William Thomas Nicholson v Citibank Savings Ltd No. SCGRG 93/2261 Judgment No. 5259 Number of Pages 20 Guarantee and Indemnity
[1995] SASC 5259
•13 September 1995
COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA LANDER J
CWDS
Guarantee and indemnity - discharge of surety - discharge of surety by agreement - Liability of guarantors - whether original del)t refinanced and other guarantors released by undertaking of one guarantor to bring interest payments up to date - discussion of Rule 25.04 - whether agreement was an accord and satisfaction or merely the giving of time to a co-guarantor - relevance of intention not to release co-guaralltors - no discharge of guarantors.
Real Property Act 1886; Law of Property Act 1936, referred to. Harrison v State Transport Authority (Supreme Court, Full Court Judgment No. 698,7 June 1988); Rogers v Legal Services Commission of South Australia (Full Court Judgment No. 5238, 31 August 1995, (1995) 64 SASR 572); Ogilvie v Adams (1981) VR 1041, applied.
HRNG ADELAIDE, 28 March, 29 May, 19, 29 June 1995 #DATE 13:9:1995 #ADD 28:11:1995
Counsel for appellant: Mr M L Robertson QC, with him
Mr M Manetta
Solicitors for appellant: Minter Ellison Baker O'Loughlin
Counsel for respondent: Mr M Durrant
Solicitors for respondent: Kelly and Co
ORDER
Appeal dismissed.
JUDGE1 LANDER J The respondent (plaintiff) brought proceedings against the appellants (defendants) by Summons dated 24 November 1993.
2. The respondent sought the following orders:
"1. That the defendants do within such time as this Court
shall allow give up possession to the plaintiff of the land
hereinafter described and comprised in Memorandum of Mortgage
Registered No. 72056062 that is to say the premises situated
at and known as 6 Earlsfield Avenue, Salisbury East in the
State of South Australia being the whole of the land
comprised and described in Certificate of Title Register Book
Volume 3941 Folio 67.
2. That upon the defendants paying to the plaintiff the
moneys remaining due to the plaintiff upon the security of
the said Mortgage the plaintiff (subject and without
prejudice to the due exercise of any power of sale for the
time being vested in it) do redeliver to the defendants
possession of the property subject to the said Mortgage and
release to the defendants the security constituted by the
said Mortgage.
3. That the defendants pay to the plaintiff its costs of and
incidental to this summons to be taxed."
3. The summons was supported by an affidavit of Christine Mifsud, a Collections Supervisor employed by the respondent. She deposed to the fact that the appellants are the registered proprietors of an estate in fee simple of the whole of the land comprised and described in Certificate of Title Register Book Volume 3941 Folio 67, being the property situated at 6 Earlsfield Avenue, Salisbury East. The respondent is registered as the proprietor of a Memorandum of Mortgage given by the appellants as mortgagor to the respondent as mortgagee. The mortgage was given to the respondent by the appellants to secure the repayment of all moneys due and owing or payable to the respondent by the appellants, either solely or jointly, or on any account whatsoever under an agreement more particularly described in the mortgage. I will return to that agreement.
4. She deposed to the fact that default had been made by the appellants in payment to the respondent, of interest instalment moneys due and owing under the agreement and secured by the mortgage.
5. The calculation of arrears of such instalment moneys, as at the date of swearing the affidavit, was set out and amounted to the sum of $5,523.96. She further deposed that the mortgage provided that if default was made by the appellants in payment of any instalment or any other moneys payable under the agreement and such default continued for a period of seven days, then the respondent could at its option and in accordance with the provisions of the Real Property Act 1886 and the Law of Property Act 1936, exercise all or any of the rights, powers and remedies granted to a mortgagee under the mortgage. On 30 September 1993 notice was given by the respondent's solicitors to the appellants, requiring payment of the money owing by the appellants on the mortgage and of the intention by the respondent to sell the mortgaged land in the event that the moneys remained unpaid. Her evidence was that at the date of the swearing of the affidavit, the appellants had failed to comply with the requirements and the arrears of mortgage as at that date totalled $4,630.00. In the event of default of payment of interest, the principal sum secured by the mortgage became due, and as 8 November 1993 the amount secured by the mortgage was $270,943.93.
