McDermott v. Black

(1940) 63 CLR 161
(1940) 13 ALJR 558

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(Judgment by: Dixon J)

McDermott
v Black

Court:

Judges: Latham CJ
Rich J
Starke J

Dixon JMcTiernan J

Hearing date: 20, 21 February,1940
Judgment date: 11 March 1940

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Judgment by:
Dixon J

This appeal is the product of an abortive sale of four thousand shares in a company called Younger Set Pty Ltd, being four-fifths of its share capital. The contract was made on Sunday, 16th May 1937. The appellant, McDermott, agreed to sell the shares, the respondent, Black, to buy them. The price was £4 per share, £16,000, of which. £2,000 was payable at the end of the week and the balance in a fortnight. At the same time the appellant entered into another contract to sell at the same rate the remaining one thousand shares in the company's capital. The purchaser was one Swann, an employee of the company. The appellant, who held or controlled all the shares, was its managing director. The business of the company consisted in the conducting of a place of entertainment, under the name of the Forty Club, in a dance hall of which it was possessed. Swann was the "floor manager." The appellant, it is said, had fallen into ill health and, on that account, wished to dispose of the concern. A project of some description seems to have been formed for selling it to Swann and such co-adventurers as he could muster for the purpose of providing the necessary cash.

The respondent, Black, who at one time had been a bank manager and at another a farmer, was carrying on the pursuit of a land and financial agent. On Friday, 14th May 1937, Swann paid him a visit, laid before him all the attractions of the project, and sought his help in finding the money. As a result Black went on Saturday evening to witness for himself the spectacle at the Forty Club. The value, it is now suggested, of the proposal lay less in the business than in the company's title to the premises, a right to a Crown lease of land in the city. But the attendance at the box-office clearly was not regarded as irrelevant. Black did not go alone. His party included a friend named Irvin. They met the appellant, and before long negotiations had so far advanced that an appointment was made for the following morning in order to complete a sale to Black of four-fifths, and to Swann of one-fifth, of the shares. Next morning the appellant brought his solicitor and the contracts were made. Black had no intention of providing any part of the £16,000 from his own resources; he could not have done so. He believed or hoped that clients, actual or prospective, would take over the transaction. But when the day for paying the deposit came he had not the money. He obtained a few days time and arranged to lodge, in lieu of the £2,000, four Commonwealth bonds of £500 each. This he did, and the appellant agreed to vary the contract by extending the time for payment of the balance of purchase money to 26th June 1937. Black was not then in a position to complete. As that day approached he wrote to the appellant stating that he had been induced to enter into the transaction by some representations which he specified, and he called upon the appellant to prove the truth of the representations by the production of books and documents. Three of the representations which he set up were in fact untrue, and the appellant denied making them. After some correspondence Black agreed to withdraw his allegations upon receiving an extension of time until 5th August 1937. When that date came he was still unable to complete, and, finally, about 11th August the appellant rescinded the contract, forfeiting the deposited bonds. After some further negotiations Black instituted the present action against the appellant and Swann. He sued in deceit for the recovery of the bonds or of their value as damages. Martin J, who tried the action, found that McDermott had himself made the three misrepresentations already mentioned and one other and that they were fraudulent. Against Swann he found additional misrepresentations, but he considered that Swann was not McDermott's agent. Swann defended the action and appeared when the trial began, but on the third day his counsel withdrew and no more was seen of the client. Martin J did not pronounce a common-law judgment for the recovery of damages against both defendants. He made a special order for the return of the bonds by McDermott and in default the payment of £2,000 damages and reserved further consideration of Swann's liability in the event of McDermott failing to comply with the order. McDermott alone has appealed, but he served his notice of appeal on Swann, who, however, has ignored the proceedings.

McDermott's appeal is founded on two contentions. He says first that Martin J did not really intend to find the fourth misrepresentation against him, that is, the misrepresentation not included in the allegations which the respondent Black had withdrawn, and did so only by a slip. Secondly he contends that Black's remedy in respect of the other three allegations is barred by his withdrawal.

In his reasons for judgment, which were orally given, his Honour found that McDermott had made the following false representations to the appellant: -- (1) That the net profits of the company were £6,000 per annum, excluding the profits from a cafe forming part of the premises. (2) That a firm specified wanted to buy the shares and were prepared to give more than £20,000. (3) That he, McDermott, had started the Forty Club with nothing and now had £50,000 to his credit. (4) That the average attendance in the ballroom of a Saturday night was 2,000 persons.

In stating his opinion that the fourth representation was made, the learned judge qualified it by the word "probably." But the tenor of his judgment makes it clear that he considered that he had definitely found it as a fact.

