Mawson v Motor Credits (Hire Finance) Ltd

[1966] HCA 31

HIGH COURT OF AUSTRALIA

Barwick C.J., McTiernan, Taylor, Menzies and Windeyer JJ.

MAWSON v. MOTOR CREDITS (HIRE FINANCE) LTD.

(1966) 116 CLR 293

18 May 1966

Moratorium (N.S.W.)

Moratorium (N.S.W.)—Restriction on rights of mortgagee—Action on personal covenant barred where no moratorium certificate—Liability of guarantor under guarantee executed contemporaneously with mortgage—Moratorium Act, 1932- 1950 (N.S.W.), ss. 2 "Mortgagor"*, 33 "Mortgagor"*, 34 (2), 35 (3)**.

Decisions

May 18
The following written judgments were delivered: -
BARWICK C.J. Appeals against two orders of the Supreme Court of New South Wales dismissing appeals against orders of a primary judge striking out pleas in bar of the respondent's action against each appellant for money claimed to be due under contracts of guarantee. The basic facts of each case are the same so that both appeals may be dealt with together in judgment as they were in argument. The same point of statutory construction arises in each case and is the only matter in dispute. The form of the pleadings and the propriety of deciding their validity in a summary proceeding have, by common design of the parties, been put aside so that the substance of the appellants' defence can be considered. (at p295)

2. Reduced to their fundamental structure, the facts and circumstances of the cases are simple and may be stated briefly. Their full particularity may be seen in the reasons for judgment of their Honours of the Full Court of the Supreme Court: Motor Credits Ltd. v. Mawson (1965) 66 SR (NSW) 116; (1965) 83 WN (Pt 2) (NSW) 121 . (at p295)

3. The respondent lent, at the request of the appellants, amongst others, a considerable sum of money to a company. The appellants and another by memorandum of mortgage mortgaged to the respondent certain lands to secure the repayment of the whole of such loan and agreed interest thereon. The memorandum of mortgage contained a covenant by the appellants and the other mortgagor to repay the sum secured by the mortgage, including the said interest. That covenant was designedly ineffective for the lack of a certificate satisfying the terms of s. 34 (2) of the Moratorium Act, 1932-1950 of the State of New South Wales (The Act). On the same day as the memorandum of mortgage was executed, the appellants, along with others, executed a deed whereby the appellants severally guaranteed the repayment of the said loan and interest with the proviso that the liability of each under the guarantee should be limited to an amount of 20,000 pounds. Thus, the whole of such loan was severally guaranteed by the appellants by the deed though their liability in respect of their guarantees was limited to the sum of 20,000 pounds each. The deed varied the provisions of the memorandum of mortgage in certain respects: see cll. 3 and 6 and the second and third schedules of the deed. Consequently, in my opinion, the deed was itself a mortgage within the meaning of the Act: see definition "mortgage" s. 2 (1) though not, in my opinion, a mortgage of land. (at p296)

4. The pleas which have been struck out sought to deny the respondent's right to sue for the money claimed by asserting, in substance, that the respondent was suing as a mortgagee for the payment by the appellant, being a mortgagor, of principal moneys secured by a mortgage of land. Section 34 (2) of the Act in relation to mortgages executed after the commencement of the Act - as the memorandum and deed in fact were - provides that "no action . . . shall be commenced by a mortgagee for the payment by a mortgagor of any principal moneys secured by a mortgage of land . . .". The sums of 20,000 pounds for which the respondent sued, in my opinion, were principal moneys secured by a mortgage of land. They were part of the loan secured by the memorandum of mortgage. (at p296)

5. Two questions arise which are related to each other: if either is answered in the negative, the pleas were rightly struck out. First, does s. 34 (2) apply at all to an action by a mortgagee to recover money against a person who has guaranteed the payment of the money, whatever the form of the action or the nature or source of the particular promise upon which the action is brought? Second, is each appellant a mortgagor within the meaning and operation of s. 34 (2)? (at p296)

6. "Mortgagor" for the purposes of the Act generally is defined by s. 2 as including "any person entitled to redeem a mortgage or who has guaranteed the payment of any money the payment of which is secured by a mortgage or the performance of any covenant, condition, or agreement expressed or implied in a mortgage, whether such guarantee is expressed in the mortgage or in any other instrument." (at p296)

7. Part III of the Act dealing with "Liability of mortgagors of land" contains a definition of mortgagor for the purposes of that part: see s. 33. "'Mortgagor' does not include a person who payment of such money or the performance of such guarantee is secured by a mortgage of land." (at p296)

8. Section 35 (3), also found in Pt III with s. 34, is in the following terms: ". . . (3) Nothing in the said section of the Moratorium Act or in this Part of this Act contained shall be construed so as in any way to impair the rights, powers, or remedies of a mortgagee against a person who has guaranteed the payment of money notwithstanding that the payment of such money or the performance of such guarantee is secured by a mortgage of land . . ." (my italics). (at p297)