6. In the light of all of those facts the respondent sought an order that the appellants give up possession of the mortgaged land to enable the respondent to proceed to sell the mortgaged land and recover the amounts due and owing under the mortgage.
7. The agreement to which Ms Mifsud referred is an agreement dated 10 October 1991 wherein the respondent agreed to advance a credit line facility to SSAI Agencies Pty Ltd (the company) to the extent of $260,000. The following terms were included in the agreement of 10 October 1991:
"PERIOD OF CREDIT LINE
No set period, subject to compliance with Citibank Mortgage
Power (credit line) facility standard terms and conditions
(attached) and provisions of relevant mortgage securing the
credit line facility.
ANNUAL PERCENTAGE RATE (Effective Interest Rate)
Variable Rate
Calculated daily and reviewable once every month during
continuance of the credit line. The rate is 14.4% at date of
this letter and may differ at settlement date and thereafter.
...
REPAYMENT SCHEDULE
Interest only (credit and other applicable charges) monthly
repayments as set out in the monthly billing statement sent
to the borrower with the right to make principal reductions
at any time at the discretion of the borrower.
CREDIT BALANCE (Principal sum and outstanding charges)
To be repaid on demand where default continues for more than
7 days (as provided in the relevant mortgage) or discharge of
mortgage (unless mortgage is transfered (sic) to another
substitute property as collateral security approved by
Citibank) or as otherwise provided in the relevant mortgage
and Citibank Mortgage Power (credit line) Facility Standard
terms and conditions."
8. The agreement to advance the moneys to the company was conditional upon guarantees being given by Patricia Tina Passaniti, Angelo Passaniti, and Connie Passaniti, all of 7 Jarman Avenue, Salisbury East; and Pasquale Pirrotta and Filomena Pirrotta, both of 70A Marlborough Street, Henley Beach, and the appellants, William Thomas Nicholson and Sheila Mary Nicholson. The guarantors were to give a registered first mortgage over land and buildings which they respectively owned.
9. The agreement provided, as has been mentioned above, that the standard terms and conditions of Citibank Mortgage apply, and those standard conditions included the following:-
"DEFAULT
21. (i) In the event that:
(a) the Borrower is in default of any of these terms or
conditions, those contained in the Citibank Letter of
Approval/Agreement and/or there is default by the Mortgagor
under the Mortgage;
(b) the Borrower defaults in payment of any amount due
hereunder; or
(c) the Borrower requests Citibank to discharge the relevant
mortgage (unless discharged for the purpose of, or
substituting another mortgage security approved in writing by
Citibank); or
(d) Citibank believes on reasonable grounds that it was
induced by fraudulent misrepresentation on the part of the
Borrower to grant the Borrower the credit facility;
Citibank may, at its option, forthwith capitalise outstanding
charges due per Statements of Account sent to the Borrower
and/or cancel the credit facility, close or freeze the
operation of the Bank Account and/or require the Borrower to
(whereupon the Borrower shall) immediately pay to Citibank
the whole or any part of the Borrower's outstanding balance
of the Citibank Mortgage Power Account together with all
other amounts payable hereunder (including the credit charge
calculated at the date of payment in full of the outstanding
balance) and/or enforce the mortgage. The amount certified
by Citibank as the amount outstanding shall be prima facie
evidence of the amount due by the Borrower as at the date
thereof.
(ii) Where a 3rd party (if any) named in the relevant
Citibank Letter of Approval/Agreement executes a mortgage to
secure the Borrower(s) indebtedness Citibank shall be
entitled to exercise, at its option, the rights and powers
set out in sub-clause (i) above in the event that there has
been default by the 3rd party under the provisions of the
mortgage.
TERMINATION
22. Credit shall be provided by Citibank under the credit
facility until cancelled by the Borrower or Citibank cancels,
closes or freezes operation of the bank account in accordance
with these terms and conditions."
