Solus agreement coupled with mortgage–Supplemental deed of release and covenant on sale of garage business–Construction of the two deeds on default by a subpurchaser
This was a
procedure summons by Esso Petroleum Co Ltd, plaintiffs in an action against
Alstonbridge Properties Ltd, Gordon Henry Golding Thompson, Michael Charles
Borne and Acemoor Ltd, seeking (1) payment of all moneys due under the joint
effect of the covenants (a) in a mortgage dated January 28 1972 made between
Maintenance Garage Ltd, Lily Marie Draper as owner, Lily Marie Draper and Frank
Arthur Draper as sureties, and the plaintiffs, and relating to Maintenance
Garage, Willow Grove, Chislehurst, Bromley, Kent, and (b) in a deed of release
and covenant dated January 1 1973 made between Maintenance Garage Ltd, Lily
Marie Draper as owner, Lily Marie Draper and Frank Arthur Draper as sureties,
the first, second and third defendants, and the plaintiffs; and (2) possession
of Maintenance Garage.
Mr C A Brodie
(instructed by Durrant Piesse) appeared for the plaintiffs; Mr C Aldous
(instructed by D J Freeman & Co) for the first defendants; and Mr G
Lightman (instructed by J D Langton & Passmore and Lambert & Co) for
the second, third and fourth defendants.
Giving
judgment, WALTON J said that the summons was concerned with a mortgage of
garage premises on the south side of Willow Grove, Chislehurst, Bromley, Kent,
known as Maintenance Garage and referred to as the ‘south premises.’ Opposite these premises was another garage,
the ‘north premises.’ In 1972, the south
premises were owned by Mrs Lily Marie Draper and the north premises by her
husband, Frank Arthur Draper. A garage business was carried on on both premises
by a company known as Maintenance Garage Ltd, all the shares in which were held
by Mr and Mrs Draper. Maintenance Garage Ltd (‘the company’) had no estate or
interest in either of the premises, being merely a licensee of the owners. On
December 22 1971 the company entered into two solus agreements in the usual
form with the plaintiff company commencing on January 28 1972, one in respect
of each of the south and north premises. At one stage in the argument Mr
Brodie, for the plaintiffs, submitted that the company were in breach of the
solus agreement affecting the south premises, because it was provided by clause
4 (3):
Before
completing any sale or transfer of the service station premises or business or
making any other arrangement under which any person commences to carry on
business there in succession to the dealer to notify Esso in writing and
procure such person to enter into an agreement with Esso and the dealer whereby
such person is substituted for the dealer for all future purposes of this
agreement in relation to the interest transferred including this subclause.
The premises
and business had changed hands, said counsel, yet the company had not notified
the plaintiffs in writing and had not made any such arrangements for their
successors to enter into a written agreement with the plaintiffs as therein
provided. However, as far as the evidence went, all that had happened was that
in consequence of the events hereinafter noticed, the licence of the company to
trade on the south premises had been withdrawn, in consequence whereof it had
been unable to continue to do so. In the circumstances there could not have
been a breach of this clause by the company.
On the same
January 28 1972 a mortgage of the south premises was effected to secure a loan
by the plaintiffs to the company of £38,000, Mr and Mrs Draper also acting as
guarantors. The precise terms of this document were important, and it was
necessary for him (Walton J) to read a considerable portion of it in full:
THIS MORTGAGE
is made on January 28 1972 between [the company] of the first part [Mrs Draper]
(‘the owner,’ which expression except where the context otherwise requires
shall include the person or persons from time to time deriving title under the
owner) of the second part [Mr and Mrs Draper] (‘the sureties’) of the third
part, and [the plaintiffs] (‘the lenders’) of the fourth part.
WHEREAS:
(1) The owner is seised in fee simple free from
incumbrances of [the south premises] and the company carries on thereat the
business of petrol filling and service station proprietors with the licence of
the owner as she hereby testifies but no tenancy has been granted in respect
thereof;
(2) [Mr Draper] is seised in fee simple of [the
north premises] and the company as licensees carry on thereon the business of
garage proprietors and service station (which premises with the property hereby
mortgaged are hereinafter together referred to as ‘the garage premises’);
(3) The lenders have agreed to lend to the
company the sum of £38,000 bearing interest at the rate of 6 per cent per annum
on the principal moneys from time to time outstanding on the terms of a
memorandum of agreement dated December 22 1971. . . .