9. There can be no doubt that the appellants are persons who have guaranteed the payment of the money for the recovery of which suit is brought. That the payment of that money is secured by a mortgage of land is, in my opinion, quite clear. It is not so clear, to my mind, that the performance of the appellant's guarantee was secured by a mortgage of land. It might well have been said, if the personal covenant in the mortgage had been effective, that that covenant was a guarantee and the covenantors in relation to it were no more than sureties. In that case it could have been concluded that the mortgage of the land effected by the memorandum of mortgage was a security for the performance of the guarantee, namely, the performance of the covenant to repay the amount of the loan and interest. But the personal covenant in the mortgage was not effective. The mortgage was a security for the payment of the principal debt by the principal debtor: see the recitals of the deed. (at p297)

10. The guarantees by the appellants were contained in the deed, which, as I have said, was, in my opinion, a mortgage within the meaning of the Act, though not a mortgage of land. But it is unnecessary to pursue that matter or its consequences further as it is, in my opinion, sufficient for the resolution of the present case to observe that in any case the appellants are persons who have guaranteed the payment of money within the operation of s. 35 (3); and that they are sued upon the promise of guarantee which is contained in the deed. (at p297)

11. The submission made by the appellants is that they are mortgagors because entitled to redeem by virtue of the memorandum of mortgage and the general law, and that upon its proper construction s. 33 in defining "mortgagor" for the purposes of Pt III merely excludes from the category of mortgagor for those purposes persons who were included in the extended definition of mortgagor in s. 2 by virtue of being guarantors of a secured debt or guarantors who had secured the performance of the guarantee. On this view the appellants remain mortgagors within the meaning of s. 34 (2). (at p297)

12. In approaching the matter thus raised, the impact of s. 35 (3) upon the construction of other parts of Pt III but particularly upon the definition of "mortgagor" in s. 33 must be observed. There are evidently two possible constructions of s. 33 "mortgagor". One is that favoured by Latham C.J. in Bank of New South Wales v. Permanent Trustee Co. of New South Wales Ltd. (1943) 68 CLR 1 , and which is submitted by the appellants in the terms I have already indicated. It is reached by the following steps. First, the substitution of the indefinite for the definite article in the amendment made in 1932 of the definition of "mortgagor" in s. 2, had the effect of extending the class of persons included in the definition of mortgagor. Sureties who had given security for the performance of a guarantee of a debt not secured by mortgage of land then came within the definition. Second, that the special definition of mortgagor for the purposes of Pt III is merely "an awkward means of omitting" so much of the definition of mortgagor in s. 2 as extended the meaning of the word to include not only a guarantor who had guaranteed a debt secured by mortgage of land but a guarantor who had guaranteed a debt not so secured and who had given security over land for the performance of his guarantee. (at p298)

13. The opposing view is that the definition in s. 33 means precisely what it says and that it excludes from the meaning of mortgagor in Pt III all those who, though otherwise mortgagors, are guarantors of the secured moneys. (at p298)

14. If it were not for the statutory direction contained in s. 35 (3), the former construction could, in my opinion, be adopted. The definition in Pt III regarded as a supplement to the definition in s. 2 could be read as saying that whereas in the Act generally mortgagor has an extensive meaning, in Pt III it shall not have that extensive meaning. Such policy as is discernible in the 1932 amendments could be regarded as insufficient to compel the alternative construction. (at p298)

15. But s. 35 (3) constitutes a statutory direction as to the construction of Pt III, including s. 33 "mortgagor". Of the two possible constructions to which I have referred, the latter does not in any way impair the rights of a mortgagee against a person who has guaranteed the payment of money, whether or not he has secured the performance of the guarantee by mortgage of land, whilst the former clearly does. Thus, conformably with s. 35 (3) the latter construction should be adopted. (at p298)

16. In Bank of New South Wales v. Permanent Trustee Co. of New South Wales Ltd. (1943) 68 CLR 1 the Court decided that a person sued upon the personal covenant in a mortgage could successfully set up s. 25 (7) of the Moratorium Act as having voided that covenant and that, although Pt III, particularly s. 35 (3), did allow the mortgagee to sue upon a guarantee given by the mortgagor, it did not revive the obligation upon the personal covenant. In the course of reasoning to this result, some members of the Court favoured the former of the two possible constructions of s. 33. But, close examination of the judgments in that case satisfies me that that opinion was not really a step in the decisive reasoning of the majority of the Court. (at p299)

17. The Court found that s. 34 (1) could not apply to the circumstances of the case before it because there was no confirmation of the personal covenant to satisfy the terms of that section and that the mortgage itself was not a guarantee and the personal covenant not a promise by a surety. It was on this latter point that Starke J. really founded his dissent though he favoured the alternative construction of the definition of mortgagor in s. 33. (at p299)

18. The precise question involved in the decision of the instant case was not before the Court in Bank of New South Wales v. Permanent Trustee Co. of New South Wales Ltd. (1943) 68 CLR 1 , nor does it appear that the Court's attention was specifically called to the possible impact of s. 35 (3) upon the construction of s. 33 "mortgagor". With the actual decision of the case and the necessary steps in reasoning to support it, I am respectfully in agreement. But the expressions of opinion as to the construction of the definition of mortgagor or of the like words in s. 35 (3) were as I think obiter, and, with great respect, I find myself unable to accept them. (at p299)

