McDonald v Dennys Lascelles Ltd
48 CLR 4571933 - 0515B - HCA
(Judgment by: DIXON J)
McDonald
v Dennys Lascelles Ltd
Judges:
Rich J
Starke J
Dixon JEvatt J
McTiernan 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
Judgment by:
DIXON J
On 9th March 1925 the registered proprietors of about 1,877 acres of land at Rye sold it, together with some chattels, for a price of about PD19,239. Of the price, PD3,000 was payable as a deposit, PD5,000 by five annual instalments of PD1,000 each on 1st April 1926 to 1930, and the balance of PD11,239 on 1st April 1931. On 23rd June 1927 the purchasers resold the land for a price of PD23,462, of which PD6,000 was payable as a deposit, PD3,000 by three annual instalments of PD1,000 on 24th January 1928 to 1930, and the balance of PD14,462 on 24th January 1931. On 14th August 1929 the plaintiff took from the purchasers, who had so resold, an assignment of the second contract and of their right, title, etc., in the property therein. The assignment, which was by deed, recited that upon the first contract the balance of purchase money payable was PD12,738 and upon the second, PD15,462, a difference of PD2,724. The consideration was expressed to be a payment of PD2,000 to the assignors. The instrument contained a direction to the vendors under the first contract to transfer the land to the plaintiff or at its direction, but it contained no express requirement that the plaintiff should apply the purchase money receivable under the second contract to the discharge of the first, or should indemnify the assignors in respect of the obligations incurred by them under the first contract.
An instalment of PD1,000 fell due under the contract of resale on 24th January 1930, but the purchasers sought a year's postponement from the plaintiff for its payment. The plaintiff agreed to allow payment to stand over until 24th January 1931 when the balance of purchase money fell due, but upon two conditions. The first was that the vendors under the original contract should grant a corresponding extension of time for payment of the instalment of PD1,000 payable to them on 1st April 1930 and allow it to stand over for payment until 1st April 1931, when the balance of purchase money under that contract fell due. The second condition was that a guarantee should be given by the defendants, who were directors of the company which was one of the joint purchasers upon the resale. These conditions were complied with and the defendants gave the guarantee now sued upon. It is dated 19th February 1930, is headed "Guarantee," and is under seal. It is expressed to the effect that, in consideration of the plaintiff's agreeing to postpone until 24th January 1931 payment of the sum of PD1,000, the instalment then due under the second contract of sale, of which the benefit had been assigned to the plaintiff, the defendants, being two of the company's directors, did thereby jointly and severally guarantee to the plaintiff the due payment by the sub-purchasers of the said sum of PD1,000 on 24th January 1931.
When the year elapsed the sub-purchasers were unable to pay either the instalment of PD1,000 or the balance of purchase money. On 25th February 1931 the plaintiff demanded payment by the defendants under the guarantee, but it also informed the vendors under the original contract that the plaintiff itself had so small an interest in the transaction that it was unlikely that it would decide to pay any further moneys to protect that interest. The defendants admitted their liability under the guarantee but craved time. The balance of purchase money under the second contract was not forthcoming and none was provided for the completion of the first contract on the due date, 1st April 1931. On 16th April 1931 the vendors gave notice of rescission under the first contract as in pursuance of clause 6 of Table A of the Victorian Transfer of Land Act 1915, which applied to the contract. The plaintiff or its assignors, in my opinion, had not in the meantime elected either to affirm or to disaffirm or rescind the second contract upon which the sub-purchasers were in default. But on 19th June 1931 the defaulting sub-purchasers purported to rescind it on the ground that, the first contract having been rescinded, no title could be made under the second contract. From this date, at any rate, all parties treated the second contract as at an end. On 9th June 1931 the plaintiff had issued the writ in this action against the defendants to recover the amount of PD1,000 under the guarantee.
The defence relied upon by the guarantors is that the liability of the purchasers under the second contract to pay the instalment of purchase money was discharged or determined upon the failure of the contract and that, as their guarantee was secondary or accessory to this principal liability, the obligation incurred under it was likewise discharged or determined. It is apparent from its statement that two questions arise upon this defence, which are separate. The first question raised by it is whether the collapse or failure of the second contract did entirely relieve the purchasers from paying the instalment of PD1,000. If the purchasers' obligation to pay the instalment was discharged, the second question arises, namely, whether thereupon the defendants ceased to be liable under their guarantee.
