Unicomp Inc v Eurodis Electron Plc

A contractual forbearance clause may prevent a surety from relying on the rule that a material variation or alteration of the guaranteed risk discharges the surety. Acceptance of rent from a non-tenant does not, without more, establish surrender of a lease by operation of law. Surrender requires conduct which objectively and unequivocally demonstrates that the parties treated the lease as terminated. A tenant’s liquidation and continued negotiations for an assignment may instead confirm that the lease continues. An obligation to use reasonable endeavours to obtain a release from a guarantee is distinct from an interim indemnity covering liabilities until that release is obtained.

Eurodis Electron Plc had guaranteed CEM Computers Ltd’s obligations under a commercial lease. Unicomp Inc guaranteed the obligations of the purchaser under a share sale agreement, while the purchaser undertook to obtain Eurodis’s release from its lease guarantee and to indemnify Eurodis pending that release.

After CEM entered liquidation, a related company occupied the premises and paid rent. The landlord did not consent to an assignment, and negotiations for an assignment and replacement guarantor failed. Eurodis later settled the landlord’s claim and sought recovery from Unicomp.

The Master entered summary judgment for Eurodis. On appeal, Unicomp relied on the rule concerning variation of a guaranteed contract, alleged surrender by operation of law, and argued that the purchaser’s endeavours obligation prevented summary judgment.

1. Appeal dismissed. The defences advanced by Unicomp had no reasonable prospect of success, and the Master’s summary judgment for Eurodis was upheld.
2. The rule in Holme v Brunskill [1878] 3 QBD 495 was accepted: a surety may be discharged by a material variation of the principal contract made without consent, unless the variation is clearly insubstantial or plainly incapable of prejudicing the surety. However, the landlord’s failure to enforce the covenant against assignment or parting with possession fell within the guarantee’s express proviso protecting forbearance to enforce the covenants. Any resulting prejudice therefore did not release Eurodis.
3. The landlord had not agreed to vary the lease. It had accepted rent from another company while negotiations for an assignment continued and after they failed. This was forbearance, rather than an agreed variation of the lease. The reasoning in Howard deWalden Estates Ltd v Pasta Place Ltd & ors [1995] 1 EGLR79, based on Selous Street Properties Ltd v Oronel Fabrics Ltd [1984] 1EGLR50, was considered in that context.
4. Surrender by operation of law requires objectively assessed conduct which points unequivocally to termination of the lease. The parties’ intentions are irrelevant. CEM’s liquidation was not inconsistent with continuation of the lease, which remained an asset until forfeiture or disclaimer. Payment of rent by a non-tenant was likewise not necessarily inconsistent with the lease, applying Mattey Securities Ltd v Ervin [1998] EDLR 66.
5. The purchaser’s obligation to use reasonable endeavours to obtain Eurodis’s release and its separate obligation to indemnify Eurodis pending that release were independent. Since the release was never obtained, the indemnity applied regardless of whether the endeavours obligation had been discharged.

• High Court (Chancery Division): Appeal from the Master’s order dated 13 January 2004 dismissed. Summary judgment for Eurodis Electron Plc was upheld.