19. In my opinion, at least by reason of the terms of s. 35 (3), if not indeed upon its proper construction without any such indication as s. 35 gives, bearing in mind its exclusive nature, the "definition" of "mortgagor" in s. 33 excludes entirely from the operation of s. 34 (2) an action by a creditor, who though a mortgagee, sues a guarantor upon his contract of guarantee, whether or not the principal debt or the guarantor's promise is secured by a mortgage of land. It is unnecessary therefore to consider what would be the position if the action was brought to enforce a promise to pay given in or by a mortgage of land. (at p299)

20. The same conclusion could be reached by regarding s. 35 (3) as itself effecting an exclusion of the mortgagee's remedies against the guarantor from the operation of Pt III. But in so far as s. 35 (3) is expressed as a restraint upon construction, it seems to me that it really brings about the result I have mentioned by means of the construction to be placed upon the definition of mortgagor. (at p300)

21. The nature and history of the Act and of the several amendments which have been made to it are set out in the judgment of Latham C.J. in Bank of New South Wales v. Permanent Trustee Co. of New South Wales Ltd. (1943) 68 CLR 1 . (at p300)

22. But little assistance in the construction of the sections in Pt III can be derived therefrom. Nor does the Act as amended display any such consistency of policy or pattern of draftsmanship that the plain meaning of the words used by the legislature must needs be restrained or bent to serve a disclosed policy or statutory pattern. Indeed, if there is anything to be derived from a consideration of the 1932 amendments which now take their place in Pt III, it tends to support the construction at which I have arrived under the influence of s. 35 (3): guarantors were to be liable though the principal debt, or their guarantees, were secured by a mortgage of land. (at p300)

23. For these reasons, in my opinion, the Supreme Court was right in upholding the order of the primary judge striking out the appellants' pleas which sought to set up a defence based upon Pt III of the Act. The appeals should be dismissed. (at p300)

MCTIERNAN J. In my opinion these appeals should be allowed. It is necessary to decide whether s. 34 (2) of the Moratorium Act, 1932-1950 (N.S.W.) is a bar to the action. The first question to be decided is whether the deed is "a mortgage of land" within the meaning of that provision. Section 2 (1) defines "mortgage" and the material words of the definition are: "'Mortgage' means any deed . . . whereby security for payment of moneys . . . is granted over real property . . . or by which any provision of the mortgage is varied." (at p300)

2. The deed of guarantee varies certain provisions of the memorandum of mortgage which is an instrument whereby security for payment of moneys is granted over real property. Hence the deed of guarantee is itself a "mortgage of land" by operation of s. 2 (1) of the Act. (at p300)

3. The next question is whether the deed of guarantee is excluded from s. 34 (2) by s. 33. This section provides : "In this Part (i.e. Pt III), unless the context or subject-matter otherwise indicates or requires, - 'Mortgagor' does not include a person who has guaranteed the payment of money notwithstanding that the payment of such money or the performance of such guarantee is secured by a mortgage of land." In order to interpret this section it is necessary to return to the definition of "mortgagor" in s. 2 (1). The material words are : "'Mortgagor' includes any person entitled to redeem a mortgage or who has guaranteed the payment of any money the payment of which is secured by a mortgage or the performance of any covenant, condition, or agreement expressed or implied in a mortgage, whether such guarantee is expressed in the mortgage or in any other instrument." The true operation of s. 33 in relation to the term "mortgagor" was stated by Latham C.J. in Bank of New South Wales v. Permanent Trustee Co. of New South Wales Ltd. (1943) 68 CLR 1 . His Honour said : "If this provision is read as an absolute provision, so that the provision that the word 'mortgagor' does not include a 'person who has guaranteed the payment of money' means that no person who has guaranteed the payment of money can possibly be a mortgagor for the purposes of Pt III of the Act, whether or not he has in fact also entered into a mortgage, then Dr. Wood is not a mortgagor within the meaning of Pt III. But in my opinion this provision should not be read as a substantive provision saying that guarantors cannot possibly be mortgagors. It is an awkward means of omitting, for the purpose of Pt III, that part of the definition of mortgagor which included guarantors. The provision deals with the definition which has already been given to 'mortgagor' for the purposes of the Act and means that a person does not become a mortgagor for the purposes of Pt III merely because he is a guarantor. If he is, apart altogether from being a guarantor, in fact a mortgagor, then this provision does not prevent the application to him of other provisions of Pt III" (1943) 68 CLR, at p 14 . (at p301)

4. Turning to s. 35 (3) which is also in Pt III of the Act, this subsection provides as follows : "Nothing in the said section of the Moratorium Act or in this Part of this Act contained shall be construed so as in any way to impair the rights, powers or remedies of a mortgagee against a person who has guaranteed the payment of money notwithstanding that the payment of such money or the performance of such guarantee is secured by a mortgage of land." Latham C.J. explained the operation of this provision in the abovementioned case. He said : "The effect of this provision is to restore (not to create) personal remedies (if any) against persons who had guaranteed the payment of mortgage moneys and who had been relieved from their personal liability by s. 25 (7) of the earlier Act. As was said in Smith v. Motor Discounts Ltd. (1935) 54 CLR 107, at p 119 's. 35 deals separately with guarantees and restores the liability upon them which s. 25 (7) had annihilated' (my italics). The operation of this provision upon Dr. Wood's liability was to restore the liability under the guarantee if that had been annihilated by the earlier legislation. But it restores the liability under the guarantee only by providing that nothing in s. 25 (7) of the 1931 Act shall impair rights and remedies against the guarantor. It leaves the plaintiff in the present case unaffected, as far as the guarantee is concerned, by s. 25 (7), but subject to any defence which may exist under the Statute of Limitations or otherwise. This provision, therefore, is of no service to the plaintiff in this action brought upon the covenant in the mortgage" (1943) 68 CLR, at p 16 . Section 35 is merely a construction section directed to re-imposing liability on past transactions which, in the words of Latham C.J., "had been annihilated by the earlier legislation". (at p302)

