Bank of New South Wales v Permanent Trustee Co of New South Wales Ltd

[1943] HCA 27

---

(Decision by: Rich J)

Bank of New South Wales
vPermanent Trustee Co of New South Wales Ltd

Court:

Judges: Latham CJ

Rich JStarke J
McTiernan J

Hearing date: 4 August ,5 August 1943
Judgment date: 4 October 1943

Melbourne

---

Decision by:
Rich J

In this matter after action brought a special case was stated without pleadings under s. 55 of the Common Law Procedure Act 1899 (N.S.W.) for the opinion of the Supreme Court. The question submitted was "whether the plaintiff is precluded by the provisions of the Moratorium Act 1930, as amended, or by the provisions of the Moratorium Act 1932, as amended, from suing for and recovering from the defendant as executor of the will of Percy Moore Wood in this action brought upon the covenants for payments of principal and interest contained in the memorandum of mortgage in the case mentioned the principal sum of two thousand seven hundred and forty-five pounds seventeen shillings and twopence (£2,745 17s. 2d.) secured by the said memorandum of mortgage and interest thereon in accordance with the provisions of the said memorandum of mortgage." The facts giving rise to this question are fully set out in the special case, but may be shortly summarized. On 21st June 1928, Dr. Wood since deceased-whose executor the defendant company is-with seven other persons jointly and severally guaranteed the repayment on demand of the balance due by the debtor, James Syphonic Visible Measures Ltd., on its current or any account or in any manner whatever together with interest charges and expenses. The amount payable by the guarantors was limited to the sum of £2,500, a sum equal to one year's interest thereon, and the costs and expenses incurred in obtaining payment and interest at eight per cent on the said sums respectively from the date of demand for payment until payment. The guarantee also provided for the retention by the plaintiff bank during the continuance of the liability under the guarantee of any deeds or documents lodged by the guarantors with the bank for safe custody or otherwise. After the date of the guarantee the bank made advances to the company to the amount of £2,514 3s. 7d., and between 4th December 1929 and 3rd February 1930 the bank made unsuccessful demands for the repayment of this sum upon the company and the several guarantors and in consequence obtained sequestration orders against each of the guarantors except Dr. Wood. The plaintiff proved in all the bankrupt estates except two without recovering anything. The debtor company was wound up on 17th October 1932, but the plaintiff recovered no part of the sum of £2,514 3s. 7d. out of its assets.

For the determination of the question submitted it is necessary to construe certain Moratorium Acts of New South Wales and apply them to the facts stated.

The Moratorium Act 1930, by s. 2, provided that unless the context or subject matter otherwise indicated or required "mortgagor" meant the person liable under the provisions of a mortgage or entitled to redeem a mortgage, and included any person who had guaranteed the payment of any money the payment of which was secured by a mortgage or the performance by the mortgagor of any covenant, condition or agreement expressed or implied in the mortgage, whether such guarantee was expressed in the mortgage or in any other instrument. The legislature by the 1930 Act was giving relief to mortgagors as between them and the mortgagees at the expense of the latter-see, e.g., s. 4 of the Act-and it doubtless realized that if relief was not given to a guarantor of a mortgage debt against the principal creditor, the principal creditor might sue the guarantor, and the guarantor would be able to sue the mortgagor upon his contract of indemnity. It was presumably to prevent this happening that the legislature extended the definition of mortgagor to a guarantor who had guaranteed the payment of money the payment of which was secured by a mortgage, or the performance of covenants, conditions or agreements expressed or implied in the mortgage. However that may be, the definition of mortgagor only included guarantors of a mortgage debt or obligation, and no other guarantor whatsoever. The Moratorium and Interest Reduction (Amendment) Act 1931, No. 66, by s. 4 added sub-s. 7 to s. 25 of the Act of 1930-1931 in the following terms:-"That subject to subsection four hereof, notwithstanding anything in this or in any other Act contained, all covenants, agreements, or stipulations by a mortgagor for the payment or repayment of any mortgage moneys secured by a mortgage of real property shall, except for the purpose of enabling a mortgagee to exercise all or any of his rights against the mortgaged property, be void and of no effect for any purpose whatsoever." Immediately prior to the execution of the mortgage next mentioned the sum of £2,745, owing by Dr. Wood to the bank, was and had long been presently payable and carried interest at eight per cent. Dr. Wood had not paid any of this amount to the bank, but on 1st February 1932 executed a mortgage to the bank containing the covenant the basis of the present action. The interest payable under the mortgage was fixed at six per cent, and the principal was not repayable until September 1934.

