Commercial Bank of Australia Ltd v Colonial Finance, Mortgage, Investment and Guarantee Corporation Ltd

[1906] HCA 30

oankin t

Corâ J

Group L td y

is Investments Doû Moft'

PrvUd M9921 lQdR478 '

4 C .L R .] O F

A O STFvA LIA .

[HIGH COURT OF AUSTRALIA.]

THE COMMERCIAL BANK OF AUSTRALIA,

A p p e l l a x t .s ;

L I M I T E D .......................................................

'I’HE COLONIAL FINANCE, MORTGAGE,

INVESTMENT AND GUARANTEE

R e .s p ( in d e n t s .

CORPORATION, LTD. AND OTHERS

ON APPEAL FROM THE SUPREME COURT OF

NEW SOUTH WALES.

Principal and surety—Continuiny guarantee—Default o f principal debtor to pay

H. C. OF A.

portion of debt on demand—Liability of surety—Interest—Stalide of Limitations

1906.

—Notice to surety.

Sydney,

By the terms of a continuing guarantee of a customer’s overdraft with a bank, the guarantors undertook to j)ay all advances and debts owing or to

Hay 9, 10,

11, 18.

become owing by the customer to the bank “ to the extent of £12,500 and

Griffith C.J.,

interest on the sajne respectively in case the customer should make default Barton and

in paj'inent thereof respectively or of any part thereof respectively.” On two

O'Connor JJ.

occasions the bank made demands upon the customer, one for payment of a portion of the overdraft and the other for interest upon the overdraft, and the customer failed to pa}’.

Held, that the result of the default by the customer to pay a portion of the principal debt on demand was that a cause of action arose again.st the guarantors, not for the whole amount of the guarantee, but for the amount as to which the customer had made default, and therefore that the Statute of Limitations began to run against the bank as to that portion of the indebted­ ness only, and the guarantee continued as security to the bank for the balance.

Held, also, that, as against the sureties, the Statute ran as regards interest as well as principal of the sums demanded.

The principles which regulate the riglit of a surety to notice of default discussed.

HIGH COURT

[1906.

H. C. OF A.

Decision of Walker J. In re The Colonial Finance, Mortgage, Inre$tment and

1906.                 Gnaranteee Corporation, Limited, (1906) 6 S.R. (N.B.W.), 6, varied.

Commercial

Bask of

Appeal from a deeision of Walker J. on an application by a

Australia

Ltd.

liquidator for directions.

f.

COLOSIAl.

On 2nd March 1892, six directors of the respondent corporation

F inance.

Mortgage,

guarant'eed the corporation’s overdraft vrith the appellant bank

I nvest.ment

AND

to the extent of £12,500, and the corporation mortgaged its un­

C uarastkecalled capital to the guarantors to secure them against loss. The

Corporation

Ltd.matei’ial portions of the guarantee were as follows : “ In consider­

ation of advances heretofore or now made or which may hereafter be made &c. and in consideration of your forbearance to call for immediate payment of advance (if any) already made &c. We (jointly and severally) undertake to pay you all .such advances and all debts now owing or payable or hereafter to become owing or paj’able ” (bji the respondent corporation to the appellant bank &c.) “to the extent of £12,500 and interest on the same respectively . . . in case the said customer ” (the respondent corporation) “ shall make default in payment thereof respectively or of any part thereof respectively on demand and . . . declare that this guarantee shall be a continuing guarantee and shall not be con­ sidered as wholly or partially satisfied by the payment or liquida­ tion at any time or times hereafter of any sum or sums of money for the time being due upon the general balance of the account of the said customer with you but stiall extend to cover and be a security for every and all future sum and sums of money at any time due to you thereon notwithstanding any such payment or liquidation . . . . that you may grant to the said customer or its i-epresentatives &c. time or other indulgence and take any security from and compound with the said customer or its repre­ sentatives &c. and may release any security already held or which may hereafter be obtained by you &c. without discharging or satisfying any liability hereunder and that all . . . pay­ ments received from the said customer or its representatives &c. shall be taken and applied as payments in gross and that this guarantee shall apply to and secure any ultimate balance that shall remain due to you the said bank &c. and . . . that this guarantee shall remain in force until cancelled by our written

4 C.L.K.l

OF AUHTKALIA.

authority the amount then due owing or payable or for which the

H. C. OF A.

said customer shall be liable to your bank whether arrived at

1906.

maturity or not to be subject to this guarantee and secured

Commercial

Kan' k

of

thereby ” &c. This was signed by the six directors, five of whom,

Au.stralia

with the executors of the sixth David Wilson who died in the

Ltd.