5. I think that Latham C.J.'s reasons (with which I agreed in that case) are also applicable to the present case and I am of the opinion that s. 34 (2) is a bar to these actions. (at p302)

TAYLOR J. These are appeals from orders of the Full Court dismissing appeals from an order of a judge of that Court by which it was directed that each appellant's plea in actions instituted against them by the respondent be struck out. Identical questions are raised by each appeal and it will, therefore, be sufficient and convenient to discuss only one of them. Further, no question is now raised as to whether the summary procedure employed by the respondent in this case was appropriate for the determination of the questions involved and, since the resolutions of those questions will determine whether the respondent is entitled to sustain its claim against each appellant, no point is taken that the plea filed in each action is defective in form. (at p302)

2. The appellants are husband and wife and the declaration in the action against the latter - which is identical with that filed in the husband's action - shows that it is brought to recover a sum of 20,000 pounds which is alleged to have become payable to the respondent pursuant to a deed whereby the defendant in the action in consideration of the respondent lending to a company, Mawson International Pty. Limited, 175,000 pounds, agreed to guarantee the repayment of the said loan together with interest in accordance with the covenants of the deed to the extent of 20,000 pounds. There is the further allegation that Mawson International Pty. Limited failed to perform its obligation to repay any part of the said sum. The plea of the appellant, in effect, raises the provisions of s. 34 (2) of the Moratorium Act, 1932-1950 as a defence by asserting that the moneys claimed in the action formed part of the moneys covenanted to be paid by the appellant as mortgagor to the respondent under a memorandum of mortgage, a copy of which is annexed to the plea, and that the knowledge and approval of the appellant as mortgagor of the insertion in the said mortgage of the said covenant to pay the said moneys was not evidenced by a certificate signed in accordance with s. 34 (3) of the Act. The question, of course, is whether s. 34 (2), in the circumstances of the case, operates to preclude the respondent from recovering the amount claimed in the action. (at p303)

3. It appears from the memorandum of mortgage annexed to the plea that on 22nd June 1961 the appellant joined with her husband and one, Jean Rea Cunninghame, in mortgaging certain lands to the respondent to secure the repayment to the respondent of the sum of 175,000 pounds and interest. The memorandum of mortgage recites that the mortgage is given in consideration of the advance of that sum by the respondent to Mawson International Pty. Limited and for the purpose of securing to the respondent the payment in manner thereinafter mentioned of the said principal sum and interest. For the purposes of this appeal it may be mentioned that the instrument contains a covenant by the mortgagors that they will repay the principal sum and pay interest thereon by certain specified sums on specified dates. (at p303)

4. If this were the only instrument in the case and the respondent's cause of action were based upon it the action would be defeated by s. 34 (2) for the certificate appearing at the foot of the mortgage - which was on a printed form - to the effect that the mortgagors knew the effect of and approved of the insertion in the said mortgage of the covenants to pay the principal and interest moneys secured by the mortgage and certifying that the certificate was not only not executed but ruled through. However, apparently on the same day a further instrument was executed. This was the deed upon which the action is based. The deed was executed by a number of parties including Mawson International Pty. Limited (the party of the first part and thereinafter called the "principal debtor"), the respondent (the party of the second part and thereinafter referred to as the "lender") and by the appellant (the party of the fifth part and thereinafter referred to as the "fourth guarantor"). It was recited that the principal debtor had applied at the request of the parties of the third, fourth, fifth, sixth and seventh parts to the lender for a loan of 175,000 pounds which the lender had agreed to advance upon the parties of the fifth, sixth, and seventh parts, executing a memorandum of mortgage over the land described in the mortgage as security for repayment, but not with the intention of making them or any of them responsible for repayment of the said sum, except as thereinafter appeared and upon the first, second, third and fourth guarantors giving the guarantees thereinafter set forth. Thereupon, in consideration of the said agreement and of the premises and of the sum of 175,000 pounds paid by the lender to the principal debtor at the request of the parties of the third, fourth, fifth, sixth and seventh parts the principal debtor covenanted with the lender that it would pay to the lender at its office in Sydney the principal sum of 175,000 pounds, together with interest thereon, by such amounts and at such times as are specified in the mortgage. Following this clause the first guarantors jointly and severally and the second, third and fourth guarantors thereby severally guaranteed and undertook that the principal debtor would pay the lender the sum of 175,000 pounds, together with interest thereon in accordance with the terms of the loan but by the third covenant it was provided that the liability of the first guarantors should not in any case exceed the sum of 20,000 pounds and that the liability of each of the second, third and fourth guarantors should not in any case exceed the sum of 20,000 pounds. It is unnecessary for the purpose of these reasons to set out any other provisions of the deed. (at p304)