NOW THIS DEED
WITNESSETH as follows:
1 (i) In
consideration of the said sum of £38,000 so advanced as aforesaid (the receipt
whereof the company hereby acknowledges) and subject to the provisions of
clause 6 of the third schedule hereto the company and the sureties hereby
jointly and severally covenant with the lenders to repay to the lenders the
said sum of £38,000 with interest thereon from the date hereof at the rate of
£1,314.72 per annum by equal monthly instalments [and then those instalments
are broken down in respect of principal and interest] on the 28th day of every
month in every year until the whole of the said sum of £38,000 with interest as
aforesaid shall have been repaid . . . ;
(ii) Provided that if any of the said monthly
instalments shall be unpaid for 21 days after the time hereinbefore appointed
for payment thereof or if the company and/or the sureties shall fail to perform
any of their obligations under this mortgage other than their obligation in
regard to the repayment of principal moneys and interest the company and/or the
sureties will pay to the lenders on demand so much of the said sum of £38,000
as shall then be unpaid together with interest thereon calculated in accordance
with clause 2 hereof.
2 In the event of the said sum of £38,000 (or
such part thereof as shall for the time being remain unpaid) becoming repayable
or being repaid under the terms of this deed there shall be paid by the company
and/or the sureties to the lenders such additional sum by way of interest as
shall together with interest already paid be equivalent to interest at [a
certain rate].
3 For the consideration aforesaid and as
security for the covenants on the part of the company and the sureties herein
contained the owner as beneficial owner hereby charges by way of legal mortgage
[the south premises]. . . .
4 . . .
5 It is hereby agreed and declared that
although as between the company and the sureties the sureties are only sureties
for the company yet as between the sureties and the lenders the sureties shall
be considered as principal debtors for all the principal and other moneys and/or
interest hereby secured [and consequent matters which need not be gone into].
6 The company the owner and the sureties hereby
jointly and severally covenant with the lenders that during the continuance of
this security the company and where appropriate the owner or the sureties will
observe and perform the stipulations set forth in the second schedule hereto.
7 It is hereby mutually agreed and declared
between the parties hereto in the terms set forth in the third schedule hereto.
It was
necessary to refer to two of the clauses in the second schedule:
2 To occupy the garage premises and to conduct
and keep the same open for business as retailers of motor fuels;
4 To purchase exclusively from the lenders all
motor fuels which the company and/or the sureties may require for consumption
or sale on the garage premises (and on any premises now or hereafter owned
occupied or controlled by the company and/or the sureties or either of them
which may be adjoining or otherwise physically connected with the premises
hereby mortgaged) so long as the lenders shall be ready to supply the same. . .
.
In the third
schedule, the first clause dealt with the power of sale conferred by the Law of
Property Act 1925, which was applicable with certain variations and extensions;
that was to say, the power was to become immediately exercisable without notice
or other restriction if:
(ii) Any instalment of principal moneys and/or
interest shall not be paid within 21 days after the day hereby appointed for
the payment thereof or
(iii) the company and/or the sureties shall fail to
comply with a notice given by the lenders under the terms of clause 6 (b) of
the schedule or
(iv) the company the owner or the sureties shall
fail to observe any of the covenants or provisions on their part herein
contained. . . .
Clause 6 of
the schedule provided:
Notwithstanding
the covenants as to repayment contained in clause 1 (i) of this deed:
(a) the company the owner and/or the sureties
shall be entitled to redeem this security at any time after five years from the
date hereof . . . .
(b) The lenders shall be entitled at any time
after five years from the date hereof upon giving to the company and/or the
sureties 12 months’ prior notice in writing to require the company and/or the
sureties to repay to the lenders the whole of the principal moneys. . . .