V.

interval, were respondents in this appeal.

Colonial F inance,

On 14th December 1892 the manager of the appellant bank

AIortoaoe, I nvestment

wrote to the manager of the re.spondent corporation a letter in

AND

Gparantee Corporation

the following terms:—“ I have again to call attention to the

unsatisfactory state of your ‘ No. 2 ’ account, and to request that

Ltd.

the (jverdraft may be either licjuidated or very considerablj' reduced before the end of the year. It was part of the agree­ ment between your corporation and this bank that the full pro­ ceeds of the call made in July last would be placed to the credit of this account. I am aware that a sum of £2,000 has not been so applied, but has been u.sed in meeting youi- companj^’s engage­ ments. Be good enough to an-aiige for the transfer of this sum

before the end of the year.” The recjuest contained in this letter

was not complied with.

On 80th June 1898 a further letter was written by the manager of the ai)pellant bank to the respondent coiqioration stating that the sum of £87 2s. (Id. was due for interest, and concluding with the words;—“ Kindly provide for this before close of Ijusineffs if

po.ssible.”

4’his amount was not paid.

In August 1904 the respondent corporation went into voluntary liquidation, and on 25th August four of the guarantors a.ssigned to the appellants the benefit of theii' charge upon the uncalled capital. As the result of a call made in the ^vinding up the li(|uidator had in hand a sum of £8,000, and applied to Walher J. for directions as to what claim if an}" the appellants had upon this fund 1)}' virtue of the charge assigned to them bj" the guarantors. His Honor held that the letter of 14th December 1892 was a demand for payment of £2,000, and that, upon default in pay­ ment by the corporation, a liability arose on the part of the guarantors to pay the full amount secured b}’ the guarantee, and that the Statute of Limitation!^ began to run against the bank from that date and, no action having been brought within the period allowed by law, the claim of the bank was barred.

60 HIGH COURT

[1906.

H. C. OK A.

From tliis decision tlie present appeal was brought.

1906.

Gordon K.C. (Mudt Avith lu'm), for the appellant bank.

Even

COMMKKOIAI.

B.a.nk of

if the principal debt is statute barred as against the guarantors, it

Ai' str.am.a

Lt d .still exists as a debt by the corpoi'ation to the bank, as there was

r. a running account all the time. Interest is still owing on the

Cor.o.NiAi,

F i n a n c e ,

advances and the o'uarantors are liable for that as well as future

Mortoack,

I nvestment

interest: F arrs Banldvg Co. Ltd. y. Vates{l); Paget’s Law of

AND

(llAKANTEE

Banhing, 1!)04 ed., p. 312.

C'OKI’ORATION

[Griffith C.J. referred to Carter v.

(2); and Hartland

[.TP.

made within the meaning of the guarantee. A demand must be peremptory and unconditional, and such as will entitle the creditor to bring an action at once for failure to comply with it. The letters were mere reijuests to pay, and under the circumstances of the case cannot be treated as peremptory demands to pay : Morrell V . Cowan (4); Mnwatt v. Lord Londesborough (5) : and Blair v.

V.

Jlikes (3).]

Cordner ((>), depended upon the particular circumstances in each case, and are not applicable here.

Even if either letter was a demand, the failure to comply with it did not set the Statute running in respect of the whole amount guaranteed, but only in respect of the amount demanded. The proper construction of the guarantee is that the liability of the guarantors was to continue as long as the liability of the debtor remained for any portion of the amount guaranteed.

Dr. Big K.C. and R. K. Manning, for all the respondents except two. Although the total indebtedness of the corporation may still exist, after an absolute demand for any portion of the amount due a cause of action immediately arises against the guarantors for the whole amount. Upon the true construction of the guarantee a demand is merely a request for payment.

[Griffith C.J.—Does the Statute begin to run befoi'e the

guarantors have had notice of default ? He referred to Vyse v.

Widrejield (1)] Maldn v. Watkinson {G).']

(1) (1898) 2Q.B., 460.(5) 3 El. & Bl., .307 ; 4 El. & Bl., I.

(2) 25 Ch. I)., 666.

(6) 19 Q.B.D., 516.

(.3) I H. & C., 667.(7) 6 M. & W., 442.