5. Section 34 (2) - which is contained in Pt III of the Act - provides that except as provided in that Part no action, suit or proceeding shall be commenced by a mortgagee for the payment by a mortgagor of any principal moneys secured by a mortgage of land executed or given after the commencement of the Act, or interest thereon, unless such mortgage contains an express covenant or agreement for such payment and unless the knowledge and approval of the mortgagor, his attorney or agent, or some other person having power in that behalf, executing or giving the mortgage, of the insertion of such covenant or agreement, is evidenced by a certificate signed in accordance with sub-section three of this section. Sub-section (3) provides that such certificate shall be written or endorsed on the instrument of confirmation or mortgage instrument, as the case may be, and shall be in or to the effect of such of the forms in the Schedule to the Act as may be appropriate, and shall be signed by one of the persons mentioned in section thirty-seven of the Act. Whether or not consideration of the form of the section and the form of the prescribed certificate should lead to the conclusion that it only precludes an action on a covenant in a mortgage to repay the principal sum is not a matter with which I need concern myself for I have reached the firm conclusion that the appellant was not a mortgagor within the meaning of this section. That term is defined by s. 2 of the Act to include "any person entitled to redeem a mortgage or who has guaranteed the payment of any money the payment of which is secured by a mortgage". It, therefore, includes a person who is, apart from the definition, not a mortgagor, that is to say, a person who has guaranteed the payment of any money the payment of which is secured by a mortgage. According to the decision in Bank of New South Wales v. Permanent Trustee Co. of New South Wales Ltd. (1943) 68 CLR 1, at p 11 this expression does not mean a person who has guaranteed payment of an unsecured debt and who has provided security by his own mortgage for the discharge of his guarantee. Such a person is a mortgagee in the primary sense in that he is a person who is entitled to redeem a mortgage and the words of extension apply only to a person who is not in strictness a mortgagor, but who has guaranteed payment of a debt which is itself secured. But by s. 33 the expression is the subject of further definition for the purposes of Pt III. This is done, in effect, by excepting from the original definition two categories of persons who would otherwise be covered by that definition. Section 33 provides that in Pt III the expression "'Mortgagor' does not include a person who has guaranteed the payment of money notwithstanding that the payment of such money or the performance of such guarantee is secured by a mortgage of land". Now a person who has guaranteed the payment of money is not a mortgagor in any sense unless (a) the debt the payment of which he has guaranteed is secured by a mortgage or (b) the performance of his guarantee is secured by a mortgage. In case (a) he is a mortgagor because of the words of extension in the definition in s. 2, whilst in case (b) he is a mortgagor because he is, within the meaning of that definition, a person entitled to redeem a mortgage. It seems plain to me that by the supplementary definition in s. 33 it was the intention of the legislature to limit the definition of mortgagor so that it should, for the purposes of Pt III, exclude persons who would otherwise be mortgagors by definition and that such exclusion was to extend to both case (a) and case (b). Indeed, I can see no other meaning which can attach to the plain words of the section and since the appellant was a guarantor of some part of the principal debt and it appeared that the mortgage was given for the purpose of providing security for the performance of the guarantee s. 34 (2) has no application to the case. (at p305)

6. But, it is said, that in Bank of New South Wales v. Permanent Trustee Co. of New South Wales Ltd. (1943) 68 CLR 1 some of the members of the Court made observations which preclude us from resolving the problem in this fashion. It is, however, necessary to consider precisely what it was that that case decided. (at p306)

7. In that case it appeared that Dr. Wood, of whom the respondent was the legal personal representative, had, in June 1928, entered into an agreement in writing by which he guaranteed the repayment upon demand to the bank of moneys advanced by it to a named company. The loan to the borrower was unsecured and no security was given by Dr. Wood for the performance of his guarantee. The debtor having made default in repayment of the loan the bank, in December 1929, demanded of Dr. Wood payment of the amount outstanding. No part of the moneys was paid by Dr. Wood but in February 1932 he made and executed a memorandum of mortgage with respect to certain lands in favour of the bank for the purpose of securing to it repayment of the amount then due and owing by him. (at p306)