It is this finding which, according to the appellant's contention, the learned judge made under a mistake or misapprehension. His Honour refused to rely on the uncorroborated testimony of Black. He did not regard him as an untruthful witness but as one who showed so much confusion, forgetfulness and want of understanding that, as Martin J said, it was quite unsafe to accept him on any matter in which he was not corroborated in a material particular. No less than fifteen misrepresentations were alleged against the defendants, and it became necessary to see what confirmatory evidence there was of the making of each representation by the defendants or one or other of them and which of them. The corroboration for the most part proceeded from Irvin. The judgment shows clearly enough that his Honour thought that Irvin had sworn that all four of the representations I have set out were made by McDermott. In fact he did not say that McDermott made the fourth of them. Moreover Black himself in his answers to interrogatories had attributed it to Swann and not to McDermott, and had done so in a manner showing that, according to his then view, McDermott had not personally made the statement. In these circumstances I think that the finding was made by mistake and that it cannot stand. We must proceed upon the footing that McDermott did not make the fourth misrepresentation. It is a matter for regret that the learned judge's attention was not drawn to the misapprehension, but with so many questions of evidence it is, perhaps, not surprising that judge and counsel should all fall into the same error.

The other three misrepresentations found were all relied upon by Black in the correspondence which took place when the time fixed for completion was at hand, and they formed the subject of his withdrawal on still further time being granted. The appellant's contention is that Black agreed to waive his complaint of misrepresentation in consideration of an extension of three weeks in the time for completion and that either his cause of action was thus discharged by accord and satisfaction or he precluded himself, either at law or in equity, from afterwards reviving the allegation of these misrepresentations as the foundation, in whole or in part, of a suit. In order to deal with this contention it is necessary to state a little more fully what took place.

The question of misrepresentation was raised for the first time in a letter written by the respondent Black to the appellant on 24th June 1937. He wrote that he had agreed to buy the shares upon representations which he stated. They covered the three misrepresentations now in question. He went on to say that the appellant had refused to allow Black's auditor to inspect the company's books, and his letter concluded with a request for the production of the accounts so that he, Black, might be "satisfied or otherwise as to the representations" and with a statement that until compliance he would not pay any further money. This evoked from the appellant's solicitors an immediate denial of the representations and a threat to enforce the contract. The date fixed for payment was next day. Black replied: -- "I again say that your client did make the representations mentioned to him in my letter of 24th inst. If they are not correct then I want my money back. If they are correct and Mr McDermott will permit my auditor to examine the books and documents of the company and such audit supports Mr McDermott's statements I will fulfil my part of the agreement and pay the balance of the money. If Mr McDermott will not agree to this then I will have no alternative but to issue a writ against him for the return of my bonds for £2,000." To this the appellant's solicitors replied in a letter the effect of which was again to deny the making of the representations alleged, which the letter called "misrepresentations," to accuse the respondent Black of manufacturing grounds for delay, and to require him to complete on that day. On 28th June, two days after the date fixed for settlement had passed, Black in answer wrote an argumentative letter, in the course of which he said that as the appellant's solicitors called the; representations "misrepresentations" he was led to believe that they were misrepresentations and made by their client. The letter ended with a statement that Black's own allegations were genuine and if McDermott would give him an audited statement covering three years and showing that his representations were substantially true he, Black, would go on. During these communications Black had consulted a solicitor, who now took up the correspondence. On 30th June he wrote a more conciliatory letter explaining Black's desire for the production of the books on the ground that he wished to enlist the financial support of others for the transaction and suggesting that further time be given. A week later an interview took place between the respective solicitors. No evidence was given as to what passed, but Black's solicitor wrote on 9th July saying that his client wanted a further week in order to make arrangements. He continued: -- "I feel confident that matters can be arranged, and if so, I will induce Mr Black to withdraw his allegations against Mr McDermott. If a further week be given then I think that the parties will require further time not exceeding a month in which to finalize the whole matter. You will treat this letter as without prejudice but I am doing my best to arrange an amicable settlement and with a view to carrying out the original contract except in so far as time is concerned." Six days later Black's solicitor again wrote. He referred to his last letter and went on to say that Black had instructed him "to withdraw all allegations imputing anything improper to Mr McDermott" and that an accompanying letter would explain the whole matter. The accompanying letter said: "My letter herewith is conditional upon Mr McDermott agreeing to three weeks' time from to-day in which to pay the balance of £14,000 in order to complete the transaction. Please let me have an immediate reply." An interview or interviews then took place, and more letters followed. An attempt was made on the part of the appellant to impose a further condition that the deposit should be increased, but at length his solicitors wrote: -- "In the circumstances he is prepared to accept the withdrawal and to grant three weeks further time as stated in your further letters"; and on 29th July, in response to a request for confirmation, Black's solicitor wrote that his client instructed him to say that he intended completing the purchase within the time mentioned.

