SH Lock Discounts and Credits Pty Ltd v. Miles

[1963] VR 656

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(Judgment by: O'Bryan J)

Between: SH Lock Discounts and Credits Pty Ltd
And: Miles

Court:

Judge:
O'Bryan J

Subject References:
Contract
Guarantee
Consideration
Whether truly stated in written note or memorandum
Executed consideration
Prospective consideration
No obligation on creditor to execute consideration
Guarantee binding if and when consideration provided

Legislative References:
Statute of Frauds - s 4
Instruments Act 1958 (No. 6279) - s126

Hearing date: 13 February 1963
Judgment date: 14 February 1963

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Judgment by:
O'Bryan J

having found for the plaintiff-creditor against the defendant- sureties on all other points and finding that loans were made to the principal debtor after the guarantee was given continued:--

Well, then, the last point that was made by Mr. Gobbo was the one which gave me trouble yesterday afternoon. He drew my attention to the fact that the consideration expressed in this guarantee is--I read the words of the document--"Your having, at my request, agreed to make loans to the Classic Printing Company Pty. Ltd.", and he contended that those words must be taken at their face value, and on their face value they say, in effect, that there was an executed consideration for the guarantee, the executed consideration being the then binding promise of the plaintiff company to the guarantors that it would make loans to the Classic Printing Pty. Ltd. I must say that yesterday afternoon I was impressed with that argument. Those words do seem to mean that--indeed, that is their ordinary English meaning--and if that is their meaning then there is no proof here that at the date this guarantee was made there was a firm agreement by the plaintiff company to make advances or loans to the Classic Printing Company. I still think there is no evidence that at that stage the plaintiff company had made such an agreement with the defendants or the Classic Printing Company. But the conclusion I come to now is that those words should not be given their face meaning, and I do that by reason of three reported decisions as to the meaning of such words in an instrument of guarantee; two decisions, really, because one of them is the same case which is reported both in the court of first instance and on appeal.

The first was a case in Exchequer Chamber in 1861, Westhead v Sproson and Piper, 6 H and N 728. In that case a guarantee had been given in this form:

"In consideration of your agreeing, at our request, from time to time, to supply, on credit, to W Piper such goods as he may require and you may think fit to supply, we...do hereby guarantee to you...the payment of such sum...as he now owes and may at any time and from time to time owe to you".

It was contended in that case that, on its face, the consideration shown there was an executed consideration, namely, a present agreement to supply goods to Piper. In point of fact, no goods ever were thereafter supplied by the plaintiff to Piper, but he sought to enforce the guarantee on the basis that the consideration therefor was an executed consideration, namely, his agreement to supply goods in the future. The meaning of the document, therefore, came up directly for consideration, and all members of the Court of Exchequer Chamber held that, on its proper interpretation, the consideration was not an executed consideration, viz. a promise to supply goods in the future. Pollock, CB, says this:

"We are all of opinion that, upon the true construction of this document, the plaintiffs entered into no binding agreement to supply goods to W Piper. We must therefore construe the guarantee as being conditional, so that, in the event of the plaintiffs thinking fit to supply and supplying goods to W Piper, there will be a performance of the condition, and the defendants would be bound, but not otherwise. This makes the agreement sensible and intelligible. The substance of Mr. Mellish's argument was that, inasmuch as the parties meant to agree to supply, we must put such a construction on the document as to make it a mutual agreement. But I have no doubt that what the plaintiffs meant in saying "we agree to supply', was to give a sort of colour to the promise to pay the existing debt, but without being under any obligation to supply any more goods."

Martin, B, said this:

"I also think that this document did not bind the plaintiffs to supply any goods. If the words are transposed thus, 'in consideration of your agreeing to supply W. Piper such goods as you may think fit and he may require', it becomes manifest that the supply is to depend entirely on the will of the plaintiffs, and there is no consideration for an agreement."

And Bramwell, B, said:

"If it appeared that the plaintiffs agreed to do anything of value, there would be a good consideration for the guarantee. But the words 'such goods as he may require' may be left out, because of course the plaintiffs could not supply any other. Then, striking out those words, what remedy would the defendants have on the supposed agreement for the non-supply of goods for a month or a year: what damages could they get?"

Wilde, B, said:

"I think that the true meaning of this instrument is, that if the plaintiffs supplied goods to W Piper the guarantee should attach, but not otherwise."

Now, although there the instrument was dealing with the supply of goods, whereas this instrument is dealing with the advance of money, I think a like meaning must be given to these words, "we, having agreed to make loans". Those words in the context mean "we, making loans to this company from time to time on the faith of this guarantee".

A like construction was given to a similar set of words in an instrument of guarantee a few years later in the Chancery Division and was affirmed on appeal. That was the case of Morrell v Cowan (1877) 6 Ch D 166. There, the instrument of guarantee read thus:

"In consideration of you the said George Morrell having at my request agreed to supply and furnish goods to Matthew Mitchell Cowan, I do hereby guarantee to you the said George Morrell the sum of 500 pounds."

There, again, it will be noticed that the consideration as expressed was "you having agreed to supply, etc.", very like the words which are used here, except the words are "your having agreed to make loans". Now, of that agreement, Fry, J, in his judgment in the court of first instance, says this, at p. 171:

"But it appears to me that the guarantee in the present case embodies a request by the wife to the plaintiff to supply goods to her husband, and that if that request was acceded to, a good consideration at once arose to the wife for the guarantee. My view is that the plaintiff may say that he acted upon the wife's request in every case in which, after the guarantee was given, he supplied goods to the husband on any other terms than that of immediate cash payment."

So, it will be seen there that a like meaning is given to similar words in a guarantee. The case went on appeal to the Court of Appeal in Chancery, and it is reported under the same name in (1878) 7 Ch D 151. The appeal was allowed in this case, but not for reasons which are concerned with that part of the interpretation of the document material to the present case. Indeed, on the contrary, the document so far as is material is interpreted by each member of the Court of Appeal in the same way as it was below. In the judgment of James, LJ, at p. 154, he says this:

"These words are as follows".

He now takes up the document:

"'In consideration of you, George Morrell, having at my request agreed to supply and furnish goods to MM Cowan, I do hereby guarantee, ' etc. What does that mean? Surely it means, 'if you will supply goods to my husband, I will guarantee the payment for the goods which you supply to the amount of 500 pounds.' It is impossible, in my opinion, to read it otherwise".

James, LJ, does not treat the consideration as an executed consideration but as a promise to guarantee you when you supply the goods. Baggallay, LJ, dealing with the same problem says, at p. 155:

"Now, when we look at the document we find that the expressed consideration is really no consideration at all: the agreement to supply goods at Mrs. Cowan's request was no consideration, for there was no obligation on the part of the plaintiff to supply any goods. But when the request was complied with, and the goods were actually supplied, then a consideration arose. No question could arise between the parties till the goods were actually supplied."

Thesiger, LJ, took a like view of the contract. I shall not bother to read what he has to say. He takes the same view of the matter. In view of that body of judicial opinion as to how words such as we have here, "an instrument of this sort", should be construed, I think I should construe this document not in accordance with its literal words, as I was inclined to do yesterday, but in accordance with the views which these learned judges thought gives business sense and efficacy to the agreement between the parties. That being so, there was consideration for this guarantee, and consideration within the words of the written agreement properly construed.

The result of it is, there must be judgment for the plaintiff.

Judgment for plaintiff.