McDonald v Dennys Lascelles Ltd
48 CLR 4571933 - 0515B - HCA
(Decision by: EVATT J)
McDonald
v Dennys Lascelles Ltd
Judges:
Rich J
Starke J
Dixon J
Evatt JMcTiernan J
Subject References:
Contract
Vendor and purchaser
Installments of purchase money
Purchaser in default
Rescission
Rights of parties
Mortgages and securities
Sale of land
Default by purchaser
Default by vendor under earlier contract
Rescission of vendor's contract
Subsequent rescission by purchaser
Discharge of surety
Judgment date: 15 May 1933
SYDNEY
Decision by:
EVATT J
The present appellants, J. McDonald and A. H. Holdsworth, were the sole directors of a company called Rye Grazing Co Pty Ltd The respondent is the assignee of the persons named as vendors in a contract of sale dated June 23rd, 1927, by which Besley and others agreed to sell certain lands to Rye Grazing Co Pty Ltd and one E. W. Dunkley. Under the terms of this contract the purchasers were obliged to pay Besley and others on January 24th, 1930, the sum of PD1,000, and on January 24th, 1931, the balance of purchase money, PD14,462.
Under the assignment mentioned, which was dated August 14th, 1929, the respondent paid PD2,000 to Besley and others, and acquired the benefit of the moneys thereafter payable by Rye Grazing Co Pty Ltd and E. W. Dunkley under the contract of sale. But the amount of PD1,000 which became due to Besley and others on January 24th, 1930, was not paid. After much entreaty on behalf of those in default, the respondent accepted a document dated February 19th, 1930, instead of taking steps to enforce its rights by action. Besley and others took no part in the transaction.
The document signed by the two appellants was in the following terms:
"In consideration of Dennys Lascelles Limited Geelong agreeing to postpone payment of the sum of one thousand pounds the instalment now due under the contract of sale made between C. H. Besley and others with E. W. Dunkley and the Rye Grazing Company Proprietary Limited and the benefit of which has now been assigned to Dennys Lascelles Limited until the twenty-fourth day of January 1931 We John McDonald and Arthur Henry Holdsworth both of Lansell Road Toorak graziers being two of the directors of the said Rye Grazing Company Proprietary Limited do hereby jointly and each of them separately guarantee to Dennys Lascelles Limited the due payment by the said E. W. Dunkley and the Rye Grazing Company Proprietary Limited of the said sum of one thousand pounds on the said twenty-fourth day of January 1931. Dated the nineteenth day of February 1930."
On January 24th, 1931, the Rye Grazing Co Pty Ltd and Dunkley made further default in payment of the PD1,000, and, suing the appellants upon their written undertaking, the respondent obtained judgment in the Supreme Court of Victoria. From that judgment the present appeal is brought.
The appellants' case necessarily depends upon matters which occurred subsequently to January 24th, 1931. These, they say, discharged their prima facie liability to pay PD1,000 to the respondent under the agreement.
It appears that the Rye Grazing Co Pty Ltd and Dunkley defaulted, not only in respect of the PD1,000, but also in respect of the balance of PD14,462 which on January 24th, 1931, became payable to Besley and others under the contract of sale. It is obvious that it was this default which prevented Besley and others from being able, on April 1st, 1931, to meet their obligation to pay the balance of PD12,238 to the original vendors, Johnson and others. After this further default, the latter gave Besley and others a notice dated April 16th, 1931, purporting to rescind the original contract of sale. The conclusion of Cussen A.C.J., that the default of Rye Grazing Co Pty Ltd and Dunkley caused the subsequent default, is quite unimpeachable. Long before that time, however, the respondent, on February 25th, 1931, wrote to the solicitors for the appellants and for Rye Grazing Co Pty Ltd in the following terms:
"We are acting for Dennys Lascelles Ltd in this matter. The company has instructed us to compel Messrs. John McDonald and Arthur H. Holdsworth to carry out the terms of their guarantee of 19th February 1930. Under this document Messrs. McDonald and Holdsworth guaranteed the due payment by Mr. Dunkley and the Rye Grazing Company of the sum, of PD1000 on 24th January, 1931. The balance of the purchase money payable by Mr. Dunkley and the Rye Grazing Company fell due on 24th January last. We are instructed that it has not been paid and that no arrangements have been made with the company for an extension of the time for payment. Will you kindly let us hear from you on the subject. The balance of the purchase money payable by Messrs. Besley and others to the original vendors falls due on 1st April next."
In the letter of reply dated February 27th, 1931, it was stated, inter alia:
"Messrs. McDonald and Holdsworth have no intention of disputing an obligation for which they are personally liable, but so that the whole question of the payment of the moneys due, both to the original vendors Messrs. Johnson Bros. and to your client could be dealt with at the same time, we suggested that your client should defer its request until the 1st April next."