It will be seen from the foregoing that Black set up three representations on which his cause of action now depends, challenged their truth and threatened to sue to recover his bonds. McDermott did not contest their want of correspondence with fact but denied making them; then Black agreed to go on with the contract and withdrew the allegations in consideration of receiving three weeks further time. The question for decision is whether Black can now rely upon the same allegations in order to maintain an action for deceit.

At the time when the plaintiff agreed to withdraw the allegations of misrepresentation which he had made, he was, on the findings of fact, in a position to disaffirm the contract and recover the Commonwealth bonds which he had deposited or their value. He might, of course, have elected to affirm the contract, and in that case his remedy would have been an action for deceit, an action in which it would be necessary to establish not only fraud on the part of the defendant McDermott but actual loss on his own part consisting in an excess in the amount which he had laid out in the execution of the contract over the value of what he had obtained. At the time when he issued his writ his cause of action was limited to deceit. For the contract had been rescinded by the defendant McDermott, and, even if the plaintiff's election had remained open, there was nothing to disaffirm.

The question for our consideration may be divided under two legal heads. First, did Black's agreement to withdraw the allegations of improper conduct operate to extinguish his cause of action in deceit? And secondly, if not, did it nevertheless disable him from relying in an action of deceit upon the specific misrepresentations to which his withdrawal related? That is to say, conceding that if he had been able to establish other fraudulent misrepresentations afterwards discovered, he might have maintained an action of deceit founded upon them, yet could he revive the allegations he had withdrawn and rely also on them?

An agreement not to sue upon particular allegations might give a defendant a good equitable plea, but at common law it would be necessary for him to show that it amounted to an accord and satisfaction discharging the cause of action or else that it gave rise to an estoppel.

