Susan Hilary Hurley v The Darjan Estate Company Plc

An improperly executed lease may operate as an agreement for a lease. Where specific performance would be granted, the landlord may enforce accrued rent as a debt for a liquidated sum, including after forfeiture and retaking possession. The equitable rule in Walsh v Lonsdale applies.

Constructive notice of undue influence is not generally imposed on an innocent contracting party outside the suretyship context. A joint lease granted to spouses is ordinarily more akin to joint borrowing than to a guarantee. Actual knowledge of wrongdoing is therefore required unless the transaction gives rise to circumstances comparable to suretyship.

The appellant appealed against a bankruptcy order made by Deputy District Judge Atkin in the Central London County Court. The petition was based on rent arrears under a 21-year lease of licensed premises signed by the appellant and her husband.

The appellant argued that the lease had not been validly executed as a deed and that her signature had been procured by undue influence, of which the respondent landlord had constructive notice. The appeal concerned whether the resulting liability was a debt for a liquidated sum and whether either contention disclosed a genuine and substantial dispute.

1. Appeal dismissed. The bankruptcy order was rightly made.
2. The lease was not validly executed as a deed because the appellant’s signature was not attested. It therefore operated as an agreement to grant a lease. Under the doctrine in Walsh v Lonsdale, equity treats the parties as if the lease had been granted where specific performance would be ordered.
3. Specific performance would be granted. The landlord’s forfeiture and retaking of possession did not make specific performance futile. Gilbey v Cossey established that specific performance may be ordered to enable recovery of rent even where the agreed term has expired. The same principle applied where the term ended by forfeiture. The accrued rent was consequently a debt contingently due upon specific performance and a liquidated sum for bankruptcy purposes.
4. The statutory test was satisfied. Under the Insolvency Act 1986, section 267, unpaid rent was a pre-ascertained contractual liability. The appellant had no genuine and substantial dispute within rule 6.54(b) of the Insolvency Rules.
5. The constructive-notice principles in Royal Bank of Scotland v Etridge (No. 2) were principally concerned with non-commercial suretyship. A joint tenancy under a lease was more analogous to joint borrowing in CIBC Mortgages v Pitt. The appellant received a direct interest in land, and nothing in the transaction placed the landlord on inquiry. Actual knowledge of wrongdoing would therefore have been required.
6. In any event, the evidence did not establish undue influence. The appellant retained financial independence and her consent was not overborne. The comparison with Barclays Plc Bank v O’Brien supported that conclusion.

• High Court (Chancery Division): Appeal from the bankruptcy order made by Deputy District Judge Atkin on 1 August 2011. The appeal was dismissed.