OF A. Guarantee-Lease-Assignment to creditor as security- Failure of creditor to obtain
landlord's consent-Omission to exercise option to renew lease Breach of covenant-Novation--Agreement to give time to debtor-Property Law Act MELBOURNE,
1928 (Vict.) (No. 3754), sec. 146. Mar. 9, 10.
A tenant under an agreement for a lease of business premises borrowed SYDNEY,
money from a merchant supplying his stock and assigned his interest under April 21.
the lease to the lender, the loan being guaranteed. The landlord's consent was not obtained to the assignment as required by the agreement for the lease. The tenant sold the business carried on on the premises, and successive resales took place to different purchasers; each purchaser took possession and paid the rent directly to the landlord and dealt directly with the lender, who by his books treated the purchaser for the time being as his debtor. Finally, the last purchaser at a time prior to the expiration of the agreed term obtained a new lease from the landlord in substitution for the old. The land- lord was unaware that the old lease had been assigned to the lender as a security. In an action brought by the borrower and the guarantor for a declaration that they were discharged from repayment of the loan, both plaintiffs relied on novation alleged to arise from the buyers of the business having been accepted as substituted debtors. The guarantor pleaded a discharge by reason of the creditor's having given time to the debtor, and by his having negligently failed to preserve the security by failing to procure the landlord's consent to the assignment of the agreement and by failing to exercise an option to extend the original term.
Held (1) that any inference or implication that the lender agreed to sub- stitute the purchasers or any of them for the borrower as his creditor was excluded by express evidence of a contrary intention: (2) that, if the lender did agree to refrain from calling up the loan while the purchasers continued to deal with him, it was done at the request of the guarantor, who was therefore not released; (3) that, assuming the lease arising from the agreement was lost as a security owing to failure to give the landlord notice of the assignment and obtain his consent, the guarantor was not discharged either wholly or pro tanto, because (i.) the omission was not a departure from the contract between the parties on the faith of which the guarantee was given; (ii.) it was not a neglect or default on the part of the lender of which the guarantor could complain (iii.) as the covenant against assignment had been broken, the agreement for a lease was not specifically enforceable and gave no equitable term, and at best a tenancy from year to year only had subsisted.
Decision of the Supreme Court of Victoria (Macfarlan J.) affirmed.
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Williams v Frayne [1937] HCA 16
Case
[1937] HCA 16
Decision Date
CaseChat Overview and Summary
This case concerned an appeal to the High Court of Australia from a decision of the Supreme Court of Victoria. The appeal was brought by Clifford John Williams (the guarantor) and his brother, Walter Herbert Williams (the principal debtor), against George Frayne and Henrietta Ann Tyree (the creditors). The principal debtor had borrowed money from the creditors to purchase a bakery business, with the guarantor providing a guarantee and security. The dispute arose when the principal debtor sold the business, and subsequent purchasers took over, leading to claims of novation and discharge of the guarantor due to alleged actions or omissions by the creditors.
The High Court was required to determine several legal issues. Firstly, whether there had been an implied novation, meaning the creditors had accepted the successive purchasers of the business as substituted debtors, thereby releasing the original principal debtor and guarantor. Secondly, whether the creditors had entered into a binding agreement to give time to the principal debtor, which would discharge the guarantor. Thirdly, whether the creditors had impaired the security assigned to them by failing to obtain the landlord's consent to the assignment of the lease agreement, failing to exercise an option to renew the lease, or by allowing a new lease to be granted to a subsequent purchaser.
The Court, in dismissing the appeal, reasoned that any implication of novation was excluded by express evidence of a contrary intention, as the creditors had consistently maintained that the original debtor and guarantor would remain liable. Regarding the claim that time had been given to the debtor, the Court found that any such arrangement was made at the request of the guarantor himself, thus precluding him from relying on it as a ground for discharge. Furthermore, the Court held that the guarantor was not discharged due to the alleged impairment of the lease security. The assignment of the lease agreement without the landlord's consent was a breach of covenant by the original tenant, which meant the agreement was not specifically enforceable and at best created a tenancy from year to year. The creditors' failure to obtain the landlord's consent was not a breach of any duty owed to the guarantor, as the defect in the security existed at the time it was provided. The Court also found no obligation on the creditors to exercise the option to renew the lease, as this would involve undertaking a new obligation, and in any event, the option was likely no longer enforceable due to the breach of covenant.
The High Court affirmed the decision of the Supreme Court of Victoria. The appeal was dismissed, and the guarantor remained liable under his guarantee. The Court ordered that the executors of the deceased respondent be joined as parties to the appeal.