8. No question directly arose in the case concerning the meaning of the definition in s. 33; the primary question was as to the meaning and effect of s. 35 (1) of the Act which, it must be conceded, used the same terminology as the definition. So far as is relevant twenty-five of the Moratorium Act shall be construed as if - (a) the word 'mortgagor' in the said subsection did not include - (i) a person who has guaranteed the payment of any money notwithstanding that the payment of such money or the performance of such guarantee is secured by a mortgage as defined by the said Act." This enactment provided, in effect, for the revival, in certain cases, of covenants which had been abrogated by sub-s. (7) of s. 25 of the Moratorium Act, 1930-1931. The reasoning in the case is somewhat obscure but it appears that the appellant's case was put on three several grounds. The first which I shall mention finds little prominence in the case though the point was made by counsel for the appellant, and rebutted by counsel for the respondent, that Dr. Wood was a guarantor the performance of whose guarantee was secured by a mortgage. This proposition seems to have been rejected out of hand for it was clear enough that at the time when the mortgage was given there had been long-standing default on Dr. Wood's part and the mortgage was given by him to secure his existing indebtedness to the bank. By the second ground it was asserted that Dr. Wood fell within the original definition of mortgagor because he answered the description of a "person . . . who has guaranteed the payment of any money the payment of which is secured by a mortgage". This contention was expressly rejected by a majority of the Court Latham C.J. observing that he agreed with the Supreme Court that that expression had no application to a person who having guaranteed the repayment of an unsecured debt also gave a mortgage as security for his guarantee. The third ground, it seems, was simply that Dr. Wood was a person who had guaranteed the payment of money and that this alone was sufficient to bring him within reach of s. 35 (1). It was, I think, in answer to this contention that Latham C.J. said: "Dr. Wood had guaranteed the payment of money and the provision quoted states that it is immaterial for the purposes of the definition whether the payment of such money or the performance of the guarantee was secured by a mortgage of land. If this provision is read as an absolute provision, so that the provision that the word 'mortgagor' does not include a 'person who has guaranteed the payment of money' means that no person who has guaranteed the payment of money can possibly be a mortgagor for the purposes of Pt III of the Act, whether or not he has in fact also entered into a mortgage, then Dr. Wood is not a mortgagor within the meaning of Pt III. But in my opinion this provision should not be read as a substantive provision saying that guarantors cannot possibly be mortgagors. It is an awkward means of omitting, for the purpose of Pt III, that part of the definition of mortgagor which included guarantors. The provision deals with the definition which has already been given to 'mortgagor' for the purposes of the Act and means that a person does not become a mortgagor for the purposes of Pt III merely because he is a guarantor. If he is, apart altogether from being a guarantor, in fact a mortgagor, then this provision does not prevent the application to him of other provisions of Pt III" (1943) 68 CLR, at p 14 . (at p307)

9. Thereafter his Honour went on to say concerning s. 35 (1): "This provision relating to the word 'mortgagor' should, in my opinion, be construed in the manner which I have explained in connection with the similar provision contained in s. 33. It means only that a person who has guaranteed payment of moneys (even if such payment is secured by a mortgage) is not to be regarded as a 'mortgagor' (for the purposes of s. 25 (7)) merely by reason of the fact that he is such a guarantor. That is, this provision takes out of the original definition of mortgagor guarantors who became statutorily describable as 'mortgagors' only because they had guaranteed payment of mortgage moneys. But it does not affect persons who, independently of the statutory extension of the meaning of the word 'mortgagor', were in fact mortgagors simply because they had executed mortgages. Accordingly, there is nothing in this provision which effectively excludes Dr. Wood from the category of mortgagor" (1943) 68 CLR, at p 15 . (at p308)

10. It is upon these observations that the appellant relies but, as I have said, they were made in answer to the appellant's third contention. Literally understood, the later observation that "this provision takes out of the original definition of mortgagor guarantors who became statutorily describable as 'mortgagors' only because they had guaranteed payment of mortgage moneys", and that "it does not affect persons who, independently of the statutory extension of the meaning of the word 'mortgagor', were in fact mortgagors simply because they had executed mortgages" would seem to favour the appellant but, again, his Honour was dealing with the third submission that it was enough to render the respondent liable if it appeared simply that he was "a person who had guaranteed the payment of any moneys" and, apparently had in mind the circumstances in which Dr. Wood had become a mortgagor. To me it seems clear that in making these observations his Honour did not have in mind the case of a guarantor who had given a mortgage to secure the performance of his guarantee and, therefore, did not advert it. This was not the position in that case and it is plainly implicit in his Honour's reasons that he had at an early stage disregarded it. (at p308)

11. To my mind there is nothing in Bank of New South Wales v. Permanent Trustee Co. of New South Wales Ltd. (1943) 68 CLR 1 to affect the validity of the conclusion to which I have come on the plain words of the definition in s. 33. To hold otherwise would be to give no meaning whatever to the words "notwithstanding that . . . the performance of such guarantee is secured by a mortgage of land". (at p308)

12. In my opinion both appeals should be dismissed. (at p308)

MENZIES J. The appeals with which we are here concerned arise out of two actions, each an action by the respondent against one of the appellants for the sum of 20,000 pounds under, and by virtue of, a guarantee. The appeals raise the same point and can be dealt with together. (at p308)

2. By a plea - which was struck out by Collins J., whose decision was affirmed by the Full Court - each appellant raised s. 34 (2) of the Moratorium Act, 1932-1950 of New South Wales as a bar to the respondent's claim, and the only question for our consideration is whether that plea is a good answer in law to the action. (at p308)

3. It is desirable to set out certain of the provisions of the Moratorium Act. In s. 2, "mortgagor" is defined to include "any person entitled to redeem a mortgage or who has guaranteed the payment of any money the payment of which is secured by a mortgage or the performance of any covenant, condition, or agreement expressed or implied in a mortgage, whether such guarantee is expressed in the mortgage or in any other instrument". However, for the purposes of Pt III of the Act, s. 33 provides as follows: "'Mortgagor' does not include a person who has guaranteed the payment of money notwithstanding that the payment of such money or the performance of such guarantee is secured by a mortgage of land." Section 34 (2) is as follows: "Except as in this Part provided no action, suit or proceeding shall be commenced by a mortgagee for the payment by a mortgagor of any principal moneys secured by a mortgage of land executed or given after the commencement of this Act, or interest thereon, unless such mortgage contains an express covenant or agreement for such payment and unless the knowledge and approval of the mortgagor, his attorney or agent, or some other person having power in that behalf, executing or giving the mortgage, of the insertion of such covenant or agreement, is evidenced by a certificate signed in accordance with subsection three of this section." (at p309)