(I italicize certain words). The answer of the respondent dated March 3rd, 1931, was:
"We have referred your letter of the 27th ult. to Dennys Lascelles Ltd Our client desires Messrs. McDonald and Holdsworth to pay the sum of PD1,000 in terms of the guarantee. The company also wishes to know what arrangements are being made with the original vendors; only a few weeks will elapse before 1st April when the final balance falls due. Kindly let us hear from you at once, as our instructions are definite to press this matter."
On May 1st, 1931, the respondent again demanded payment of the PD1,000, and once again there was a humble request, dated May 2nd, "not to take any precipitate action." On May 5th, 1931, the respondent ceased to yield further to the importunity of the appellants, and issued a writ, commencing the Supreme Court action for payment of PD1,000.
Although the appellants had denied any intention of disputing their liability to pay PD1,000 to the respondent, their conduct after action brought belied them. On June 12th, they procured an option, expiring on June 30th, to purchase the property for PD11,000. On June 19th and June 26th respectively, the Rye Grazing Co Pty Ltd and Dunkley wrote letters to the respondent and to Besley and others, purporting to rescind the contract of purchase. The reason given was the rescission on April 16th, by Johnson and others, of the original contract with Besley and others. On June 20th Johnson Brothers were placed in possession of the land by the present appellants and their company.
It is argued for the appellants that all the obligation of Rye Grazing Co Pty Ltd and Dunkley under their agreement with Besley and others "came to an end" by June 26th, that, by that time also, the liability of the Rye Grazing Co Pty Ltd and Dunkley to pay PD1,000 to the respondent company "came to an end," and that the appellants' existing indebtedness under the guarantee also "disappeared." Cussen A.C.J. rejected this reasoning, and in my opinion he was right.
I assume in favour of the appellants that the guarantee should not be construed as promising the absolute payment by the appellant of PD1,000 on January 24th, 1931, or even as promising such payment if on January 24th, 1931, Dunkley and the company (of which the appellants were directors) were still liable to pay the instalment then becoming due. As a consequence, I assume that the events taking place after January 24th, 1931, can be looked at in order to see whether the appellants have been relieved of the fully accrued obligation to pay the PD1,000 to the respondent.
In my opinion there is nothing in those events sufficient to achieve such a purpose. First of all we find that the appellants, upon being called upon to pay the PD1,000 to the respondent, affirmed their intention of paying and emphatically stated that they had no intention of disputing their liability. This representation was made at a time when the respondent was in a position to collect the PD1,000 by recovering immediate judgment in proceedings to which the appellants would have no possible answer. It is clear that the respondent refrained from action largely because of this new undertaking to pay. As Rowlatt J. has pointed out,
"if on being applied to the surety gives a new undertaking to pay, as a note of his own or a covenant by himself, or makes an arrangement by which the creditor is to work out satisfaction from securities provided by the surety, he may be held to have come under a principal liability to pay, and will not be discharged by dealings between the creditor and the original principal" (Rowlatt on Principal and Surety, 2nd ed. (1926), p. 259).
What Cussen A.C.J. calls the "breakdown" was directly caused by the default in the enormous sum of PD14,462 by the company of which the appellants were directors. Further, after this action was instituted on June 5th, 1931, the appellants continued their manoeuvre to evade the payment of the present PD1,000 by procuring a factitious "rescission" of their company's contract, although its previous default alone prevented Besley and others from meeting their obligations to the original vendors. In the absence of any argument as to the quantum of damages, I refrain from any attempt to measure the liability to the respondent of the appellants' company by reason of the defaults of January 24th, 1931, which defaults not only prevented the respondent from paying Besley and others in the following April and completing the transaction but also led directly to the claim, an impudent one in the circumstances, that the respondent (and Besley and others) had itself repudiated its obligations to the appellants' proprietary company. I am by no means satisfied that the evidence is sufficient to show that the contract between Besley and others on the one hand and Rye Grazing Co Pty Ltd and E. W. Dunkley on the other was duly rescinded. It is quite certain that those who first repudiated it were the latter and they are liable in damages to the former. In such circumstances it may not be possible to treat the instalment of PD1,000 in complete abstraction from the liability, necessarily heavy, to pay damages for breach.
I am of opinion that the appellants have not shown any sufficient grounds for the alleged "disappearance" of their accrued liability under the guarantee and that their subsequent course of conduct precludes them from relying upon the supposed rescission of the contract of sale between the original principal debtor and the respondent company's assignor.
The judgment of Cussen A.C.J. was right and the appeal should be dismissed with costs.