Later in 1972
Alstonbridge contracted to purchase (i) the south premises from Mrs Draper,
(ii) the north premises from Mr Draper, and (iii) the whole of the issued share
capital of the company from Mr and Mrs Draper. These sales and purchases were
apparently completed on January 1 1973, and a deed of release and covenant
supplemental to the mortgage was entered into between the interested parties.
Once again, he (Walton J) must read the relevant parts of this document:
THIS DEED is
made on January 1 1973 between [the company] of the first part [Mrs Draper]
(‘the owner’) of the second part [Mr and Mrs Draper] (‘the sureties’) of the
third part [the second and third defendants] (‘the new sureties’) of the fourth
part [Alstonbridge] of the fifth part, and [the plaintiffs] of the sixth part.
WHEREAS:
(1) [Here the effect of the mortgage (the
‘principal deed’) was recited];
(2) The garage premises as described in the
principal deed have been transferred to Alstonbridge by transfers dated of even
date herewith and also by transfers dated with today’s date Alstonbridge are
the beneficial owners of the whole of the share capital of the company;
(3) The transfer of the garage premises is
subject to the principal deed and the principal moneys and interest thereby
secured and the company are to continue to occupy the garage premises as
licensee of Alstonbridge but no tenancy is to be granted in respect thereof;
(4) The lenders have been requested to release
the sureties and the owner from their obligations under the terms of the
principal deed which they have agreed to do upon the new sureties and
Alstonbridge entering into the covenants hereinafter appearing;
NOW THIS DEED
WITNESSETH as follows:
(1) In consideration of the covenants on the part
of the new sureties and Alstonbridge hereinafter appearing the lenders hereby
release the owner and the sureties from all the covenants and obligations on
their part contained in the principal deed in respect of any breaches thereof
occurring from and after the date hereof.
(2) For the consideration aforesaid the new
sureties and Alstonbridge hereby jointly and severally covenant with the
lenders to henceforth observe and perform all and singular the covenants stipulations
and agreements on the part of the sureties and the owner contained in the
principal deed as if they were successors thereof respectively.
(3) All the definitions contained in the
principal deed shall apply to this deed save that Alstonbridge shall be deemed
to be a successor of the owner and the sureties shall be deemed to include the
new sureties.
Alstonbridge
were registered as proprietors of the south premises on March 8 1973 and
remained registered at all material times, but they appeared to have sold the
south premises to the fourth defendants, Acemoor, some time in March 1973,
according at any rate to the terms of a letter of March 27 1973 that Acemoor’s
solicitors wrote to the plaintiffs. After saying that their clients had
purchased the freehold interest in the south premises, the solicitors added
that before completion they had obtained from the solicitors for Alstonbridge a
notice of redemption of the mortgage on the property, and they enclosed that
notice, which read:
We, Langton
& Passmore, solicitors on behalf of [Alstonbridge], give you notice that
[Alstonbridge] intend at the expiration of three months from the date of
service hereof to pay off all the moneys then owing on the security of [the
mortgage].
This letter and
notice might give rise to interesting questions, but he (his Lordship) did not
think they affected anything he had to decide. Whatever notice was given to the
plaintiffs, no tender was at any time made to them of the outstanding
principal, interest and costs, so that the question of the validity of the
notices did not in law arise. However, from shortly after the date of that
letter, namely April 4 1973, no mortgage instalments were received by the
plaintiffs from anybody until January 31 1974, when Acemoor tendered a cheque
for £3,000, which was refused by the plaintiffs. On May 16 1974 the plaintiffs
issued an originating summons naming as defendants Alstonbridge, the sureties
under the deed of release and covenant and Acemoor, asking as against Alstonbridge
and the sureties payment of the principal sum, interest and costs and as
against Alstonbridge and Acemoor possession of the south premises.
The first
question was whether the plaintiffs had any claims against Alstonbridge at all.