Even if it arose apart from the second question, the first could not be answered satisfactorily without some examination of the nature of the liability incurred by a purchaser under an agreement to prepay before conveyance part of the purchase money and of the responsibility of the vendor to repay instalments so prepaid when the contract comes to an end and no conveyance is to be made. But, in addition, it will be found material to the second question to ascertain the principle upon which the purchasers' liability is discharged; because it is evident that a surety might remain responsible for a debt which simply ceases to be recoverable by legal process from the principal debtor, while his responsibility would terminate if the principal obligation were annihilated upon grounds going to the just right to the enjoyment of the sum in question as between the parties to the primary contract. It thus appears necessary to consider with some degree of exactness what are the material rights and obligations of vendor and purchaser with respect to instalments. It must be borne in mind that the instalment in dispute was overdue when the contract came to an end. According to the terms of the contract, it was originally due and payable on 24th January 1930. Was it then recoverable as a sum certain in money? Convincing reasons for an affirmative answer have been given in Victoria and in New Zealand. Sir John Salmond has stated the principles determining this conclusion:"As a general rule, on the failure or refusal of a purchaser to complete an executory contract for the purchase of land the vendor is not entitled to sue for the purchase money as a debt. He is entitled merely to sue for specific performance or for damages for the loss of his bargain. It is only when the contract has been completed by the execution and acceptance of a conveyance that unpaid purchase money may become a debt and can be recovered accordingly. This general rule is sufficiently illustrated and established by the case of Laird v Pim. [F18] The sale of land is in this respect similar to the sale of goods. In the case of goods sold and delivered, and of goods bargained and sold, the property in each case having passed to the buyer, the seller's remedy is to sue for the price. But if under any executory contract the buyer wrongfully refuses to accept the goods the seller's only remedy is an action for damages. The general rule, however, that in an executory contract for the sale of land the vendor cannot sue for the price is excluded whenever a contrary intention is shown by the express terms of the contract. And it seems established by authority that a contrary intention is sufficiently shown in all cases in which by the express terms of the contract the purchase money or any part thereof is made payable on a fixed day, not being the agreed day for the completion of the contract by conveyance. In all such cases the purchase money or such part thereof becomes, on the day so fixed for its payment, a debt immediately recoverable by the vendor irrespective of the question whether a conveyance has been executed and notwithstanding the fact that the purchaser may have repudiated his contract. Notwithstanding such repudiation the vendor is not bound to sue for damages or specific performance, but may recover the agreed purchase money" (Ruddenklau v Charlesworth, [F19] at pp. 164, 165). In Reynolds v Fury, [F20] the Full Court of Victoria, after a very full examination of the authorities, decided that instalments of purchase money, which, by the conditions of a contract of sale of land are payable at fixed times before conveyance, become immediately recoverable as debts or liquidated demands, notwithstanding that the sale has not yet been completed by conveyance.
