Lease — Action for payment of rent due — Payments by guarantors in return for release from obligations — Whether payments appropriated to instalments of rent due — High Court holding creditor entitled to appropriate at any time and could defer appropriation — Appeal dismissed
By a lease dated June 24 1973 54 Greek Street, London W1, was leased to the defendant for 20 years. Under the terms of the lease and 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, W and B, the previous tenant, Marketing Trends Ltd, its guarantor, C, and the defendant, as original tenant. They were all liable to perform the same obligations, which were to pay the rent of £78,000 pa by quarterly instalments and observe the other covenants.
The plaintiff to whom the freehold reversion was assigned in October 1990 claimed against the defendant payment of four-quarters rent. The defence as to part was that the rent had already been paid. The payments relied upon for that purpose were by the three guarantors; £50,348 by W and B in October 1991 and £10,000 by C in April 1992. These were paid in consideration of the plaintiff releasing them from their obligations under the contract of guarantee. The county court found that the defendant had not established a defence.
Held The defendant’s appeal was dismissed.
1. The court did 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 were not mutually exclusive. In return for granting a release, the plaintiff accepted part performance; and to avoid any problems over whether payment of a debt already due was good consideration, the release was given by deed. That was the effect of the deeds of release in the present case.
2. Further, for the purposes of deciding whether money owed by more than one person had been paid, it was not possible for the creditor and one of the debtors to characterise a payment in return for release as anything other than a part performance of the obligations. If that 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 was sufficient for the payment to be referable to the guarantee.
3. It was 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 might or might not have accrued, but were unquantified. In order to establish a defence the defendant must show that the payments were appropriated to those instalments of rent for which he was being sued.
4. Though the landlord would eventually be obliged to give credit to the defendant for the sums paid by sureties, it would not be required to do so until no more than the total of those sums remained outstanding out of the amount otherwise due. It was for the plaintiff, not the defendant, to appropriate the benefit of the payments made by the sureties. The defendant was not entitled to appropriate, and thus set off, those payments against the instalments of rent for which the plaintiff sued, other than the rent for the one quarter which had already been demanded of the sureties when they agreed the deed of release.
Jonathan Ferris (instructed by Rose & Co) appeared for the plaintiff; Mark Warwick (instructed by Frere Cholmeley Bischoff) appeared for the defendant.