The claims made were for payment and possession because Alstonbridge, as
registered proprietors of the south premises, were in the situation of owners
of the equity of redemption in the premises subject to the
They were not actually in possession, and had not been at any rate since March
1973. It was not their fault that Acemoor had not registered the transfer to
that company which Alstonbridge had executed about that time. He (his Lordship)
was of opinion that if the claim to possession had been the only one advanced,
Alstonbridge would never have been a proper party to the summons. It was
established by R v Judge Dutton Briant [1957] 2 QB 497 and West
Penwith Rural District Council v Gunnell [1968] 2 All ER 1005 that a
mortgagee’s application for an order for possession was simply an order for the
recovery of land and not proceedings for enforcing the mortgage. Accordingly it
had been decided in Alliance Building Society v Shave [1952] 1
All ER 1033 that an order for possession could be made against a complete
stranger to the title who happened to be in actual possession, and could be so
made in the total absence of the mortgagor or mortgagors. Since the plaintiffs
knew that Alstonbridge were not actually in possession and that no relief in
this regard was or could have been sought against them directly, in his (Walton
J’s) judgment they were never necessary or proper parties to the claim for
possession. This was a point which would only go to costs, but in the event
nothing could turn upon this in the present case, since the real contest
between the plaintiffs and Alstonbridge was to the liability of the latter for
payment of the moneys due under the mortgage.
As to this, Mr
Brodie pointed to clause (2) of the deed of release and covenant and said,
truly, that that clause contained a joint and several covenant by the new
sureties and Alstonbridge to perform all the covenants on the part of the
sureties and the owner contained in the mortgage, and that that was but one
covenant; from which it followed, he said, that Alstonbridge had undertaken the
covenants on the part of the sureties to the mortgage, ie Alstonbridge were
liable as sureties for the mortgage. But Mr Aldous, for Alstonbridge, said that
this would undoubtedly have been the position had that clause stood alone in
that form, but it did not. First, the clause itself continued with the vital
words ‘as if they were successors thereof respectively,’ and, secondly, there
was clause (3), which showed quite clearly that the whole purport and intent of
the deed was to substitute Alstonbridge for ‘the owner’ and ‘the new sureties’
for ‘the sureties.’ And picking up that
last point, Mr Aldous said that as for the fact that clause (3) stated, ‘the
sureties shall be deemed to include the new sureties,’ that was obviously a
drafting infelicity. Mr Aldous said that, looking at the deed as a whole, there
could really be no doubt but that the proper construction of clause (2) was
that it really contained two covenants: one by Alstonbridge substituting it
completely for ‘the owner’ in the mortgage, and one by the new sureties,
jointly and severally, substituting themselves for the sureties in the
mortgage. He (his Lordship) had come to the conclusion that Mr Aldous’s
arguments were to be preferred. Accordingly it appeared to him that the only
covenants in respect of which Alstonbridge were liable to the plaintiffs were
the covenants on the part of the owner contained in the mortgage; and that as
those never extended to liability for payment of the mortgage debt or any part
thereof either as principal or surety, the plaintiffs had no claim against
Alstonbridge in this regard, and so far as concerned Alstonbridge, therefore,
the originating summons fell to be dismissed with costs.
The next claim
was that of the plaintiffs against the new sureties–the second and third
defendants–for payment of all moneys due under the mortgage. Mr Brodie’s case
here, because he was unable to show any demand in the terms of clause 1 (ii) of
the mortgage for payment of the unpaid principal, being only able to establish
such a demand as having been made against Alstonbridge, was that the service of
the originating summons herein was the demand, which the plaintiffs were fully
entitled to make, because the monthly instalments had been unpaid for upwards
of 21 days, and the plaintiffs had not, either by acceptance of such
instalments or by any other action on their part, waived their right to make
such a demand. Mr Lightman, for the second, third and fourth defendants,
disputed this, and also argued that the kind of demand referred to in clause 1
(ii) must be a demand on the principal debtor (the company in the present
case), upon whom no such demand had ever been made. It would, he maintained, be
absurd that the obligation on the principal debtor should remain that of paying
by instalments while the obligation of the sureties should have been transmuted
into that of having to pay a single lump sum. He (Walton J) felt the force of
this submission, but with the best will in the world was unable to give to the
phrase ‘the company and/or the sureties will pay to the lenders on demand’ etc
any other meaning than that the mortgagee was entitled to demand repayment in
full from either the company or the sureties, as it thought fit. The mortgagee
was entitled to treat all the sureties as principal debtors (see clause 5), and
he (his Lordship) thought that if in these circumstances a demand on the
sureties and not the principal debtor created problems for the principal
debtor, this had to be accepted, though he did not think that in practice any
real problems were likely to be created.
