Moschi v Lep Services Ltd; Lep Air Services Ltd v Rolloswin Investments Ltd
|Lord Reid,Lord Gardiner,Lord Diplock,Lord Simon of Glaisdale,Lord Kilbrandon
|26 April 1972
|Judgment citation (vLex)
| UKHL J0426-2
|26 April 1972
|House of Lords
 UKHL J0426-2
Lord Simon of Glaisdale
House of Lords
Upon Report from the Appellate Committee, to whom was referred the Cause Moschi against Lep Air Services Limited and others, that the Committee had heard Counsel as well on Monday the 28th and Tuesday the 29th, days of February last, as on Wednesday the 1st and Thursday the 2d, days of March last, upon the Petition and Appeal of Gabriel Moschi, of 24 Phillimore Court, Kensington High Street, London, W.8, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 10th of March 1971, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioner might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of Lep Air Services Limited and Lep Transport Limited, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal of the 10th day of March 1971 complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellant do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
The Respondents acted as forwarding agents for goods imported by a company Rolloswin which was controlled by the Appellant. The company was in debt to the Respondents who were exercising a lien. In order that the goods should be released and that the debt should be paid by instalments the Respondents the company and the Appellant made a tripartite agreement on 29th November, 1967. Its objects were that the amount of the debt should be ascertained, that meanwhile the Respondents should release the goods, and that the company should pay weekly instalments of £6,000 each. The Appellant gave a personal guarantee the meaning and effect of which is the subject of this appeal.
I need not set out the whole of the agreement. It provided for the immediate release of the company's goods, for the ascertainment within six weeks of the amount of the company's existing indebtedness which meanwhile should be deemed not to exceed £40,000 and for prompt payment of any future debts incurred. Then it was provided:
"(IX) We will further pay to one of you for the benefit of both of you or as you may direct, partly to one of you and partly to the other sums amounting in all to an overall payment at the rate of not less than £6,000 a week commencing on the 27th November, 1967—on account of which you have already received the sum of approximately £3,820 on the 28th November—until such payments shall have totalled £36,000 whereafter we shall pay a further sum of £4,000 one week after the said sum of £36,000 shall have been paid this, of course, is in addition to sums currently being paid for further deliveries referred to in paragraph (VII).
(X) If our indebtedness to be agreed as hereinbefore set out (in (IV) above) shall not amount to £40,000 the difference between that sum and the amount of the payments made under (VII) above, shall be held in credit for us and may be appropriated by us to the discharge of any future indcbtednesss we may have to you or either of you in such proportions as we shall elect. We will make or confirm any such election in writing for your records.
(XI) If and in so far as the agreed indebtedness to date referred to in (IV) above shall amount to more than £40,000 we will continue to discharge such indebtedness at the rate of £6,000 per week and for the figures of £36,000 and £4,000 set out in paragraph (IX) hereof there shall be read in substitution VII such figure part of the total agreed indebtedness as shall be a multiple of £6,000 and such figures as shall be required to discharge the indebtedness thereafter being a sum less than £6,000.
(XII) In further consideration of the above you have agreed that you will not and do not claim the right to exercise any lien over any goods consigned to us or to our customers.
(XIII) In further consideration of the above Mr. Moschi has personally guaranteed the performance by Rolloswin Investments Limited of its obligation to make the payments at the rate of £6,000 per week together with the final payment of £4,000 as hereinbefore set out so however that Mr. Moschi's total obligation under this guarantee shall not exceed the total sum of £40,000 of which approximately £3,820 has already been paid as aforesaid."
The company failed to carry out the terms of this agreement. By 22nd December it had only paid £10,060. It is in dispute whether three or four instalments had then become payable. Agreeing with your Lordships I think four amounting to £24,000 were then due. And there were other matters as regards which the company was then in breach of this agreement.
On 22nd December the Respondents claimed that these breaches were fundamental breaches which they were entitled to treat as bringing the contract to an end. I think that they were right and that the contract was lawfully brought to an end by them on that day. I agree that apart from any other breaches the failure to pay more than £10,060 of the £24,000 due was by itself in the circumstances a fundamental breach.
The company is now in liquidation and the Respondents sue the Appellant in respect of the guarantee set out in Clause (XIII).
The Official Referee held that the total debt of the company at the date of the agreement was £48,000, and found that the Appellant was liable to the Respondents for £13,930 with interest. The Court of Appeal found the Appellant liable to pay £29,930 with interest. That represents the whole £40,000 referred to in Clause (XIII) of the agreement less the sums paid by the company before 22nd December, 1967.
The first contention of the Appellant is that he is under no liability to pay anything because his obligation under Clause (XIII) was discharged by the action of the Respondents in accepting the company's repudiation and so bringing the contract to an end. He supports this startling contention by relying on the principle that if a creditor agrees to a variation of the debtor's contract he thereby discharges a guarantor from liability. He argues that acceptance of a repudiation should be regarded as equivalent to a variation of the contract. I agree with your Lordships that there is no substance in this argument and I reject it.
His next argument is more formidable. He says, look at Clause (XIII). It merely guarantees that each instalment of £6,000 shall be duly paid. But by reason of the accepted repudiation the contract was brought to an end before the later instalments became payable. So they never did become payable. All that remained after the contract was terminated was a claim for damages. But I never guaranteed to pay damages. If the creditor chooses to act so that future instalments are not payable by the debtor he cannot recover them from me.
To meet that argument I think that it is necessary to see what in fact the Appellant did undertake to do. I would not proceed by saying this is a contract of guarantee and there is a general rule applicable to all guarantees. Parties are free to make any agreement they like and we must I think determine just what this agreement means.
With regard to making good to the creditor payments of instalments by the principal debtor there are at least two possible forms of agreement. A person might undertake no more than that if the principal debtor fails to pay any instalment he will pay it. That would be a conditional agreement. There would be no prestable obligation unless and until the debtor failed to pay. There would then on the debtor's failure arise an obligation to pay. If for any reason the debtor ceased to have any obligation to pay the instalment on the due date then he could not fail to pay it on that date. The condition attached to the undertaking would never be purified and the subsidiary obligation would never arise.
On the other hand, the guarantor's obligation might be of a different kind. He might undertake that the principal debtor will carry out his contract. Then if at any time and for any reason the principal debtor acts or fails to act as required by his contract, he not only breaks his own contract but he also puts the guarantor in breach of his contract of guarantee. Then the creditor can sue the guarantor, not for the unpaid instalment but for damages. His contract being that the principal debtor would carry out the principal contract, the damages payable by the guarantor must then be the loss suffered by the creditor due to the principal debtor having failed to do what the guarantor undertook that he would do.
In my view, the Appellant's contract is of the latter type. He "personally guaranteed the performance" by the company "of its obligation to make the payments at the rate of £6,000 per week". The rest of the clause does not alter that obligation. So he was in breach of his contract as soon as the company fell into arrears with its payment of the instalments. The guarantor, the Appellant, then became liable to the creditor, the Respondents, in damages. Those damages were the loss suffered by the creditor by reason of the company's breach. It is not and could not be suggested that by accepting the company's repudiation the creditor in...
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