(4) 7 Ch. D., 151, at p. loo.

(8) L.R. 6 Ex., 2.5.

4 C.L.K.]

OF AUSTKALTA.

Notice to tlie <juarantoi-s is not necessary : Xare-'< v. Hoyles

H. C. OF A.

(1); Stothert v. (roodfellov' (2); In re lochey (3); Gorivg v.

1906.

Edmovdx (4).

t ' o M M K H e i A l ,

ISa n k o k

No (Icniand was necessaiy. Non-pa3'inent of the debt when

A r S T K A I . I . l

due is default. The cause (jf action against tlie guarantors

L'lo.

n.

accrued Mutliin a reasonable time after the creditor first became

C O L O M A I , F i n A n o :,

entitled to sue tlie debtor: llevtov v. Faddisov (5). d’he

M o r t o a c e , I n v e s t m e n t

guarantee continues as long as advances are being made, and for

AND

(iC A R A N T E E t 'O R I 'O R A TIO N

six years from the date of each advance: De Colyar on Gaaran-

teei. drd ed., p. 242 ; Coles v. Pack (b); RovAaft on Principal

Ltd.

and Surety, tSlMJ ed., p, 6S; Kirby v. Puke of Marlhovoiujh (7); Nicholson V . Payet {H). Parr’s Ba.nking Co. Lid. v. Yates (!)), is in point. Tlie ([ue.stion of demand did not arise in that case. Hartland v. JvPes (10) is not an autliority to the contraiy, because tlie guarantee in ipiestion in that case .specitically provided for a demand, otherwise it would not have been nece.ssaiy.

The charge given ly the directors to the guarantors ■was ultra vires as it was not given ly a ((uorum of directors other than tho.se interested : In re Grcymouth Point Elizabeth Raihvay and Goal Co. Ltd.'. Yuill V . Greymouth Point Elizabeth Rail way (ond Goal Go. Ltd. (ll) .

[Guikfith C.J.—If the giving of a charge is not an act ultra vires the company, the presumption, in the atiscnce of evidence to the contraiy, is that it was rightly done.]

The appellants are not entitled to claim intere.stat all, even for the six vears during which the Statute ran. Interest was merel\' acces,sory to and fell with the principal debt. There was no separate covenant in the guarantee pro\ iding for interest, as there was in Parr's Banking Go. Ltd. v. Yates ([)). The general principle therefore applies : Brooms’ Legal Maxims, 7th ed., p. J7(); Hollis V . Palmer {12)', Florence v. Drayson (13); Florence v. Jen ings (14). Apart from that, the liipiidation has destro\'ed the

(I)

U KasI., 510.

(8) 1 C. & M., 68.

1 X. & M., 20J.(9) (1898) 2 Q.13., 460.(•

2)

Ch

1 I'll., .500.(10) 1 H. & C., 667.

(4)

6 Hing., 94.

(11) (1904) 1 Cli., 32.

(5)

68 , 405.

(12) 2 Bing. N.C., 713.

«i)

L.K. 5 C.P., 65.(13) I C.li.X.S., 581.

C)

2 M. k S., 18.

(14) 2 C.B.X.S., 4.54.

HIGH COURT

[190C.

H, C. OF A.

riglit to claim interest, because after that tliere cannot be default.

1906.

Interest ceases at the date of the receiving order : Companies Act

COMMURClAf. 1899, sec. 264; In re Bonacino, ex parte Discount Banhiny

Bank ok

Acstrai.ia

Company (1); In re London, Windsor and Greenwich Hotels

Ltd.

V.          Co, ; Qmtrte'rmaine’s Case (2).

(,'OLONIAL

F inance,

M0RT(iAOE,

Bignold, for the remaining two respondents, the executors of

I nVKSIjMENT

AND

llavid Wilson, adopted the argument of counsel for the other

Guarantee

respondents.

Corporation

Ltd.

Gordon K.C., in reply, referred to Albert v. Grosvenor Invest­ ment Company Ltd. (8); Williams v. Stern (4); iMakin v. Watkinson (5).

[Griffith C.J. referred to Hughes v. Metropolitan Railway Co.

i m

Cur. adv. vult.