The mortgage, however, provided that it should have no effect upon the guarantee, whether by merger or otherwise. The question of merger which was argued before the Supreme Court was disclaimed before us. But when Dr. Wood executed the mortgage his covenant to pay the mortgage moneys became instantly void under s. 25 (7) abovementioned. Because Dr. Wood under the guarantee was not a guarantor of a mortgage debt he was not as guarantor a mortgagor within the definition s. 2 already in statement, and therefore did not as guarantor obtain any relief under s. 25 (7).

But it has been suggested that the mortgage itself might be a guarantee. In my opinion, however, it cannot operate as a guarantee of Dr. Wood's own debt to the bank under the guarantee, and even if in some aspects it might be regarded as a guarantee of the company's indebtedness it would not as a guarantee of the company's indebtedness be a guarantee of a mortgage debt. I consider, therefore, that s. 25 (7) never had any operation at all upon Dr. Wood as guarantor either under the instrument of 21st June 1928 or under the mortgage.

The Act of 1932, s. 2, contains a similar definition of mortgagor to that contained in the Act of 1930. The Acts prior to 1932 had given relief to mortgagors and to guarantors of mortgage obligations. It is not suggested on behalf of the appellant that the Act of 1932 operated to revive any rights or remedies against a mortgagor unless the mort gagor was also a guarantor. The Acts of 1930 and 1931, which I shall call the earlier Acts, had given relief to mortgagors and guarantors of mortgage obligations only, and s. 35 of the Act of 1932 only operated to abolish that relief in relation to guarantors who had obtained relief under the earlier Acts. Thus s. 35 provides that sub-s. 7 of s. 25 shall be construed as if the word "mortgagor" in that sub-section did not include a person who has guaranteed the payment of any money notwithstanding that the payment of such money or the performance of such guarantee is secured by a mortgage as defined. And s. 35 (3) provides that nothing in s. 25 of the earlier Acts shall be construed so as in any way to impair the rights, powers, or remedies of a mortgagee against a person who has guaranteed the payment of money, notwithstanding that the payment of such money or the performance of such guarantee is secured by a mortgage of land. These provisions show that s. 35 reversed the operation of the earlier Acts upon those guarantors only who had been relieved by them. But Dr. Wood was not such a guarantor, and was therefore outside the scope of s. 35. It was alternatively argued that sub-s. 1 of s. 41 of the Act of 1932 also revived the liability of Dr. Wood under the mortgage. I consider, however, that this provision should be read in conjunction with sub-s. 12 of the same section. Sub-section 1 provides for persons entitled to the benefit of a guarantee giving a certain notice, but this notice can only be given in the cases specified in sub-s. 12 of s. 41, and that sub-section provides that s. 41 shall apply only in respect of contracts of guarantee made prior to the commencement of the Act of 1932 which were affected by the provisions of Part IV. of the earlier Acts, which contained s. 25 (7) already mentioned.

For these reasons the contract of guarantee was not, in my opinion, affected by s. 25 (7).

However, even if Dr. Wood was a guarantor to whom the earlier Acts applied, the question arises whether assuming the provisions of s. 35 or s. 41 did apply their application would or would not be limited to reviving Dr. Wood's liability under the instrument of guarantee. A careful examination of the language of s. 35 and s. 41 shows that the legislature had in mind the distinction between a guarantor and a mortgagor, and the rights and remedies to which the principal creditor was entitled under the guarantee and to which he might be entitled as the mortgagee, and each of these sections, if it revived any rights and remedies against Dr. Wood, would only revive rights and remedies against him as guarantor. For instance, s. 41 provides for the exercise of rights, powers and remedies against the guarantor and against any property mortgaged by the guarantor to secure the performance of the guarantee.

Three cases which were relied upon by the appellant are clearly distinguishable. One was Smith v. Motor Discounts Ltd.(9), where Smith had executed a mortgage as mortgagor on 7th July 1931 and also an indenture on 10th July 1931 to pay the amount secured by the mortgage. It was there held that the covenant in the indenture was a covenant by a mortgagor. Another case was Stock Motor Ploughs Ltd. v. Forsyth(2) where instalments were payable under a hire-purchase agreement and were also the subject of promissory notes. And it was held that an action upon the promissory notes was an action to recover instalments under the hire-purchase agreement. Neither of these cases touches the question whether, assuming that there had been a revival of rights, powers and remedies against Dr. Wood as a guarantor there would also be a revival of rights, powers and remedies against him under the mortgage. And the other case was In re Conley(3). In that case there was a debt to a bank and the only transactions between the persons who were held to be sureties and the bank were the lodging of war loan and shares, the lodging of which created suretyship for the first time. In the present case, however, the instrument of guarantee created suretyship and the mortgage merely gave the bank, at a later date, security for Dr. Wood's own debt to the bank, with the modifications as to rate of interest and date of repayment.

For these reasons I agree with the conclusions arrived at by the learned judges of the Supreme Court and am of opinion that the appeal should be dismissed.