Brook v Green

A guarantee clause providing that the surety is not discharged by anything the creditor does or omits to do may exclude both complete and partial discharge arising from the loss of security. The clause need not refer expressly to security. A guarantor who was an officer responsible for registering a company charge cannot rely on his own default or illegality to avoid the guarantee. Money paid through a third-party account remains within the guarantee where the underlying indebtedness is owed to the creditor. Where successive loans plainly carry interest, the rate may be implied objectively from the parties’ earlier agreement and the surrounding circumstances.

The petitioner sought a bankruptcy order against the respondent for a debt exceeding £1.2 million under a personal guarantee of loans made to STE Homes Limited. STE Homes became insolvent, and a company charge securing the loans was avoided because it had not been registered. The respondent opposed the petition on the grounds that the guarantee was discharged to the extent of the lost security, that some advances were made through a third-party company, that the interest claim was unliquidated, and that he was fully secured. The court determined whether those objections created a substantial dispute or otherwise defeated the petition.

1. The guarantee contained an unconditional and irrevocable promise and provided that the guarantor would not be discharged by anything the creditor did or omitted to do. Properly construed, “discharged” and “discharge” covered both complete discharge and discharge pro tanto. The failure to register the company charge was an omission which would otherwise have discharged the guarantee, but clause 4 excluded that consequence. The clause did not need to mention securities expressly, nor was it limited to omissions causing total loss of security.
2. As an alternative, the court held that section 399 of the Companies Act 1985 placed the registration duty on STE Homes and its officers in default. The respondent, who was closely involved in granting the charge, could not rely on his ignorance of the law or on his own illegal default to escape the guarantee.
3. The fact that some payments were made from Nortonthorpe Industrial Park Ltd’s bank account did not prevent recovery under the guarantee. The relevant question was to whom the indebtedness was owed. The evidence established that the payments were made pursuant to loan agreements between the petitioner and STE Homes, and not pursuant to any loan agreement with Nortonthorpe.
4. The parties plainly intended the later loans to bear interest. Objectively, the implied rate was the 3 per cent monthly rate agreed for the initial loan, having regard to the similar lending and risk and the absence of any indication that a different rate would apply. The interest claim was therefore not rendered incapable of supporting the petition merely because no later document stated the rate expressly.
5. The third charge over Abbey Road was valued at £180,000. The outright transfer of three cottages did not create security, and the alleged counterclaim was not a genuine substantial counterclaim. There remained substantially more than £750 due under the guarantee. A bankruptcy order was made.