Griffith C.J. This was a motion made in the voluntary

winding up of tlie respondent corporation, to determine the (jues- tion whether the appellants were entitled to be paid by the liquidator the proceeds of the last call made in the winding up. The question arises in this way. In March 1892 the corporation was indebted to the bank in the sum of £12,500 by way of overdraft and the bank wished for security for that sum. The then directors of the corporation executed a guarantee for that sum, dated 2nd Marcli, which was in tliese terms. [His Honor read the material portion of the deed, as set out above, and continued.] The usual conditions were inserted that the creditors might give time to the principal debtor without discharging the suretie.s. On the same <lay the corporation executed a deed by which they charged in favour of the guarantors certain specitic real property, the con­ dition being that it should be as security for the repayment on demand of all moneys which the guarantors should be called upon to 2̂ Ty under the guarantee with interest and the usual chargc.s. On 18th December 1892, the same year, by a deed annexed to the deed last mentioned the corporation as.signed to the directors

(1) 1 Manson, o9.(4) ,5 Q.B.D., 409.

(2) (1892) 1 Cli., 6.S9.

(5) L.R. 6 Ex., 25.

(;i) L.R. Q.B., 123

(0) 2 App. Cas., 4.39.

4 C.L.K.1

OF AU8TKAL[A.

all the uncalled capital of the corporation, and all calls on any

H. C OF A.

shares in the corporation absolutely as security for the repayment

1906.

on demand of all moneys secured or intended to be secured by the

Commercial

Ba.nk of

deed of 2nd March 1892, that is, such moneys as the guarantors

Australia

might be called upon to pay under the guarantee. By a deed

Ltd.

V.

dated 25th August 1904, the survivors of the mortgagees of the

Colonial F inance,

calls in the last deed assigned all their interest under that security

.Mortoage, I nvestment

to the bank. The <|ue.stion now relates to a fund which repre­

AND

sents the last call made in the winding up, and the bank claim to

C uarantee

C O R I ’OKATION

be entitled to that fund under the assignment of the mortgage of

JyTD.

December 1892 by the deed of 25th Augu.st 1904. The li(jui-

G li ff i th

C .J .

tlator, representing the creditors of the corporation, claims that the security of December 1892 is exhausted by the operation of the Stutnie of Limitations in the events which have happened, that consecjuently the guarantors can never be called upon to pay anything under the guarantee, that the terms of the charge are therefore exhausted, and that the assignment of it to the bank of 25th August 1904 did not transfer to the bank anj' right to receive these moneys.

I refer again for a moment to the terms of the guarantee of 2nd March 1892. The condition on which the guarantors were re­ quired to pay was “in case the said customer shall make default in payment thereof respectively or of any part thereof respectively.” Before the learned Judge in the Court below it was contended that two letters, written by the bank to the debtors in 1892 and 1898 respectively, amounted to demands within the meaning of the guarantee, that these demands were not complied with, and that thereupon the liability of the guarantors arose for the whole amount secured by the guarantee, that the Statute then began to run, and therefore the guarantors are discharged. 'Phe question discussed before the learned Judge was whether these letters did or did not amount to a demand. It appears to have been taken for granted that if they were a demand then, upon the failure by the debtors to pay the amounts demanded, the liability of the guarantors for the full amount guaranteed arose, a!ul the Statute began to run; and the learned Judge applied his mind to this (piestion. The first demand was in a letter of 14th

December 1892, which ran as follows.

[His Honor read the letter

HIGH COURT

[1906.

H. C. OF A.

and continued.] I quite ao-ree witli the learned Judge in thinking

1906.        that that letter i.s a demand tor the payment of £2,000, and for

Commercial reasons wliich His Honor gave, to which it is not necessary to

Bank of

A ustralia

refer in particular. It is not disputed that the debtors made

Ltd.

V.          default in payment of tliat sum.

Colonial

Tlie otlier letter was written on 30th June 1803 addressed to

F inance,

tli6 manager of the respondent corporation.

[His Honor read the

Mortgage. I nvestment

material portion of the letter and continued.]

Tliat amount was

AND

CUARANTEK,

not paid. I agree witli His Honor that it is not necessary to

Corporation

Ltd.

decide whether that was a demand or n o t; but I have no liesita-

tion in saying that I think it was a demand to pay at once. I agree, therefore, with the learned Judge in tlie conclusion to which he came on the matters argued before him. It follows that an immediate liability arose on the part of the guarantors to paj’ the amounts, whatever they were, in respect of which the debtors had made default, subject to another question that was not raised before the learned Judge, and was not discussed very fully before us.

Griffith C.J.