4. To understand the principal authority relied upon by the appellants, viz. Bank of New South Wales v. Permanent Trustee Co. of New South Wales Ltd. (1943) 68 CLR 1 , where the history of the Act and the reasons for the various amendments were reviewed, it is also necessary to refer to s. 25 (7) of the Moratorium Act, which was introduced by the Moratorium and Interest Reduction (Amendment) Act, 1931. This provision is as follows: "That subject to sub-section four hereof, notwithstanding anything in this or in any other Act contained, all covenants, agreements, or stipulations by a mortgagor for the payment or repayment of any mortgage moneys secured by a mortgage of real property shall, except for the purpose of enabling a mortgagee to exercise all or any of his rights against the mortgaged property, be void and of no effect for any purpose whatsoever." Section 25 (7) was repealed in 1932 but a provision of unusual character was introduced which is now s. 35 of the Moratorium Act, 1932-1950. Two provisions of this section are material: "(1) Subsection seven of section twenty-five of the Moratorium Act shall be construed as if - (a) the word 'mortgagor' in the said subsection did not include - (i) a person who has guaranteed the payment of any money notwithstanding that the payment of such money or the performance of such guarantee is secured by a mortgage as defined by the said Act; . . . (3) Nothing in the said section of the Moratorium Act or in this Part of this Act contained shall be construed so as in any way to impair the rights, powers, or remedies of a mortgagee against a person who has guaranteed the payment of money notwithstanding that the payment of such money or the performance of such guarantee is secured by a mortgage of land." (at p310)

5. We are here concerned with the effect of the foregoing statutory provisions upon covenants in documents executed in 1962. Accordingly, neither s. 25 (7) nor s. 35 (1) is directly material. Section 35 (3) is, however, directly applicable here for it is to be observed that that sub-section relates not merely to s. 25 (7) but to the provisions of Pt III as they stand. (at p310)

6. The appellants, with a third party, executed on 22nd June 1962 an instrument of mortgage of land in favour of the respondent in consideration of 175,000 pounds to be lent by the respondent to Mawson International Pty. Limited at the request of the mortgagors. The mortgagors covenanted to pay the mortgagee the principal sum of 175,000 pounds together with 108,750 pounds as interest on 22nd June 1967. Provision was made for payments on account. There was no certificate complying with the provisions of s. 34 (2) of the Act; indeed, that part of the form containing a pro forma certificate was struck out. On the same day as the execution of the mortgage, and presumably contemporaneously with it, a deed was executed to which the appellants, the respondent, Mawson International Pty. Limited and others were parties. In this deed it was recited that the above mortgage had been given by the mortgagors to the mortgagee "as security for repayment" of the loan of 175,000 pounds "but not with the intention of making them or any of them personally responsible for repayment of the said sum except as hereinafter appears". By the deed Mawson International Pty. Limited covenanted to pay to the respondent the principal 175,000 pounds, the interest 108,750 pounds, and to pay instalments in reduction - a covenant corresponding with the covenants in the mortgage. The appellants, with others, severally agreed to "guarantee and undertake that the principal debtor will pay the lender the sum of One hundred and seventy five thousand pounds (175,000 pounds) together with interest thereon in accordance with the terms of the loan" and agreed that, upon certain defaults, "the amount unpaid in respect of the total amount due shall at the option of the lender immediately thereon and without any notice or demand by the lender become due and payable by the guarantors to the lender". As presaged by the recital already quoted, it was later provided that the liability of each of the appellants "shall not in any case exceed the sum of Twenty thousand pounds (20,000 pounds) each but these guarantees shall apply to and secure any ultimate balance that shall remain due to the lender in respect of the principal and interest due within the limits aforesaid". (at p311)

7. The foregoing statement of facts reveals -

(1) that the appellants were parties to a mortgage to the respondent of land by an instrument containing a covenant to pay 283,750 pounds;
(2) that it was intended that the covenant to pay should not be enforceable but it was intended that the appellants, as guarantors, should undertake a personal liability to pay to the respondent up to 20,000 pounds if the 283,750 pounds should not be paid by the borrower; and
(3) it was also intended that the repayment in full of the 283,750 pounds according to the terms of the deed should be secured by the mortgage. (at p311)

8. It is clear, therefore, that by virtue of the transaction under consideration - which, it seems to me, was effectuated by two documents intended to operate together and which must therefore be read and understood together - the appellants became both mortgagors and guarantors. The respondent's objection was to the effect that the definition of "mortgagor" in s. 33 meant that Pt III of the Act, and in particular s. 34 (2), did not operate to preclude the appellants from suing on a guarantee notwithstanding that, in their capacity of mortgagors simpliciter, they would be so precluded. (at p311)