The essence of accord and satisfaction is the acceptance by the plaintiff of something in place of his cause of action. What he takes is a matter depending on his own consent or agreement. It may be a promise or contract or it may be the act or thing promised. But, whatever it is, until it is provided and accepted the cause of action remains alive and unimpaired. The accord is the agreement or consent to accept the satisfaction. Until the satisfaction is given the accord remains executory and cannot bar the claim. The distinction between an accord executory and an accord and satisfaction remains as valid and as important as ever. An accord executory neither extinguishes the old cause of action nor affords a new one. The decision of the court of Appeal in British Russian Gazette & c Ltd and Talbot v Associated Newspapers Ltd, ^[14] though doubtless some of the reasons display less zeal for principle than for reform, does not appear to me to be inconsistent with the received doctrine that no new cause of action is given by an accord executory. In that case, the agreement constituting the accord was made as a compromise of three several causes of action vested in three persons respectively. It was made by one of them purporting to act not only on his own behalf but also as agent for the other two. In fact he had no authority to do so, and he was held liable for damages for breach of warranty of authority. This result might perhaps be supported, even if the agreement were an accord executory, on the ground that, at all events, the opposite party had acted to some extent on his representation of authority, but the intention of the parties appears to have been that the agreement of compromise should itself have been accepted as in satisfaction of the causes of action, so amounting to an accord and satisfaction. The case, therefore, provides no more than a late illustration of the doctrine, finally established perhaps by Flockton v Hall, ^[15] that of accord and satisfaction there are two cases, one where the making of the agreement itself is what is stipulated for, and the other, where it is the doing of the things promised by the agreement. The distinction depends on what exactly is agreed to be taken in place of the existing cause of action or claim. An executory promise or series of promises given in consideration of the abandonment of the claim may be accepted in substitution or satisfaction of the existing liability. Or, on the other hand, promises may be given by the party liable that he will satisfy the claim by doing an act, making over a thing or paying an ascertained sum of money and the other party may agree to accept, not the promise, but the act, thing or money in satisfaction of his claim. If the agreement is to accept the promise in satisfaction, the discharge of the liability is immediate; if the performance, then there is no discharge unless and until the promise is performed. In the present case, an extension of time to the 5th August 1937 is the thing promised. From the nature of the concession, the extension consisted not so much in allowing time to elapse as in the waiver de praesenti of insistence on the plaintiff's observing the time named in the contract and of the consequences of non-observance, whatever they might be. What the plaintiff sought was a concession in the nature of a variation of the contractual terms fixing the time for completion. There is little difficulty, therefore, in regarding the defendant's agreement to postpone, and not the actual lapse of time, as the thing looked for by the plaintiff. The point of difficulty in the present case appears to me to lie elsewhere. The difficulty is to be sure of an intention on the part of the plaintiff to discharge the defendant from any liability, that is, an intention to take the agreement to extend the time in replacement or satisfaction of any existing right or claim against the defendant or, at all events, of the right or claim put in suit by the present action. The "withdrawal of all allegations imputing anything improper to" the defendant conditionally upon the latter's agreeing to three-weeks' further time for payment of the balance of purchase money clearly amounts to an election to affirm the contract. It does, I think, imply a promise not to revive the allegations. But it must be acknowledged that, standing alone, it would not be easy to spell out of it an intention to treat the extension as satisfying a claim. The correspondence, however, not only adverts expressly to misrepresentations, but on that ground Black threatened to sue to recover the bonds. An action for deceit is but the legal description of the remedy for misrepresentation which the respondent Black appears to have contemplated. Accordingly should it not be taken as a possible liability, among others, to which the withdrawal should be understood as putting an end? On the whole I think that this question should receive an affirmative answer. The untechnical and inexact expression, "withdraw allegations," no doubt causes some difficulty. But it must be borne in mind that the purpose was to settle or compromise a very definite dispute. On the one side, the appellant McDermott, if time was of the essence as in such a contract it may have been, was in a position to rescind and forfeit the deposited bonds. On the other side the respondent Black had formulated a claim to disaffirm the contract and recover his bonds and he had threatened to issue a writ unless he was satisfied of the truth of the representations, the falsity of which, if made, had never been denied. It was at this stage that his solicitor suggested an amicable settlement based upon the withdrawal of his client's allegations. In these circumstances, it would be natural for the appellant McDermott to suppose that the proposal was that the contract should be completed on the footing that Black waived all claims based on the alleged misrepresentations. It would be futile for Black to withdraw allegations which he was to be at liberty to revive. The purpose of the withdrawal was not that of social amenity but to complete and close a business transaction. Fias recantatis amicus opprobriis is but an idle sentiment which could have no place in the moratory tactics of Mr Black, and would be unheard by Mr McDermott. The question propounded was whether the contract should be carried into effect and time be allowed to Black for that purpose or whether the latter should persist in his claim that it should be avoided and his bonds returned. The withdrawal of the allegations of improper conduct meant, in my opinion, that he would make no claim based upon misrepresentation but would accept the promise of further time instead. Estoppel can, I think, be put aside. But I think that, consistently with principle, the agreement to withdraw in consideration of a grant of time can be regarded as an accord and satisfaction. I am prepared to hold that on this ground the respondent Black's cause of action is answered, founded, as it is, on the three misrepresentations withdrawn.

But I am of opinion that in any case a good equitable plea is sustained by the agreement, that is, if the legal defence were not enough. The sufficiency of the facts to provide an answer in equity is determined by somewhat different considerations.

At law, "the only case in which a covenant or promise not to sue is held to be pleadable as a bar, or to operate as a suspension and by consequence a release or extinguishment of the right of action, is where the covenant or promise not to sue is general, not to sue at any time. In such cases, in order to avoid circuity of action, the covenants may be pleaded in bar as a release ... for the reason assigned, that the damages to be recovered in an action for suing contrary to the covenant would be equal to the debt ... or sum to be recovered in the action agreed to be forborne" (per Parke B, Ford v Beech). ^[16]

