McDonald v Dennys Lascelles Ltd
48 CLR 4571933 - 0515B - HCA
(Judgment by: STARKE J)
McDonald
v Dennys Lascelles Ltd
Judges:
Rich J
Starke JDixon J
Evatt 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:
STARKE J
This was an action upon a guarantee under seal, dated 19th February 1930, 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 ... 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."
Besley and others, by a contract of sale dated 23rd June 1927, had sold certain lands to Dunkley and the company for PD23,462. The deposit on the sale was PD6,000, and the balance was to be met by payments of PD1,000 on 24th January in each of the years 1928, 1929 and 1930, and of PD14,462 on 24th January 1931. The conditions of sale provided for forfeiture of the deposit and rescission of the contract in case the purchasers made default in payment of the purchase money or any part of it, and that time should be considered of the essence of the contract. By an assignment dated 14th August 1929, Besley and others, in consideration of the sum of PD2,000, assigned to Dennys Lascelles Ltd all that the said contract of sale of 23rd June 1927 and all their right, title, benefit, advantage, property, claim and demand whatsoever in or to the same and in the property therein and the moneys then or thereafter payable thereunder. Notice of this assignment was given to Dunkley and the Rye Grazing Co Pty Ltd , the purchasers named in the contract of sale. These purchasers did not pay the instalment of PD1,000 falling due under the contract on 24th January 1930, and an arrangement was made, extending the time to 24th January 1931, upon the execution of the guarantee above mentioned. But the purchasers did not pay this instalment on 24th January 1931, or the balance of the purchase money, PD14,462, due under the contract on that date. And on 5th June 1931 Dennys Lascelles Ltd brought this action on the guarantee above set forth. At this time, their right to recover was perfectly clear. But on 19th June 1931 the purchasers, though in default, having discovered that a contract of sale under which their vendors had acquired the land sold to them (the purchasers) had been rescinded for non-payment of purchase money, intimated that they treated their contract as at an end, because their vendors, and the assignee, Dennys Lascelles Ltd , were no longer able, ready or willing to complete the contract.
I do not stay to consider whether the purchasers had any right so to rescind the contract, for their vendors and Dennys Lascelles Ltd accepted the renunciation and acted as if the contract were ended. The rescission of the contract, however, did not operate to extinguish it ab initio , but in futuro, so as to discharge obligations under it unperformed (Salmond and Winfield, Law of Contracts, (1927), p. 320). It is of no little importance in the present case to ascertain the consequences of the rescission. The precise terms of the contract often determine those consequences. But, apart from any special stipulations of the contract, I apprehend that a purchaser who is not himself in default is discharged from further performance of the contract and is entitled to recover any money paid or property transferred by him thereunder; he is entitled to take proceedings in equity to assert his right and secure restitution, or to sue at law (Palmer v Temple; [F2] Mayson v Clouet; [F3] Williams on Vendor and Purchaser, 3rd ed. (1923), vol. 2, pp. 1012, 1013). On the other hand, a vendor who is not himself in default is discharged from further performance of the contract, and is entitled to the return of his land the subject matter of the contract, or his interest therein, but is bound to restore any moneys paid or property transferred to him thereunder: the vendor cannot have the land and its value too (Laird v Pim, [F4] at p. 854; Williams on Vendor and Purchaser, 3rd ed., vol. 2, p. 1013). A deposit paid as security for the completion of the contract stands perhaps in an exceptional position, because the intent of the parties is that, if the contract goes off by default of the purchaser, the vendor shall retain it (Howe v Smith [F5] ). On the other hand, stipulations providing for forfeiture of instalments of purchase money in case of default have been treated as in the nature of a penalty and relief given against them (In re Dagenham (Thames) Dock Co ; Ex parte Hulse; [F6] Kilmer v British Columbia Orchard Lands Ltd; [F7] and cf. Palmer v Moore [F8] ). Relief against forfeiture is no doubt an equitable remedy. But, in the case of a rescission of a contract of sale of land by a vendor, moneys paid under the contract by a purchaser in default that are not forfeited can be recovered at law. That is recognized, I think, in Palmer v Temple [F9] and in Ockenden v Henly; [F10] and, if it be not a legal remedy, still the equitable remedy is clear and well established. Consequently, after the rescission of the contract, about June 1931, an action or proceeding for the recovery of the instalment of PD1,000, the payment of which had been extended to 24th January 1931, and of the balance of purchase money, could not have succeeded, for the vendors were not entitled to both the land (or their interest therein) and the purchase money. The assignee of the vendors stands in no better position, for it accepted or acted upon the renunciation of the contract as well as the vendors; it cannot be affirmed that it was, after the date of the purchaser's rescission, ever ready or willing to carry out the contract or make title to the property sold.