The (juestion, as to the extent of the liability which then arose on the part of the guarantors, which is I think the whole ques­ tion in this case, turns upon the construction of this particular guai'antee. The promise bj’ the guarantors was to pay in case the customer made default inpayment on demand. It was urged before us that on a contract of that sort the guarantors are entitled to have notice of the happening of the condition on which their liability arises. The doctrine is stated by Lord Ahinyer O.B. in the case of Vyse v. Wahefield (1);—“ The rule to be collected from the cases seems to be this, that where a party stipulates to do a thing in a certain specific event which may' become known to him, or with which he can make him.self acijuainted, he i.s not entitled to anŷ notice, unless he stipulates for i t ; but when it is to do a thing which lies within the peculiar knowledge of the opposite party, then notice ought to be given him. That is the common sense of the matter, and is what is laid down in all the cases on the subject; and if there are any' to be found v\'hich deviate from this principle, it is quite time they' should be over­ ruled.”

(1) 6 M. & \V., 44-2, at p. 452.

4 C.L.H.]

OF AU.STRALIA.

The doctrine there stated lias ever since that time prevailed.

H. C. OF A.

It was said that, applying that rule, where the obligation of

1906.

the guarantors, as here, was only to pay when the debtor had

Commercial

Ba.n

'K of

made default in payment, and wlren the question whether a

Australia

demand liad been made or not was a matter peculiarly within

Ltd.

V.

Colonial F inance,

the knowledge of the creditor, then the creditor ought to bring

it to the knowledge of the guai-antor. As authority for this

Mortgage, I nvestment

contention tlie cases of Hartland v. Jukes (1), and In re

AND

Guarantee Corporation

Brown’s Estate, Brown v. Brown (2) were referred to.

Both

of these were cases in which demand was held to be necessary

Ltd.

before the surety could be sued, but they depended on the terms of

Griffith C.J.

the particular documents there in (juestion. According to the facts as represented to us, the question whether a notice was recjuired or not before the liability of the guarantors arose in the present case is a purely abstract (juestion, because, in the view which I take of the other questions in the case, there is no fund to which it can apply. It is, therefore, not necessary or desirable to express any definite opinion whether that doctilne applies to a guarantee as wide in its terms as this, or to guarantees in general. I will deal with the case on the assumption that no notice was required to be given to the guarantors. Then it is clear that on the dates 14th December 1892 and 80th June 1893 the debtors made default in payment of the sums demanded. What was the conse­ quence of that default as regards the guarantors depends upon the terms of the guarantee. U ie contention for the corporation is that, upon the default in pajunent of any part of the sum guaran­ teed, though only a part of that sum is asked for and wanted, never­ theless the whole amount becomes instantly due as against the guarantors, and the Statute begins to run. In construing a guarantee it is necessary to bear in mind that the object of the guarantee, so far as the creditor is concerned, is to give him a guarantee that the debt owing by the debtor will be paid, and it is prima facie intended that the liability on the guarantee shall continue as long as the debt is owing. As regards the guarantors, they do not undertake to pay the debt absolutely as a debt of their own, but to pay what the debtor fails to pay, and the condition on which the obligation depends must depend on the terms of the

(1) 1 H. & C., 667.

(2) (1893) 2 Ch., 300.

VOL. i v .

5

HIGH COURT

[1906.

H.C. OF A.bargain. In the pre.sent case—to refer to the words of the

1906.guarantee once more—the condition is “ in case the said customer

Commercial shall make default in payment” of the £12,500 with interest

B a s k

of

Australia

“ respectively or of any part thereof respectively on demand.”

Ltd.V.And it appears to me that, having regard to the main object of

Colonial

the guarantee, and to this language, that can oidy be held to

F inance,

Mortgage,

import an obligation that whenever the debtors fail to pay any

I nvestment

AND

part of the debt on demand the guarantors will pay it for them.

Guarantee

The contrary contention amounts to th is; The debtors are

Corporation

Ltd.

asked to pay a certain sum, and that is all that is asked for.

It is

not paid immediately.

It is contended that thereupon, on failure

Gritfith C.J.

of the debtors to pay that sum immediately on demand, though the debtors may have subsequently done what they were asked, yet, as at that moment the guarantors could have been sued for the whole debt, the Statute began to run. In my opinion, on the construction of this guarantee, upon default in jiayment of any portion of the debt, the only right of action that arises as against the guarantors is for that portion as to which default has been made. Any other construction would defeat the object of the guarantee, which was that the guarantee should continue until the debt was paid, and would result in what was probably never intended by either party, that a peremptory demand of any part of the debt should give a right of action against the guaran­ tors for payment, not only of that particular sum which the debtor was asked to pay and did not pay, but for the whole amount of the indebtedness, with a consequent obligation on the part of the creditor to enforce his claim within the statutory period, at the risk of losing his right of recourse to the guarantee altogether.

