for rent and under or for breach of other covenants in
the lease.
This
conclusion does not conflict with the judgment of Walton J in Allied London
Investments Ltd v Hambro Life Assurance Ltd (1983) 269 EG 41, [1984]
1 EGLR 16*, on which the judge relied in reaching his decision in the present
case. The defendant in Allied London Investments was also an original
lessee. As a term of a compromise of a series of actions, a surety for an
assignee for the defendant was unconditionally released from his obligations to
the plaintiff. The defendant pleaded that it was in the position of a co-surety
and thus was also released from its obligation to pay arrears of rent. Walton J
rejected this argument and found for the plaintiff. However, the question which
arises in the present case — whether the plaintiff must eventually give credit
to the original lessee for payments made by the sureties in consideration of
their release from their obligations — was not an issue in Allied London
Investments.
*Editor’s
note: Also reported at [1984] 1 EGLR 16.
The conclusion
at which I have arrived above is not, however, sufficient to provide the
present defendant, Warner World, with a defence to this action. This
consolidated action is for the total amount of rent for four quarters, the last
being the rent due on Midsummer Day 1992. The total amount which the plaintiff
is entitled to recover under the covenants in the lease has not yet been agreed
or decided by court, since the amount payable for dilapidations is still in
dispute between the plaintiff and the defendant.
I agree with
Hoffmann LJ, whose judgment I have had the advantage of reading in draft, that
in order to establish a defence to this action the defendant must show that the
payments were appropriated to those instalments of rent for which it is now
being sued. I also agree with, and respectfully adopt, the reasoning of
Hoffmann LJ in that part of his judgment dealing with appropriation. I share
his view that, though the plaintiff will eventually be obliged to give credit
to the defendant for the sums paid by the sureties, it will not be required to
do so until no more than the total of those sums remains outstanding out of the
amount otherwise due. Because the dilapidations claim is still in issue, it is
not clear whether this stage has yet been reached. What is clear, however, is
that it is for the plaintiff, not the defendant, to appropriate the benefit of
the payments made by the sureties. The defendant is and was not entitled to
appropriate, and thus to set off, those payments against the instalments of
rent for which the plaintiff sues in the present action, other than the rent
for the one quarter which had already been demanded of the sureties when they
agreed the deed of release.
I therefore
conclude that the judge reached a correct conclusion in all respects. I would
dismiss the appeal.
The plaintiff
sought leave to enter a cross-appeal out of time against the judge’s conclusion
with regard to the quarter’s rent which had been demanded. If we gave such
leave, for the reasons I have given I would dismiss the cross-appeal. I would
therefore refuse leave to give notice of cross-appeal out of time.
KENNEDY LJ agreed and did not add anything.
Also agreeing,
HOFFMANN LJ said: Under the terms of the lease and the two licences to
assign, there were six persons liable to pay the rent and observe the
covenants. They were Network One Ltd, to whom the lease was last assigned, its
guarantors Mr Wilcox and Mr Beveridge, the previous tenant Marketing Trends
Ltd, its guarantor Mr Bailey and the defendant as original tenant. As between
themselves they were liable in that order, but since this is not a dispute
between them, but an action by the landlord against one of them, the order of
liability between them is irrelevant. They were all liable to perform the same
obligations in the lease. These were to pay the rent of £78,000 a year by
quarterly instalments and to observe the other covenants, breach of which could
give rise to a liability for unliquidated damages.
In these
proceedings the landlord claims against the defendant payment of four quarters
of rent. The defence as to part is that the rent has already been paid. The
payments relied upon for this purpose are by the three guarantors; £50,348 paid
by Mr Wilcox and Mr Beveridge on October 23 1991 and £10,000 paid by Mr Bailey
on April 3 1992. Before the judge, Mr Jonathan Ferris, submitted for the
landlord, that no payment by a guarantor could extinguish the liability of a
tenant to pay rent. This is what it says in Woodfall’s Law of Landlord and
Tenant at para 7.085. The judge refused to accept this broad proposition.
The authority which Woodfall cites in support is London & County
(A&D) Ltd v Wilfred Sportsman Ltd [1971] Ch 764. The facts of
this case were very unusual. The guarantor had acquired the reversion and was
seeking to forfeit the lease for non-payment of the
Court of Appeal held that it could.
