Consolidated Trust Co Ltd v Naylor

Consolidated Trust Co Ltd appealed to the High Court of Australia from a decision of the Supreme Court of New South Wales, which had upheld demurrers to the appellant's declaration. The appellant, as the transferee of two mortgage instruments, sought to sue the respondent, Rufus Theodore Naylor, on covenants of guarantee contained within those instruments. The dispute centred on whether the transfer of the mortgages vested the right to sue on these guarantees in the appellant.

The legal issues before the High Court were twofold: first, whether the transfer of a mortgage registered under the Real Property Act 1900 (NSW) operated to transfer to the transferee the right to sue a guarantor on a covenant contained within the mortgage instrument, pursuant to sections 51 and 52 of that Act; and second, whether an indorsement on a general law mortgage, in the form prescribed by the Conveyancing Act 1919 (NSW), operated as an assignment of the guarantor's covenant, and if so, whether a subsequent notice given under the Moratorium Act 1932 (NSW) constituted sufficient notice of the assignment for the purposes of section 12 of the Conveyancing Act.

Dixon and Evatt JJ. held that the provisions of the Real Property Act, concerning the transfer of mortgages, were intended to deal with dealings in land and the mortgage transaction as it affected the land, including the mortgagor's personal liability. They reasoned that a guarantor's obligation, being collateral and not directly affecting the land, was not transferred by a mortgage transfer under this Act. Regarding the general law mortgage, their Honours found that the indorsement, while following the prescribed form for mortgage transfers under section 91 of the Conveyancing Act, operated as an assignment of the mortgage debt and related rights, but not of collateral obligations like guarantees. However, they concluded that the specific wording of the indorsement, which assigned "all moneys secured by the within written mortgage and all my rights, powers and remedies thereunder," was broad enough to encompass the guarantor's covenant. Furthermore, they determined that the notice given under the Moratorium Act, identifying the appellant as the transferee and referring to the mortgages and the intention to exercise rights against the guarantor, constituted sufficient express notice in writing of the assignment for the purposes of section 12 of the Conveyancing Act. Starke J., dissenting, held that neither the Real Property Act nor the Conveyancing Act provisions extended to collateral obligations such as guarantees given by strangers to the mortgage transaction, and that the notice given was insufficient under section 12.

The High Court, by majority (Dixon and Evatt JJ.), allowed the appeal. They held that the indorsement on the general law mortgage constituted a sufficient assignment of the respondent's covenant to satisfy section 12 of the Conveyancing Act, and that the notice given under the Moratorium Act was sufficient to perfect the assignment. Consequently, the appellant was entitled to sue the respondent on his covenant. The appeal was therefore allowed, and the judgment of the Supreme Court was set aside.