With regard to
the demand point, however, he (Walton J) was of the opinion that in the present
circumstances the service of the originating summons was not a sufficient
demand for the purposes of clause 1 (ii) of the mortgage. He fully accepted
that where there was a pre-existing debt which was payable ‘on demand,’ such a
demand (other than the service of proceedings) was not a prerequisite to the
bringing of an action to recover that debt. The case of Re Brown’s Estate,
Brown v Brown [1893] 2 Ch 300 showed that where the character in
which payment was required was that of surety, a demand was, in general,
necessary; but he assumed for present purposes (without finding it necessary to
decide) that the provisions of clause 5 of the mortgage, equating the liability
of the sureties to that of a principal debtor, was effective to obviate the
necessity for a demand merely on this ground. His difficulty, nevertheless, was
that the demand in the present case was a demand which, of its own intrinsic
nature, changed the nature of the liability. It turned a liability to pay by
instalments into a liability to pay the whole at once. Under these
circumstances he thought that even as against a principal debtor a demand
antecedent to the issue of proceedings was a necessary prerequisite of the
whole cause of action. He put it this way: that where the pre-existing
obligation was to pay the debt by instalments, the demand that it be paid in
one lump sum was an act which radically changed the nature of the debtor’s
obligation, and so was an essential ingredient of any cause of action to
recover the lump sum. He thought that the case was precisely equivalent to the
type of case envisaged by Scrutton LJ in Bradford Old Bank v Sutcliffe
[1918] 2 KB 833 at p 848. Accordingly, for those reasons, he concluded that a
demand on the sureties was an essential ingredient of any cause of action
against them for the whole mortgage debt (as distinct from any unpaid
instalments), and that therefore the claim for payment against them fell to the
ground.
The final
claim was that of the plaintiffs against Acemoor for possession. Mr Lightman,
for Acemoor, resisted that, arguing (1) that a term ought to be implied in the
present mortgage that the morgagee was not entitled to possession unless the
mortgagor defaulted, and (2) that if such an implication were made, the
mortgagee would only become entitled to possession so long as the mortgagor was
in default, and that if the mortgagor corrected any default (as it did here by
tendering all arrears) the mortgagee thereafter lost all rights to possession
once again. He (his Lordship) accepted
that the mortgagor was to be entitled to remain in possession against the
mortgagee until he made default in payment of one of the instalments. But there
must be something upon which to hang such a conclusion in the mortgage other
than the mere fact that it was an instalment mortgage, and he (Walton J) could
find nothing in the present mortgage which would enable the court to find any
such implication here. Even had he been able to discover any such implication, it
could only have been an implication until some default by the borrower, and
this default quite clearly took place when the instalments were unpaid. He did
not think that there was any such general doctrine as that for which Mr
Lightman contended, that if the mortgagor after default then tendered the
arrears the implication that he was entitled to possession revived. He thought
that if such an implication were made, it would be an implication that lasted
until default; once default had been made, he thought the implication went
completely, and the mortgagee then became entitled to pursue its ordinary
fundamental right to claim possession at any moment it thought fit. He would
add that it appeared to him that there had been a tactical battle here between
the parties, with Acemoor wishing to redeem the mortgage when the financial
situation was such that it would have been possible for them to borrow money
elsewhere more favourably, the plaintiffs correspondingly resisting redemption,
and the position then dramatically changing when the financial climate itself
dramatically changed. He did not think there was anything in the plaintiffs’
conduct upon which Acemoor was properly entitled to rely in order to remain in
possession, and accordingly, in his judgment, the claim for possession against
Acemoor succeeded.
The summons
against Alstonbridge and the second and third defendants was dismissed with
costs. An order for possession was made against Acemoor with a stay of
execution pending possible notice of appeal.
