Mortgagors entering into new mortgage deed – Default in payment on mortgage – Bank seeking to enforce covenant to repay – Whether mortgagors jointly and severally liable – Whether appellant liable for separate debts of partner – Judge finding appellant liable – Appeal dismissed
During the 1980s the first defendant, M, both on his own account and in partnership with others, including the second defendant, G, acquired a large portfolio of residential properties, which were let to tenants. The acquisitions were financed substantially by a bank. The claimant was the successor in title to the assets and liabilities of the bank.
In June 1992, following substantial growth of the business of M and the partnerships, the bank conducted an audit that led it to press for a restructure of its financial arrangements with M and G. The restructure took the form of a consolidated mortgage of 46 properties to secure a total indebtedness of £1.71m. G signed the formal restructuring documents in July 1993. Clause 1 defined “the mortgagor” as both M and G, and provided that “if the expression the mortgagor includes more than one person, it shall be construed as referring to all and/or any one of those persons and the obligations of such persons hereunder shall be joint and several.” Clause 2 contained a covenant by “The Mortgagor” to pay on demand all sums owed to the bank “whether alone or jointly with any other person and in whatever style, name or form…”.
In due course, there was default in payment on the mortgage and the debt secured by it. The claimant issued proceedings against the defendants. The judge held, inter alia, that the effect of clause 2 was that M and G were jointly and severally liable for partnership debts, including any separate debts that one partner might have with the bank, whether or not the other partner knew of them.
G appeal against liability in respect of £591,000 advanced to M alone, on a separate account. It was submitted that the construction adopted by the court had the effect of making G a guarantor of the personal liabilities of M to the bank. G relied on Coghlan v SH Lock (Australia) Ltd (1987) 8 NSWLR 88, in which it was held that an ambiguous document was to be construed in favour of the surety, and submitted that, in all the circumstances, only M was liable for facilities granted to him alone.
Held: The appeal was dismissed.
The words “M and G, or any one of them” were to be read into the covenant to pay, contained in clause 2, in every place where the word “mortgagor” appeared. Once it was recognised that each reference to mortgagor referred to M and G jointly and severally, it was clear that G was under an obligation to pay the several liability of M. Such a definition of “mortgagor” could not be regarded as outside the intention of the parties.
Jeremy Cousins QC (instructed by Moran & Co, of Tamworth) appeared for the claimant; Nicholas Davidson QC and Howard Smith (instructed by Crutes, of Newcastle upon Tyne) appeared for the second defendant.
Thomas Elliott, barrister