For these reasons I think the Statute did not begin to run against the guarantors for the whole debt at that time, but only as to the sum of £2,000 demanded on 14th December 1892, and as to the sum of £87 2s. 6d. demanded on 30th June 1893. Hut, so far as the present debt is to be attributed to those two sums and interest upon them, it is to be taken to be discharged, so far as regards the guarantors, and, therefore, as there is no longer any liability on the part of the guarantors in respect of those two .sums, the bank is not entitled to hold its security to protect them

4 C.L.R.l

OF AUSTRALIA.

against loss in respect of them. Whether tliey can recover them

H. C. OF A.

from the principal debtor or not depends upon other circumstances

1906.

which it is not necessary to consider.

Commercial

Bank of

I ttiink that if the attention of the learned Judge had been

A ustralia

drawn to these considerations he would probably have come to

Ltd.

V.

the same conclusion as I have with regard to them. I agree with

C o l o n i a l

F inance,

him in the conclusion to which he came on the matters that

Mortoage,

I. VA'ESTMENT

were argued before him. But that conclusion did not dispose of

AND

Guarantee Corporation

the case.

I think it ought to be declared that the bank is entitled to be

Ltd.

paid out of the sum in Court a sum ecpial to the amount due and

Griffilh C.J.

owing by the corporation to the appellants, except such part thereof, if any, as represents the amount, if any, of the two several sums still remaining unpaid, of £2,000 and £87 2s. 6d., payment whereof respectively was demanded by the bank on 14th December 1892 and 30th June 1893 with interest thereon respectively, with a direction for the ascertainment and payment out of the fund of the amount to which the appellants are entitled under the foregoing declaration, liberty being reserved to apply as to such part, if any, of the debt now owing as repre­ sents the two sums before mentioned or any part thereof or interest thereon.

Barton J. I have come to the same conclusion, and have

nothing to add.

O’Connor J. I am also of the same opinion. The question

involved is whether the appellant bank has a charge over the funds in the hands of tlie liquidator. Now, that depends upon wliether the liability of the guarantors for the amount advanced has been put an end to by the Statute of Limitations. That, again, depends upon whether at the end of December 1892 any cause of action, and, if any, what cause of action, arose against the guarantors at the suit of the bank. I agree with Mr. Justice Walker’s conclusion that the letter of the 14th December 1892 amounted to a demand for £2,000; it is not necessary to consider wliether the subsequent letter demanding interest on that sum amounted to a demand or not, because the question of the liability

HIGH COUKT

[1906.

H. C. OF A.

of the fund in (juestion is really settled by the letter of the 14th

1906.December.

It is clear that that was a demand, and also that there

C O M M E K C IA L

was a default on that demand. I need not discuss here the various

Bank of

A ustralia

considerations upon which Mr. Gordon’s argument turns. It is

Ltd.V.only necessary to say that there was a demand, that it was not

Colonial

complied with, and there was therefore a default within the

F inance,

Mortgage,

meaning of the guarantee. The real question is what was the

I nvestment

ANDconsequence of the default; was it the creating of a cause of

Guarantee

action against the guarantors for the amount demanded by the

Corporation

Ltd.bank at that date with interest, or did it give rise to a liability

on the part of the guai'antors for the whole amount secured by the guarantee. Tliat depends entirely upon the construction of tlie guarantee. On the hearing before Walker J. it was taken that the only question for consideration was whether or not there had been a demand followed by default. It was assumed that if there had been such demand and default a cause of action accrued for the whole amount of the advances made, then amounting to £12,500. But is that assumption justified ? The question really at issue is whether the liabilitj" which arose on dOth December was a liability for the whole £12,500, or whether it was only for £2,000. In considering that question it becomes necessary to examine the terms of the guai'antee. Now, if there is any doubt as to the meaning of the words used in such a contract, regard must be had to the objects and purposes of the contract and the surrounding circumstances. The object and purpose of a guarantee is that the guarantor shall pay such portion of the debt due from the principal debtor to the creditor as the debtor shall fail to pay. In other words, it is a contract of indemnity. As a general rule there is nothing in the nature of a penalty provided for in a guarantee. There is generally merely an undertaking that for so much of the debt as the principal does not pay the guarantor shall be liable. Now the portion of the guarantee upon the construction of which the difficulty arises is in a very few words. After the preliminary statement of con­ sideration the guarantee proceeds; “ We jointly and severally undertake to pay you.” [His Honor read the passage already set out, and continued:]—In my opinion, £12,500 mereIj ̂ expresses the limit of the liability, and is only used for that purpose.