10. The first Deed of Guarantee was entered into on 8 November 1991 by each of the partners to the agreement, and by that deed, each of the guarantors guaranteed due and punctual payment by the debtor (the company) of
"(a) all amounts which the Debtor either alone or jointly
with any other person now or in the future is or becomes
actually or contingently liable to pay to the Financier under
or in connection with the Agreement, and
(b) all other amounts which the Debtor either alone or
jointly with any other person now or in the future is or
becomes actually or contingently liable to pay to the
Financier under or on any agreement, security or negotiable
or other instrument or as a result of any matter or thing."
11. The appellants were directors of the company which started its operation in about February 1990. The business of the company had originally been carried on as an informal partnership between Sheila Nicholson, Connie Passaniti, Connie's son and another party. In the middle of 1990 the company purchased the business at which time Connie Passaniti's daughter, Tina Passaniti, became involved.
12. The company carried on the business of importing glassware from the United States for sale by way of party plan. It is not necessary for an understanding of this matter to recite how the glassware was to be sold.
13. Initially the business was financed by a letter of credit from the State Bank of South Australia in the sum of $100,000, which enabled the purchase of a container of goods from the United States. The appellants offered their house, by way of mortgage, as security in respect of that facility. After about six months, when the stock was sold and the letter of credit was satisfied, the mortgage was discharged.
14. In about the middle of 1991 the business expanded by importing costume jewellery and shortly after that the business began to fail and the letter of credit from the State Bank became fully drawn.
15. The appellants' evidence is that thereafter the Passanitis approached them about obtaining a loan from Citibank to pay out the letter of credit. Connie Passaniti apparently arranged the loan and it is the female appellant's evidence that at all times she believed the amount of the mortgage, which was to be given to secure the loan, was no greater than $40,000 and would not cast any further liability upon the appellants than already existed under the letter of credit arrangements with the State Bank.
16. Shortly before this the application for summary judgment was made to the Master, the appellants filed affidavits setting out the circumstances in which the loan had come about. They claimed that they were induced to enter into the agreement and to give the mortgage by way of security by reason of false representations made by Connie Passaniti. Further, they claimed that the respondent was fixed with constructive knowledge of the misrepresentations and/or misapprehensions.
17. The evidence was that the appellants had not received independent legal advice as required, and in all the circumstances the obtaining of guarantees and securities by the respondent amounted to unconscionable conduct.
18. In the circumstances, it was claimed that the appellants had no liability to the respondent pursuant to the agreement and that the mortgage was unenforceable.
19. After the application for summary judgment was made, Mr Michael Manetta, then a solicitor employed by the solicitors acting for the appellants, deposed to some further facts which he said showed that at the time of the institution of the action, the appellants' liability had been discharged. He said in an affidavit sworn on 2 November 1994:
"On any view of the facts and even if the said Deed and
Mortgage were otherwise valid and enforceable against the
defendants so as to render them liable as guarantors of the
amount alleged to be due to the plaintiff from the principal
debtor, SSAI Agencies Pty Ltd, at the time of the institution
of this action, their liability has since been discharged by
reason of an accord, entered into between the plaintiff and
one or more of the other parties named as guarantors in the
said Deed, and satisfaction given by such other party or
parties, as a consequence of which the principal debt which
the defendants herein are alleged to have guaranteed has been
extinguished."
20. Mr Manetta based that submission upon the following facts which, he said, arose out of the documents. I will set out for completeness all of those facts.
"I verily believe that the accord and satisfaction referred
to in the foregoing paragraph was reached as follows:
4.1 The terms of the original loan, as set forth in the
letter of approval contained in Exhibit 'B' to the affidavit
of Christine Mifsud sworn herein on 17 November 1993,
provided for monthly payments of interest only to be made by
the Borrower together with a right on the part of the
Borrower to make repayments of principal at its discretion;
provided that the whole of the principal outstanding became
repayable upon demand after seven day's default in the
payment of interest.
4.2 The proceedings herein arose out of a default in the
payment of interest on the part of the principal debtor.
4.3 At some time after the institution of these proceedings
and before 9 June 1994, the plaintiff agreed with the said
other party or parties that if such other party or parties
undertook to pay on or before 9 June 1994 an amount equal to
the amount of arrears of interest accumulated on the original
loan and thereafter to pay instalments of interest thereon as
and when they fell due in accordance with the terms of the
original loan, then the plaintiff would not pursue recovery
of the full amount of the principal outstanding.