From this it follows that after 24th January 1930, subject to the vendors' agreement to forbear between a date about 18th March 1930, when the conditions stipulated for their forbearance were complied with, and 24th January 1931, the instalment might have been recovered from the sub-purchasers as a liquidated demand. Did the subsequent discharge of the second contract relieve the sub-purchasers of this liability? When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach. (See Boston Deep Sea Fishing and Ice Co v Ansell, [F21] per Bowen L.J., at p. 365; Hirji Mulji v Cheong Yue Steamship Co, [F22] per Lord Sumner, at p. 503; Cornwall v Henson; [F23] Salmond and Winfield, Law of Contracts, (1927), pp. 284-289; Morison, Principles of Rescission of Contracts (1916), pp. 179, 180.) It does not, however, necessarily follow from these principles that when, under an executory contract for the sale of property, the price or part of it is paid or payable in advance, the seller may both retain what he has received, or recover overdue instalments, and at the same time treat himself as relieved from the obligation of transferring the property to the buyer. When a contract stipulates for payment of part of the purchase money in advance, the purchaser relying only on the vendor's promise to give him a conveyance, the vendor is entitled to enforce payment before the time has arrived for conveying the land; yet his title to retain the money has been considered not to be absolute but conditional upon the subsequent completion of the contract. "The very idea of payment falls to the ground when both have treated the bargain as at an end; and from that moment the vendor holds the money advanced to the use of the purchaser" (Palmer v Temple [F24] ). In Laird v Pim, [F25] Parke B. says: "It is clear he cannot have the land and its value too"; the case, however, was one in which conveyance and payment were contemporaneous conditions (see Laird v Pim [F26] ). It is now beyond question that instalments already paid may be recovered by a defaulting purchaser when the vendor elects to discharge the contract (Mayson v Clouet [F27] ). Although the parties might by express agreement give the vendor an absolute right at law to retain the instalments in the event of the contract going off, yet in equity such a contract is considered to involve a forfeiture from which the purchaser is entitled to be relieved (see the judgment of Long Innes J. in Pitt v Curotta, [F28] at pp. 480-482). The view adopted in In re Dagenham (Thames) Dock Co ; Ex parte Hulse [F29] seems to have been that relief should be granted, not against the forfeiture of the instalments, but against the forfeiture of the estate under a contract which involved the retention of the purchase money: and this may have been the ground upon which Lord Moulton proceeded in Kilmer v British Columbia Orchard Lands Ltd, [F30] notwithstanding the explanation of that case given in Steedman v Drinkle [F31] and Brickles v Snell. [F32] However, these cases establish the purchaser's right to recover the instalments, other than the deposit, although the contract is not carried into execution. If a vendor under a contract containing an express power to forfeit instalments at first determined the contract and retained the instalments but afterwards resiled from his former election to treat the contract as discharged and insisted that, if the purchaser was unwilling to forfeit his instalments according to the tenor of the agreement, he should at least carry out the sale, perhaps the purchaser as a term of equitable relief against forfeiture would be required to carry out his contract. But, where there is no express agreement excluding the implication made at law, by which the instalments become repayable upon the discharge of the obligation to convey and the purchaser has a legal right to the return of the purchase money already paid which makes it needless to resort to equity and submit to equity as a condition of obtaining relief, the vendor appears to be unable to deduct from the amount of the instalments the amount of his loss occasioned by the purchaser's abandonment of the contract. A vendor may, of course, counterclaim for damages in the action in which the purchaser seeks to recover the instalments.
In the present case, the contract of resale contains no provision for the retention or forfeiture of the instalments. If, therefore, the instalment originally due on 24th January 1930 had been paid by the purchasers to the vendors, they would, in my opinion, have been entitled to recover it from the vendors. The right so to recover it is legal and not equitable. It arises out of the nature of the contract itself. This would be so even if the second contract was rescinded by the vendors upon the purchasers' default. If in the present case the purchasers' claim to rescind this contract were justified, an instalment already paid would have been recoverable as on an ordinary failure of consideration. But, if the difference be material, I am disposed to think that the purchasers' claim to rescind was not, in the circumstances, well founded and that the second contract should be treated as discharged by the vendors' acceptance of the repudiation by the purchasers involved in their attempt to rescind. It appears to me inevitably to follow from the principles upon which instalments paid are recoverable that an unpaid overdue instalment ceases to be payable by the purchasers when the contract is discharged. The fact that the contract was assigned does not increase or vary the purchasers' liabilities under it, and, accordingly, I think that the purchasers upon the sub-sale ceased to be liable for the instalment guaranteed.