O'Connor J.

4 G.L.R.]

OF AUSTRALIA.

H. C. OP A.

î'hen, as to the words “ interest on the same respectively.”

If

1906.

tlie sum referred to in that passage is £12,.500 one can hardly

understand tlie reason for inserting the word “ respectively.”

Commercial

Bank of

“In case the said customer shall make default in payment thereof

Ac.stralia

Ltd.

respectively or of any part thereof respectively on demand.”

V.

Colonial F inance,

That is the event upon the happening of which the liability of

the guarantors is to arise.

M ortgage , I nvestment

It is contended on the one hand that the meaning of that pro­ vision is that, whenever there is default in the payment of any

AND

Guarantee

C o i i P O R A T I O N

of the moneys advanced, the liability arises to repay the whole of

Ltd.

the advances up to the extent of £12,500. But it appears to me

O'Connor J.

that that reading does not give effect to every portion of the passage which I have read. The use of the word “ respectively ” in the two portions of the guarantee to which 1 have referred clearly implies that when the event, on the happening of wliich payment is to be made, occurs, payment becomes due respectively of all the debts in respect of which demand and default have occurred, and not in re.spect of the whole amount owing at that time, up to the limit of the guarantee. The liability therefore which arose on 30th December was a liability to pay, not the whole amount owing by the principal debtor to the bank, but only the amount which was demanded, £2,000 with interest, ddiat being so, the liability in regard to the rest of the monej's advanced and remaining due is a debt as to which the security stands good. It becomes unnecessary to consider the question of interest discus.sed in Dr. Sly’s argument; I need only say this in regard to it. The decision in F arrs Banking Co. v. Yates (1) was based on the particular words of the guarantee in that case. Parties may make their contract in any form they think fit. ’the guarantee in that case was made in such a form that it was clear that the interest was not merely accessory to the principal, but that the liability in respect of it might be treated as a separate liability. The form of the guarantee here is different in that respect, and is such that the interest is to be attached to the principal; if the debt is not owing, then the interest is not owing either.

With regard to the other question which has been touched

(1) (1898) 2 Q.B., 460.

HIGH COURT

[1906.

H.C. OF A.upon bj" iny learned brother the Chief Justice, but wliicli it is

1906.unnecessary for us to decide, I only wish to add tliat it a]ipears

Commercial to me the principle to be applied is that stated by Lord Ahinger

Bank of

Australia

in Vyse v. Wakefield (1), and repeated and adopted by Martin B.

Ltd.

V.          in Makins v. Watkinson (2) in the following words ; “ The rule to

Colonialbe collected from the cases seems to be tliis, that where a party

F inance,

Mortgage,

stipulates to do a certain thing in a certain specific event which

I nvestment

ANDmay become known to him or with which he can make himself

Guarantee

acquainted, he is not entitled to any notice, unless he'stipulates

Corporation

Ltd.for it.” I am not deciding the point, but I think it may fairly

O’Connor J.be contended that, as the position of a guarantor in relation to

the creditor is such that he can stipulate for full knowledge and information as to when a demand is made on the debtor and as to whether it is complied with or not, the principle stated above by Lord Ahinyer should apply. That question, however, must be left entirely open for a future decision.

I entirely concur in the opinion of the Chief Justice and in the reasons he has given for the conclusion at wliich he has arrived, and also as to the particular form ivhich the order is to take in this case.

G r if f it h C.J.

With respect to the costs all parties should have

their costs out of the fund.

As to the liquidator he should have his costs as between solicitor

and client paid out of the fund.

Order accordingly.

Solicitors, for the appellants, Norton Smith A Co.

Solicitors, for the respondent corporation, Crichton Smith A

Monaghan.

Solicitor, for respondents executors of David Wilson, W. Sands.

C. A. W.

(1) 6 M. & W „ 442, at p. 452.

(2) L.R. 6 Ex., 25, at p, 30.