4.4 On or before 9 June 1994, the said party or parties paid
the said amount of arrears and undertook to, and did, pay
monthly instalments of interest thereafter in performance of
the said agreement by way of accord and satisfaction."
21. Mr Manetta therefore argued in his affidavit that the legal effect of the agreement in June 1994 between the respondent and those other parties was that the principal outstanding under the loan had been refinanced, and as a consequence, the original debt which was alleged to have been guaranteed, and secured by the mortgage had been extinguished.
22. He observed that the agreement by way of accord and satisfaction had been entered into without the consent of the appellants and as the appellants were not parties to that later agreement, they had no liability in respect of any amount which those other parties may be obliged to pay to the respondent pursuant to that agreement.
23. In essence, the appellants' claim was that after the issue of the proceedings, the respondent entered into an agreement with Tina Passaniti (who was a co-guarantor with the appellants) which provided that if the arrears of interest were paid, and interest payments at the rate required to be paid under the original agreement with the borrower, and on the same terms as provided by that agreement, were continued, then no steps would be taken to recover the principal sum. The agreement was made without the knowledge or consent of the appellants and it was said therefore that the agreement discharged the appellants' liability as guarantor.
24. The circumstances giving rise to the alleged accord and satisfaction are contained in correspondence that passed between Messrs Kelly and Co, Solicitors for the respondent, and Mr David Black and Co, Solicitors for Miss Tina Passaniti.
25. I set out the relevant correspondence:
"(Undated)
Ms Tina Passaniti
7 Jarman Avenue
SALISBURY EAST SA 5109
Dear Madam
CITIBANK SAVINGS LIMITED
We refer to your recent meeting with the writer, and now
advise as follows:
1. Each of the seven guarantors is personally liable for the
whole of the debt outstanding. Our client will not in any
circumstances release any guarantor from their personal
liability, unless and until the debt is paid in full.
2. It is also imperative to our client that it preserves the
security position as far as practicable. We therefore advise
that our client will not release the mortgage granted by Mr
and Mrs Pirrotta without receiving full market value (whether
by sale or refinancing) for that property.
3. Each of the seven guarantors may have rights against the
others for contribution in the event that he or she pays to
Citibank Savings Limited an amount exceeding one-seventh of
the total debt outstanding. We suggest that you seek your
own advice on that matter.
4. Nicholson
Our client's current intention is to seek an Order for
Possession of the Nicholson's property at the further hearing
of this matter on 7 April 1994. However, they have been
contacted and invited to put any proposals they may wish our
client to consider. Whether or not our client seeks an Order
for Possession will therefore depend upon the response we
receive.
5. Passaniti and Pirrotta Properties
As the matter currently stands, our client will be entitled
to seek an Order for Possession of both properties at the
hearing of this matter on 7 April 1994.
However, our client acknowledges that you are currently
attempting to sell your property, and that you are attempting
to meet the payments due under the loan.
We are instructed to advise that our client will hold further
action against Mr and Mrs Pirrotta provided that the
following conditions are complied with:
1. The account must be brought back to its credit limit by
the end of March as previously undertaken;
2. You agree to the making of an Order for Possession
against your own property at the hearing on 7 April 1994 by
consent. That Order will provide for you to vacate the
property within 14 days of service of a copy of the Order
upon you. However, our client will agree (providing all
other conditions are met) not to take steps to serve that
Order prior to the end of June 1994. You will therefore
have a good opportunity to sell the property, whilst our
client's right to possession will be guaranteed.
3. You provide a copy of the Sales Agency Agreement in
respect of your property for approval by our client. In
particular, this will require our client's agent to attend
the property and prepare a valuation with a view to
confirming that the asking price of the property equates to
its market value.
4. You must continue to pay the regular mortgage
instalments (in full) as and when the same fall due.
We confirm that unless all of the above conditions are met,
our client will not hesitate to seek Orders for possession
against both properties, with no agreement to delay service
of that Order.
We emphasise that you will need to continue paying the full
amount of the arrears. As explained above, each guarantor is
legally responsible for the whole of the debt. Our client
will not accept any lesser amount on the basis of a
particular guarantor's notional "share" of the total debt.