The second question remains, namely, whether the cesser of the sub-purchasers' liability for the instalment of PD1,000 operates to discharge the sureties. Their liability had, like that of the sub-purchasers, become immediately enforceable, and it is said that it could not be discharged by a subsequent failure of the obligation guaranteed. The consequences of the dissolution of the principal obligation are described in Pothier on Obligations, Evans' translation (1806), vol. I., p. 235, as follows:"It results from the definition of a surety's engagement, as being accessory to a principal obligation, that the extinction of the principal obligation necessarily induces that of the surety; it being of the nature of an accessory obligation, that it cannot exist without its principal; therefore, wherever the principal is discharged, in whatever manner it may be, not only by actual payment or a compensation, but also by a release, the surety is discharged likewise; for the essence of the obligation being, that the surety is only obliged on behalf of a principal debtor, he therefore is no longer obliged, when there is no longer any principal debtor for whom he is obliged." In the civil law this general proposition is subject to qualifications and exceptions, but it formulates a leading principle. As a general principle, subject to similar qualifications and exceptions, it appears to be well recognized in English law, although it is evidenced by decisions giving it particular applications and by dicta rather than by formal pronouncements (Lakeman v Mountstephen, [F33] per Lord Selborne, at p. 24, Bechervaise v Lewis, [F34] per Willes J., at pp. 377, 378, Finch v Jukes, [F35] per Hall V.C., Mortgage Insurance Corporation v Pound, [F36] Stacey v Hill, [F37] per Collins L.J., at p. 666, and Morris & Sons Ltd v Jeffreys, [F38] per Swift J., at p. 58). It does not extend to a discharge of the principal debtor's personal liability by operation of law when the discharge is for the purpose of liquidating his affairs or transforming the rights of the creditor against him into rights against or in respect of his assets. The doctrine should be understood to look rather to the continuance of a just claim in the creditor to receive payment in respect of the principal debtor's obligation than to the latter's relief from actual personal liability.
In the present case, not only is the principal debtor relieved from personal liability to pay the instalments but the vendors' just title both to obtain and to retain the instalment altogether ceases. If there had been no assignment and if the instalment had been duly paid, it would have become the vendors' duty to repay it. It is, perhaps, uncertain whether, if the payment of the instalment had been duly made to the plaintiff, as assignee, the liability to repay it would have fallen upon it or upon its assignors, the vendors, because it is not clear that the obligation to repay it does not arise out of contractual implications by which the assignee would not be bound, as distinguished from an independent duty springing simply from the receipt of the money and the subsequent discharge of the contract. But, when the money has not been reduced into possession, the assignee's right to recover it is precisely that of the vendors and is affected by exactly the same considerations. The plaintiff, therefore, became disentitled to recover and enjoy the instalment. If the guarantors were liable to pay the instalment, they would in equity be entitled to resort for indemnity to the principal debtors, who, upon payment, would apparently be entitled to recover the instalment from either the vendors or the plaintiff, the assignee of the contract. If they could recover from the vendors, the latter might or might not be able to resort to the assignee according to the actual nature of the transaction between them. But, in any case, if the contract of guarantee is a secondary or accessory obligation for the performance of the principal obligation to pay the instalment, and contains no exceptional promise or condition, it follows that it was discharged.
The judgment appealed from, however, treats the case as depending upon very special facts and as much affected by the construction to be given to the guarantee in the light of the circumstances existing at the time. I have been unable to find, either in the terms of the instrument or in the surrounding circumstances, any sufficient reason for considering the promise of the defendants anything other than a collateral or secondary undertaking securing the fulfilment of the principal or primary liability under the contract. The fact that the promisee, the plaintiff, was assignee of the principal obligation does not appear to me a reason for treating the guarantee as a detached or independent liability. The consideration that the discharge of the principal obligation did not proceed from any act or default of the creditor is not, in my opinion, an answer to the consequential discharge of the accessory liability of the surety, because the case is one in which at law and in equity the creditor became disentitled to the benefit or advantage the principal obligation was designed to give him. The contention, apparently adopted by Cussen A.C.J., that the result would be the same as it would be if the defendants had paid the money and were seeking to get it back, I also have assumed to be correct, except that I have, for the reasons given, considered it unnecessary to decide whether the defendants should have recourse in such an event to the assignors or to the assignee. But, proceeding upon this assumption, I think the defendants could have recovered the instalment thus supposed to be paid from one or the other. The conduct of the purchasers in bringing about the destruction of both transactions through their failure to pay the balance of purchase money under the second contract does not, upon the cases, disentitle them from recovering the instalments other than the deposit, and I, therefore, do not see how it can give rise to equitable considerations which preclude the guarantors, whose participation in the default of the purchaser company was only in the character of directors, from relying upon the ordinary doctrines affecting their liability as sureties.
For these reasons I am of opinion that the appeal should be allowed.