9. The appellants' case is, however, that notwithstanding its terms, the definition of "mortgagor" in s. 33 does not take an actual mortgagor, that is, a person with a right to redeem, outside the operation of Pt III, and for this contention reliance was placed upon certain observations made by Latham C.J. with the concurrence of McTiernan J., and by Rich J. in Bank of New South Wales v. Permanent Trustee Co. of New South Wales Ltd. (1943) 68 CLR 1 . In that case, a person owing money under a guarantee of a debt not secured by mortgage had subsequently given a mortgage to secure payment of what was owed under the guarantee. The majority of the Court, assuming, as it seems to me, that the mortgage was given to secure the performance of the guarantee, decided that an action upon the personal covenant contained in the mortgage was barred by the Moratorium Act because s. 35 (1) (a) (i) merely excluded a person who was a mortgagor because he had guaranteed a debt secured by mortgage and so had become a mortgagor in accordance with the second limb of the definition of "mortgagor" in s. 2. No doubt, the same view was taken of the definition of "mortgagor" in s. 33. At the conclusion of his judgment Latham C.J. said: "Accordingly, in my opinion, the executor of Dr. Wood, if sued upon the guarantee, would not be able to rely upon any of the provisions of the Moratorium Acts, but sued, as he is, upon the personal covenant contained in the mortgage, those Acts provide him with a defence" (1943) 68 CLR, at p 18 . The learned Chief Justice also made an observation about s. 35 (3), viz.: "The effect of this provision is to restore (not to create) personal remedies (if any) against persons who had guaranteed the payment of mortgage moneys and who had been relieved from their personal liability by s. 25 (7) of the earlier Act. As was said in Smith v. Motor Discounts Ltd. (1935) 54 CLR, at p 119 , 's. 35 deals separately with guarantees and restores the liability upon them which s. 25 (7) had annihilated' (my italics). The operation of this provision upon Dr. Wood's liability was to restore the liability under the guarantee if that had been annihilated by the earlier legislation. But it restores the liability under the guarantee only by providing that nothing in s. 25 (7) of the 1931 Act shall impair rights and remedies against the guarantor. It leaves the plaintiff in the present case unaffected, as far as the guarantee is concerned, by s. 25 (7), but subject to any defence which may exist under the Statute of Limitations or otherwise. This provision, therefore, is of no service to the plaintiff in this action brought upon the covenant in the mortgage" (1943) 68 CLR, at p 16 . (at p312)

10. Before considering whether what was said in Bank of New South Wales v. Permanent Trustee Co. of New South Wales Ltd. (1943) 68 CLR 1 governs this case, it is necessary to refer to another matter in controversy here. The problem is whether or not the deed is to be regarded as itself a mortgage or part of a mortgage as defined in s. 2 of the Act. For reasons already given, I assume that it is so with the consequence that I must regard these actions as actions upon a personal covenant contained in a mortgage of land. I do not, therefore, treat the appellants as sued upon a guarantee separate from the mortgage which they gave the respondent. (at p312)

11. On this basis, for the purposes of s. 34 (2) of the Act - putting aside for the moment s. 35 (3) and the definition of "mortgagor" in s. 33 - we have here actions by a mortgagee against mortgagors for the payment of a sum of money due under a mortgage. I think, furthermore, that the sum sued for falls within the description of "principal moneys secured by a mortgage of land . . . or interest thereon" in s. 34 (2). The payment of the sum of 20,000 pounds sued for would not only go in reduction of the 283,750 pounds secured by the mortgage; it would also satisfy the appellants' personal covenant therein to be "personally responsible for repayment of the said sum", viz. 175,000 pounds, to the extent of 20,000 pounds. Consequently, the appellants are entitled to succeed unless the operation of s. 34 (2) is precluded as a consequence of the definition of "mortgagor" in s. 33 or by the operation of s. 35 (3). Were the problem simply the application of the definition of "mortgagor" in s. 33, I would, of course, be faced with the observations of the members of the Court in Bank of New South Wales v. Permanent Trustee Co. of New South Wales Ltd. (1943) 68 CLR 1 that are inconsistent with giving the definition its prima facie wide meaning. Here, however, it seems to me that the provision of overriding importance is s. 35 (3) and I cannot regard what was said about that sub-section in Bank of New South Wales v. Permanent Trustee Co. of New South Wales Ltd. (1943) 68 CLR 1 as exhausting its effect. The Court in that case was concerned with the effect of s. 25 (7) and what was said clearly enough referred to s. 35 (3) only in so far as it related to s. 25 (7). Nothing that was there said should, I think, be taken as denying to s. 35 (3) its full operation that nothing in Pt III of the Moratorium Act should impair the rights of mortgagees against persons who have guaranteed the payment of money "notwithstanding that the payment of such money or the performance of such guarantee is secured by a mortgage of land". The appellants are persons within this description. (at p313)

12. Because my conclusion based upon s. 35 (3) is decisive, I refrain from dealing with the other problems to which argument was directed. (at p313)

13. In my opinion, the appeals should be dismissed. (at p313)

WINDEYER J. I agree with those who think that these appeals should be dismissed. I base my conclusion on the definition of "mortgagor" in s. 33 and on the express words of s. 35 (3). I do not think that the passage in the judgment of Latham C.J. in Bank of New South Wales v. Permanent Trustee Co. of New South Wales Ltd. (1943) 68 CLR 1 should, when the argument to which his Honour's remarks were directed is borne in mind, be read as requiring a different conclusion from that to which the words of the statute lead me. (at p313)

Orders

Appeals dismissed with costs.