Mullen v White

Commercial loans advanced to a company may be legally binding even where later advances are undocumented. The court may infer their terms from the parties’ conduct and the commercial context, but a personal guarantee is unenforceable without the required signed record.

A debt continues to bear agreed interest and remains repayable on demand unless a legally effective variation or release is proved. Where a creditor appoints one of several co-guarantors as executor, the guaranteed debt is treated in equity as paid and released, while the executor may claim contribution from the other guarantor.

Contractual equalisation arrangements between shareholders operate according to their terms and do not ordinarily include company assets, unrelated joint ventures or personal litigation costs.

Urbisity Ltd, a property development company, was funded by borrowing and loans from family members and business associates. Its directors, Nicholas Mullen and Christopher White, gave joint and several guarantees for some of those liabilities.

Following the company’s liquidation, three interlocking proceedings concerned the terms and repayment of loans made by Francis Brian Mullen, the effect of his death and probate on the guarantees, contribution between the guarantors, and the scope of an equalisation provision arising from the shareholders’ arrangements.

The court also determined accounting issues arising from settlements with other creditors, apartment transactions and a claim by Simon Eadie.

1. Loan terms. The documented £200,000 loan was governed by the loan agreement, including compound interest at 1% per calendar month with six-monthly rests, repayment on demand after default, and the joint and several guarantee. The later £60,000 and £40,000 advances were also legally binding and interest-bearing. Their terms were inferred from the surrounding circumstances, including the commercial nature of the original loan and the company’s immediate cash-flow needs. They were intended to be guaranteed in the same way, but the absence of a signed record meant that the guarantees were unenforceable.
2. Continuing liability. The court rejected the alleged waiver or subordination of interest and capital. The debt therefore remained due on demand and continued to bear compound interest. Payments previously made were attributable to interest where that was their evident character. The £40,000 repayment of principal was appropriated to the unsecured later advances.
3. Effect of probate. Applying Re Bourne [1906] 1 Ch 697, and the explanation in Jenkins v Jenkins [1928] KB 501, probate by Nicholas Mullen, who was both executor and guarantor, extinguished the joint and several liability under the guarantee at the date of probate. In equity, however, the liability was treated as discharged by Nicholas Mullen. He therefore obtained a right to contribution from Mr White, whether or not he had actually paid money into the estate.
4. Equalisation. The shareholders’ equalisation provision required an account of shareholder funds introduced into the company by loan or other agreed means to meet the shortfall in external funding. It did not extend to unrelated joint ventures. Contribution rights arising from individual guarantees had to be adjusted through that accounting process.
5. Settlements and company assets. Separate settlements by the guarantors with RAM and QFL did not remove their mutual contribution rights. Mr White could claim credit for his payment and Nicholas Mullen for his cash and boat contributions. The company’s equity in apartments was a company asset, not a shareholder contribution, and could not generate a personal credit. Legal costs incurred defending guarantee claims were not contributions to the company’s working capital.
6. Further accounting. The court rejected adjustments based on gains or losses on the Ivanhoe Road and Livingstone Drive flats. For the Eadie settlement, the parties were directed to determine the total paid, identify the part derived from the Croxteth Road sale proceeds, divide the balance equally, and credit each guarantor with qualifying payments. Costs and consequential matters were left for a further hearing.