The "sharing" of the burden is a matter to be decided as
between yourselves, and does not affect our client's
position.
Having said that, it is to be hoped that the sale of the
Nicholson and Passaniti properties will reduce the amount of
the instalments payable under the mortgage.
Kindly provide us with your response to the above matters in
due course.
Yours faithfully
KELLY and CO
per : (Signature)
P J INGRAM
25th March, 1994
Messrs. Kelly and Co.
Barristers and Solicitors,
Levels 16 and 17,
State Bank Centre,
91 King William Street,
ADELAIDE. S.A. 5000
Attention: Mr. P. J. Ingram
Dear Sirs,
re: Citibank Savings Limited - Tina Passaniti
We act for the Passanitis with respect to a loan to Citibank
Savings Limited which is in arrears.
We have been handed a copy of your undated letter to Tina
Passaniti.
We are instructed that Coni Passaniti's husband is, with four
siblings, the beneficiary of his father's estate, the major
asset of which is a house situate at 16 Ballingrove Avenue
Fulham Gardens.
The house was sold last Saturday through the agency of Weeks
and Macklin.
Settlement will occur on 18th April 1994.
At that time, or forthwith the proceeds are received, the sum
of $12,000.00 will be paid to your client which, on our
instructions, will bring the account within its credit limit.
Mr. Passaniti is prepared to execute an authority to that
effect if required.
Would you kindly let us know your client's attitude to this
short extension of time from the proposal put in your undated
letter.
We can also point out that the Passanitis' business is for
sale in circumstances which should shortly provide further
funds to discharge our clients' indebtedness to your client.
We await your urgent advices.
Yours faithfully,
DAVID BLACK and CO
Per: (Signature)
30 March 1994
David Black and Co
Barristers and Solicitors
PER FACSIMILE: 231 6381
ATTENTION: Mr D A Black
Dear
CITIBANK SAVINGS LIMITED - PASSANITI
We refer to your letter dated 25th March 1994.
Our client is prepared to extend the time period for
satisfaction of the first condition 18th April 1994.
However, we advise that the amount required to bring the
account back to its credit limit currently $13,301.47 (plus
costs).
In addition, that amount will increase prior to 18th April
1994 due to the fact that further instalmen(s) (sic) will
fall due and further legal fees will be incurred. Our client
therefore estimates that the amount that will be required to
restore the account to its credit limit will be approximately
$15,427.51 (plus costs).
We therefore advise that our client will hold legal action
against the Pirrotta property only if all of the following
conditions are satisfied:
1. Your client makes payments sufficient to bring the
account back to its credit limit (including all legal
costs) by 18th April 1994. We suggest you contact the
writer shortly prior to settlement to confirm the amount
required in that regard.
2. Your client consents to an Order for Possession being
made against her own property at the hearing on 7th April
1994. Our client will then agree (providing all other
conditions are met) not to serve the Order prior to 30th
June 1994.
3. Your client provide (by 7th April 1994) a copy of the
Sales Agency Agreement signed in respect of her own
property, which agreement must provide for terms of sale
which are acceptable to our client.
4. Your client pays future instalments (ie. (sic) those
falling due after 18th April 1994) as and when they fall
due. In the event that she defaults in the payment of any
of those instalments, our client shall be entitled to serve
the Order upon Ms Passanitti's (sic) property and take
further action against the Pirrotta property.
5. Your client provide (by 7th April 1994) a copy of the
sale contract obtained by the estate.
Kindly advise whether the above arrangement is acceptable to
your client as soon as possible.
Please note that if no agreement is reached prior to the
hearing of the matter on 7th April 1994, then we are
instructed to seek Orders for Possession against both the
Passanitti (sic) and Pirrotta properties, (with no agreement
to hold service of either).
Yours faithfully
KELLY and CO
per: (Signature)
P J INGRAM
6th April, 1994
Messrs. Kelly and Co.
Barristers and Solicitors,
Levels 16 and 17,
State Bank Centre,
91 King William Street,
ADELAIDE. S.A. 5000
Attention: Mr. P. J. Ingram
Dear Sirs,
re: Citibank Savings Limited - Tina Passaniti
We refer to the writer's telephone conversation with Paul
Ingram today and confirm that our clients accept the
proposition put in your letter of 30th March 1994.
