-Default by purchaser-Payment guaranteed-Default by vendor under earlier contract-Rescission of vendor's contract-Subsequent rescission by purchaser -Discharge of surety.

Instalments of purchase money, other than the deposit payable, upon a sale of land cannot be retained or recovered by the vendor after the contract has been determined by his election to treat the purchaser's default as a discharge. In such a case the contract is determined only in so far as it is executory, and the party in default remains liable for damages for his breach nevertheless, the contract being at an end, instalments which are prepayments on account of the price of the land become repayable at law, in the absence of a stipulation to the contrary, and equity relieves against such a stipulation. The liability of a surety for an instalment is also discharged when the contract of sale is so determined, because the principal debt to which his obligation is accessory is extinguished.

So held by Rich, Starke, Dixon and McTiernan JJ. The R. Co. entered into a contract to purchase land from A, who was himself a purchaser of the land under a contract of sale. A assigned to the plaintiff his interest in the contract with the R. Co. The R. Co. made default in pay- ment of an instalment of the purchase money, and, in consideration of the

48 CLR 458

plaintiff's agreeing to postpone the payment of the instalment for a year, the defendants, who were directors of the R. Co., guaranteed the due payment of the instalment. At the end of the year the R. Co. was still in default. A also had defaulted under his contract, and the vendor to him rescinded the con- tract. The R. Co. thereupon intimated that it treated its contract as at an end, and this intimation was accepted by A and the plaintiff as putting an end to the contract. The plaintiff brought an action against the defendants for the recovery of the amount of the instalment guaranteed by them.

Held, by Rich, Starke, Dixon and McTiernan JJ. (Evatt J. dissenting), that, the liability of the R. Co. to pay the instalment having been discharged upon the failure of the contract of sale to it, the obligation under the guarantee was likewise discharged.

Effect of the bankruptcy law and the law relating to the winding up of companies upon the liability of a surety considered.

Decision of the Supreme Court of Victoria (Cussen A.C.J.) reversed.

APPEAL from the Supreme Court of Victoria.

In an action in the Supreme Court of Victoria by Dennys Lascelles Ltd. against John McDonald and Arthur Henry Holdsworth, the statement of claim was substantially as follows :-

1. On 19th February 1930 the Rye Grazing Co. Pty. Ltd., which was incorporated under the Companies Act of the State…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading McDonald v Dennys Lascelles Ltd

Details

AGLC: McDonald v Dennys Lascelles Ltd [1933] HCA 25
Case: [1933] HCA 25
Decision Date: 15 May 1933

CaseChat Overview and Summary

The High Court of Australia heard an appeal from the Supreme Court of Victoria concerning a guarantee for an instalment of purchase money under a contract for the sale of land. The appellant, Dennys Lascelles Ltd., sought to recover £1,000 from the respondents, John McDonald and Arthur Henry Holdsworth, who had guaranteed the due payment of this instalment by the Rye Grazing Co. Pty. Ltd. The Rye Grazing Co. had purchased land under a contract assigned to Dennys Lascelles Ltd., and the respondents were directors of the Rye Grazing Co.

The central legal issues before the High Court were whether the respondents' liability under the guarantee was discharged when the principal contract for the sale of land was rescinded, and whether the vendor's assignee, Dennys Lascelles Ltd., could enforce the guarantee despite the extinguishment of the principal debt. The court was required to consider the nature of a guarantee as an accessory obligation and the circumstances under which a surety's liability ceases to exist.

The High Court, by a majority, held that the respondents were discharged from their liability under the guarantee. The reasoning was that the guarantee was a collateral obligation dependent on the existence of a principal debt owed by the Rye Grazing Co. Pty. Ltd. When the contract of sale was rescinded by the purchasers and accepted by the vendor's assignee, the principal obligation to pay the instalment was extinguished. The court applied the principle that a surety's liability is discharged when the principal debt is extinguished, unless specific exceptions apply, such as a release by operation of law (like bankruptcy). In this case, the extinguishment of the debt arose from the actions of the parties in rescinding the contract, which meant the vendor's assignee was no longer entitled to recover the instalment.

Consequently, the High Court allowed the appeal, reversing the decision of the Supreme Court of Victoria. The court ordered that judgment be entered for the defendants (the guarantors), meaning Dennys Lascelles Ltd. could not recover the £1,000 from McDonald and Holdsworth.

Orders