But equity did not follow the law in its refusal to give effect to the agreement of the parties. At law an accord and satisfaction was not pleaded in bar of an action upon a specialty but in equity the debt was treated as discharged, and, before the Judicature Act, the creditor was restrained from proceeding at law for its enforcement (Webb v Hewitt; ^[17] Steeds v Steeds). ^[18] In the same way a parol variation of a contract under seal obtains its effective operation from equitable doctrine (Berry v Berry). ^[19] A release, though not under seal, if given for consideration, was enforced by injunction, and so, too, was an agreement by simple contract not to sue. Accordingly they now constitute good equitable defences to legal demands: Cf. Edwards v Walters. ^[20] There is no reason to doubt that in the same way equity would give effect to a simple contract not to set up or rely upon specific allegations of fact as part of a common-law cause of action or for that matter as a plea, or part of a plea, answering a cause of action. Before the Judicature Act the mode of relief was by injunction restraining the party from pleading the facts in his declaration or plea as the case might be and the foundation of the injunction was the promise of the party, negative in character, given for consideration. The promise, however the contract might be expressed, is in character negative, because, ex hypothesi, the stipulation to be enforced is that the party will not set up the specific allegations of fact. A negative stipulation gives the party a prima-facie equity to have a violation of the contract restrained because the legal remedy by way of damages is not sufficient to protect the party and secure the interest for which he bargained. But like all other titles to equitable relief the prima-facie right to restrain the breach of an agreement not to sue or not to set up specified matters is subject to the well-known rules or principles upon which courts of equity act. Relief would not be granted if the agreement were unfairly obtained or oppressive. The stipulation, whether express or implied, must be sufficiently certain and not too vague and indefinite. The consideration must not be illusory or inadequate. There are two points at which these principles touch the plaintiff's agreement to withdraw the allegations of improper conduct. In the first place, though an implication against reviving the allegations appears to me quite certain, the extent and nature of the promise to be implied may be said to be too doubtful. It may be thought insufficiently clear that the parties intended to stipulate that the plaintiff should not be at liberty to include the misrepresentations referred to in an action of deceit. Conflicting views have been suggested of the nature and extent of the undertaking to withdraw the allegations of improper conduct. For instance, it has been said that it was directed only against aspersion on character, against further contumely or insult. Another view put forward was that its purpose was to destroy in advance the probative value of Black's assertions. It has also been explained on the ground that it was desired to fix Black with an affirmance as opposed to a disaffirmance of the contract. Notwithstanding these rival interpretations of the agreement to withdraw the allegations, I am of opinion that the parties should be understood as stipulating that the respondent Black would not base any cause of action upon the allegations he withdrew. But so to interpret their contract is one thing: it is another thing to say that the construction or implication is sufficiently clear and definite to form the ground of an injunction. Upon the latter question the opinion of Martin J that the language of the agreement is far too vague and the difference in the views of the withdrawal that have been put forward must shake any confidence that otherwise might be felt. But it is necessary to distinguish between the difficulties that are encountered in interpreting the meaning of the parties to a negative stipulation and the vagueness or indefiniteness of the stipulation when interpreted. In the present case I think the difficulties fall under the former head rather than the latter. It appears to me that, once it is determined that the parties intended that Black should not be at liberty to revive the allegations and rely upon them in legal proceedings in support of a claim, little difficulty remains in saying that their meaning was definite enough to warrant a court of equity restraining such an action at law as the present.

The other point at which the general principles of equity touch the question whether the agreement to withdraw the allegations provides an equitable defence, depends upon its fairness and justice. In the first place the reply of the respondent Black contains an averment that the agreement was induced by a false representation made by the appellant on 12th July. There is, however, nothing but the unconfirmed evidence of Black to support the averment; it is contradicted by McDermott, and there is no finding that the representation was made. In these circumstances I think that the making of the representation was not established. A court of equity would not, perhaps, have granted an injunction if it had appeared that further misrepresentations had been made the falsity of which Black had not discovered at the time of the withdrawal. But no such representations were established except some made by Swann. I agree with Martin J that Swann was not McDermott's agent, and I do not think that his conduct can, in the circumstances of the case affect McDermott's equity. Nor do I think that the supposed inadequacy of the consideration given by McDermott, viz, the postponement of three weeks, is a valid answer. The whole thing was a compromise, and time was what Black wanted.

In my opinion the agreement to withdraw operates to prevent the respondent Black from maintaining this action.

The appeal of McDermott should, therefore, be allowed and judgment in the action should be entered in his favour.

Some difficulty arises as to Swann. Though he was guilty of other misrepresentations which McDermott did not make and though he and McDermott are not shown to have been acting in concert, it may be that there are no separate causes of action against them and their case is like that of joint tortfeasors. For the gist of the action is the damage, and the deceit is but the wrongful inducement. Black's reliance on the combined misrepresentations led him to incur but one loss, and that is the damage: Compare Sudholz v Withers Pty Ltd and the Tramway Board. ^[21] An accord and satisfaction with one joint tortfeasor discharges the liability of all. But I do not think that we are called upon to consider this interesting question. Clearly, in equity, Swann would have no answer. The common law defence of accord and satisfaction he did not raise. Had he done so, an investigation might have been made of what passed between him and Black at the time of the agreement to withdraw the allegations against McDermott, and it may be that it would then appear that such a defence was not available to him. He has not appealed, and a judgment stands declaring him liable in default of satisfaction by McDermott. In effect the view I take would render satisfaction by McDermott impossible and make Swann's liability absolute. Swann, however, is a party to the appeal, and we can and should dispose of the whole case. In the result, therefore, I think that we should vary the judgment below by entering judgment for McDermott and against Swann for £2,000. McDermott should have his costs of this appeal, and in the action, where he failed on substantial issues of fact, he should pay the costs of those issues. Swann should pay the costs of the action.