This case
certainly does not decide that a landlord who has been paid by the guarantor
can require the tenant to pay him again. The new landlord was entitled to claim
by way of indemnity the rent which it had paid as guarantor. On any view,
therefore, it was entitled to the money. It seems to me that the result can be
justified on the basis that the guarantor was entitled to be subrogated to the previous
landlord’s claim for the rent and so, on acquiring the reversion, was entitled
to exercise the right to forfeit for non-payment.
But this is
not how Russell LJ put it. He said that the guarantor had not paid rent. It was
true, he said, that the payments were made because the tenant failed to pay the
rent. But ‘in law they were nothing but payments under the guarantee in
satisfaction of the third party’s contractual obligation’. This distinction
between the rent payable by the tenant and the contractual obligation of the
guarantor cannot, in my judgment, survive the decision of the House of Lords in
P&A Swift Investments v Combined English Stores Group plc
[1989] AC 632*, which decided that the guarantor’s covenant also touches and
concerns the land. Lord Templeman said:
*Editor’s
note: Also reported at [1988] 2 EGLR 67.
A surety for
a tenant is a quasi tenant who volunteers to be a substitute or twelfth man for
the tenant’s team and is subject to the same rules and regulations as the
player he replaces.
In other
words, there is a single set of obligations, to pay the rent and perform the
covenants, owed by both tenant and guarantor. This was the view of Megarry J in
In re Hawkins deceased [1972] Ch 714 at pp723–9, with which I
respectfully agree.
In this court
Mr Ferris did not support the statement in Woodfall, but retreated to
the narrower proposition that the payments in this case were not in
satisfaction of the guarantors’ obligations under the lease. Instead, he said
that they were made in consideration of being released from such obligations.
For this purpose, it is necessary to look at the circumstances in which the
payments took place.
The payment by
Mr Wilcox and Mr Beveridge was pursuant to a deed of release dated October 23
1991. This recited the fact that on October 18 1991 the plaintiff had served
upon them a demand ‘in respect of outstanding rent and other obligations which
Network One had failed to perform under the lease’. The demand had stated that
the lessees had failed to pay the quarter’s rent which fell due on September 29
1991 and that there were substantial breaches of the repairing covenants, in
respect of which it said that a claim for damages would be formulated. The
operative part of the deed of release was as follows:
In
consideration of and conditional on the payment … of £50,348 …
the Landlord releases the guarantors from all obligations and liability
to the Landlord or any person deriving rights or title from the Landlord in
respect of or in relation to the Lease …
At the time of
the payment, the only rent outstanding was that which fell due on September 29
1991.
Mr Bailey paid
pursuant to a deed of release dated April 3 1992. This was not preceded by any
demand and contained no relevant recital. The operative part was in
substantially the same words as the earlier deed. At that time, the rent due on
December 25 1991 and March 25 1992 was unpaid. I do not accept that because the
payments were in consideration of release, they did not operate to discharge
any of the obligations under the lease. Payment for release and payment to
discharge obligations under the lease are not mutually exclusive. In return for
granting a release, the landlord accepted performance in part. And to avoid any
problems over whether payment of a debt already due was good consideration, the
release was given by deed. This was, in my judgment, the effect of the deeds of
release in this case. But I would go further. For the purpose of deciding
whether money owed by more than one person has been paid, I do not think that
it is possible for the creditor and one of the debtors to characterise a
payment in return for a release as anything other than a part performance of
the obligation. If this were possible, a creditor could pick off his debtors
one by one and recover in total more than the whole debt. For the payment to
count as part discharge of the common obligation, it is sufficient for the
payment to be referable to the guarantee.
It is not
however enough for the defendant to show that the guarantors made payments in
part discharge of their outstanding liabilities under the lease. Those
liabilities consisted of one or more instalments of rent which had already
fallen due, further instalments yet to fall due and liabilities for breach of
covenant which may or may not have accrued, but were certainly unquantified. In
order to establish a defence, the defendant must show that the payments were
appropriated to those instalments of rent for which he is being sued.