I now turn to the guarantee. Ex facie, the appellants, McDonald and Holdsworth, contract with the respondent, Dennys Lascelles Ltd , to be responsible to it by way of security for the payment of PD1,000 by Dunkley and the Rye Grazing Co Pty Ltd on 24th January 1931. The obligation is that of a surety, and therefore "a collateral obligation postulating the principal liability" of Dunkley and the Rye Grazing Co Pty Ltd And, apart from the express terms of the contract, Dennys Lascelles Ltd knew that the relationship between the appellants and Dunkley and the Rye Grazing Co Pty Ltd was that of surety and principal debtor (Rouse v Bradford Banking Co [F11] .) A surety, however, is not liable on his guarantee where the principal debt cannot be enforced, because the essence of the obligation is that there is an enforceable obligation of a principal debtor (De Colyar on Guarantees, 3rd ed. (1897), p. 210). A surety is discharged where the principal debtor is released without his (the surety's) consent. Again, where the principal is entitled to a set-off against the creditor's demand, arising out of the same transaction as the debt guaranteed and in fact reducing that debt, the surety is entitled to plead it in an action by the creditor against the surety alone (Bechervaise v Lewis [F12] ). But the generality of the rule is subject to some modifications. A release in bankruptcy does not discharge a surety, for that is the act of the law (Ex parte Jacobs; In re Jacobs; [F13] In re London Chartered Bank of Australia [F14] ). Again, a person who becomes surety for another under a known disability may be treated as the principal debtor (Wauthier v Wilson [F15] - the case of an infant), and a person who becomes surety for the repayment of money borrowed by a company beyond its powers has been held liable (Yorkshire Railway Wagon Co v Maclure; [F16] Garrard v James [F17] ), either because "the obligation of a mere guarantee for a debt can be satisfied by payments by the surety, who may be considered as prepared to lose his right over against the corporation, if the law forbids it to pay" (Rowlatt, Principal and Surety, 2nd ed. (1926), p. 166, note (d)), or because the surety's liability arises from the failure or omission of the company, from whatever cause, to meet its obligations (Garrard v James). The present case, however, stands clear of these modifications of the rule, for there has been no discharge of the obligations of the contract, in bankruptcy or analogous proceedings, and no question of disability or incapacity arises. The principal debt cannot here be enforced owing to the acts of the parties in rescinding the contract of sale. It is true, I think, that the cause of the breakdown in carrying out the contract of sale was the default of the purchasers, Dunkley and the Rye Grazing Co Pty Ltd , in payment of the instalment of PD1,000 and of the balance of the purchase money on 24th January 1931. The defendants-the sureties-who were directors of the Rye Grazing Co Pty Ltd , were no doubt aware of this default, and probably appreciated its consequences, both to the vendors and to their assignee, the plaintiff. But do those facts make it inequitable for the sureties to rely upon the fact that the principal debt is no longer recoverable owing to the rescission of the contract? It does not appear to me that they affect the vital position, which is that the principal debt is no longer enforceable or recoverable, by reason of the rescission of the contract; and the legal consequence of that position is that the sureties are not liable.
The appeal should be allowed.