The relevant
principles relating to appropriation are as follows. (1) The question is to be
decided as if it arose solely between the creditor and the person making the
payment. The fact that someone else is liable for a debt to which the payment
could have been appropriated is irrelevant: see City Discount Co Ltd v Mclean
(1874) LR 9 CP 692, at p698. (2) Appropriation is in the first instance a
matter for agreement between the creditor and the debtor. (3) If the agreement
contains no express or implied appropriation, the debtor may appropriate at the
time when he pays. (4) If the debtor does not appropriate at the time when he
makes the payment, the right of application devolves on the creditor. (5) The
creditor may appropriate at any time thereafter. (6) Appropriation by the
creditor depends upon his intention, express implied or presumed. It is not
governed by fixed rules, eg deeming the payment to be appropriated to the debt
first incurred: The Mecca [1897] AC 286.
Was there any
appropriation by the deeds of release under which the payments were made? The
judge decided that the recital in the first deed of the demand for payment of
quarter’s rent due on September 29 1991 was impliedly an appropriation of part
of the money to that debt. I agree. He also decided that there was no
appropriation of the rest of the money paid under either deed. I also agree.
There may be an argument for saying that the rest of the money paid under the
first deed was appropriated to the unquantified claim for dilapidations. But I
doubt whether this was intended and in any case it would not help the
defendant.
There being no
appropriation in the agreement and none by the debtor when the payments were
made, the creditor is entitled to appropriate. Mr Mark Warwick, for the
defendant, says that the landlord must be deemed to have appropriated to those
instalments of rent which had already fallen due or, if none were unpaid, to
those which next fell due. He submits that if the landlord wanted to keep the money
against instalments falling due in the future, it should have been carried to a
separate suspense account, as in Commercial Bank of Australia v Official
Assignee of the Estate of John Wilson & Co [1893] AC 181. In that case,
however, the principal debt was a balance due on a running account. If the
payments by the guarantors had been credited to that account, it might have
been said that they discharged the earliest advances in accordance with the
rule in Clayton’s Case (but see City Discount Co Ltd v McLean (1874)
LR 9 CP 692). Hence the suspense account.
In principle,
however, there seems to me no reason why the creditor should not appropriate a
payment to an instalment which has not yet fallen due. In Martin v Breknell
(1813) 2 M&S 39 this was held to be the effect of the payment of a dividend
in bankruptcy in respect of a debt payable by instalments, some of which had
not fallen due at the date of the bankruptcy. Lord Ellenborough CJ said that a
guarantor was not entitled to require the dividend to be appropriated to the
whole of each instalment as it fell due until the payment had been exhausted.
Instead, it should be treated as appropriated rateably to each instalment. One
reason for adopting this course was that
It might make
a material difference to the plaintiff whether he is to recover on the
instalments now due, or wait for a future instalment; for before that grows due
the surety might become insolvent.
Mr Jonathan
Ferris likewise emphasised that if the payments by the
falling due, the landlord ran the risk that the other debtors might be
insolvent when the later instalments became payable. The payments had been made
in consideration of the discharge of the guarantors from the whole of their
obligations up to the end of the lease. It followed that there was no reason
why they should have to be appropriated to any particular instalments until the
landlord so decided.
In my view
this is correct. The creditor is entitled to appropriate ‘at any time’ and I
think it can defer appropriation until it becomes necessary to do so. For
example, it can delay the appropriation of Mr Bailey’s £10,000 as long as there
is more than £10,000 owing. But when it has collected all but £10,000 from
other debtors, that will amount to an appropriation of Mr Bailey’s £10,000 to
the remaining debt. This must follow from the fact that the rest of the money
has been demanded from others.
I add one
final point about interest. It seems to me that if there is appropriation to a
debt which had not fallen due at the time when the payment was received, the
other debtors are entitled to be credited with interest from the date when
payment was received until the date when the payment fell due. Otherwise a landlord
who released the guarantor of the rent of a long lease could credit the nominal
amount of his payment to the last instalment of rent in 50 years time without
regard to what the money could have earned in the meantime. It seems to me that
the other debtors are entitled to interest at a commercial rate, compounded
after tax with annual rests.
It follows
that the appeal must be dismissed.
Appeal
dismissed.