We confirm we have instructions to consent to an Order for
Possession being made against Patricia Tina Passaniti's
property tomorrow.
We now enclose a copy of the contract for the sale of the
estate property and of the Sales Agency Agreement of Patricia
Passaniti's property.
If you have any queries, please let us know.
Yours faithfully,
DAVID BLACK and CO
Per: (Signature)
enc.
21 April 1994
David Black and Co
Barristers and Solicitors
282 Gilbert Street
ADELAIDE SA 5000
ATTENTION: Mr David Black
Dear Sir
CITIBANK SAVINGS LIMITED - TINA PASSANITI
We refer to previous communications herein and confirm the
following:
1. Our client has no objection to the Sales Agency Agreement
executed by your client in respect of the property at 7
Jarman Avenue, Salisbury East. Our client does however
request the authority of your client to speak to the Land
Agent for the purpose of obtaining regular updates on the
marketing of the property.
2. Our client has received payments which were sufficient to
bring the account back to its credit limit as per the
arrangement with your client.
3. Your client how (sic) has a continuing obligation to meet
the Mortgage instalments as and when they fall due. We are
instructed that a further payment is due by 2nd May 1994 in
the amount of $2,173.99.
We have also recently sent an account to Citibank for our
fees to 7th April 1994 in the amount of $996.39. That
account will also need to be paid by your client, but we
advise that Citibank will not require that amount to be paid
by 2nd May 1994. Rather, our client requests that your
client make regular payments in addition to the instalments
due under the mortgage in order to pay the legal costs over
the next few months. Kindly advise your client's attitude to
that proposal in due course.
We further confirm that the hearing against Mr and Mrs
Nicholson has been adjourned to 12th May 1994, so that they
may obtain independent legal advice. If the April instalment
is paid by your client, then the likelihood is that the
hearing will be further adjourned to the delayed list as has
been done with the action against Mr and Mrs Pirrotta.
Please contact the writer should you have any queries.
Yours faithfully,
KELLY and CO
per: (Signature)
P J INGRAM"
26. It is the fact of the matter that the payments had been made by Tina Passaniti in an endeavour to take the account out of default. She had made the following payments:
2/12/93 $ 700.00
14/12/93 $2,286.00
21/12/93 $3,022.00
27. Apparently on 5 May or 11 May 1994 Mr Manetta had a conversation with a solicitor at Messrs Kelly and Co and was informed of the agreement reached with Ms Passaniti.
28. The correspondence indicates quite clearly that the respondent did not intend to release the co-guarantors from their liability. Nothing could be more certain than that from a reading of the undated letter from Kelly and Co to Miss Passaniti.
29. On 12 May 1994 the application for possession was adjourned until 1 July. That was made very clear in a further letter dated 8 June 1994, written by Messrs Kelly and Co to Messrs Baker O'Loughlin, solicitors for the appellants, and I set out that letter:
"8 June 1994
WITHOUT PREJUDICE
Messrs Baker O'Loughlin
15th Floor
AMP Building
1 King William Street
ADELAIDE SA 5000
Attention: Mr Michael Manetta
Dear Sir
CITIBANK SAVINGS LIMITED v. NICHOLSON
We refer to your letter dated 18 May 1994.
As discussed with you, our client is proposing to further
adjourn the action against Mr and Mrs Nicholson (as well as
the action against Mr and Mrs Pirrotta) PROVIDED THAT a
payment of $1,500.00 is received prior to Friday's hearing.
If that payment is received, we propose to seek an
adjournment for approximately three months, which adjournment
is being granted on the condition that our client receives
future payments as follows:
1. The amount of $500.00 by close of business on Friday 17
June 1994; and
2. Subsequent mortgage instalments are paid as and when the
(sic) fall due.
We will be also seeking liberty to apply in the event that
those conditions are not complied with.
As regards the contents of your letter of 18 May 1994, we
comment as follows:
1. We enclose copy of Deed of Guarantee and Indemnity
executed by your client's (sic) on the 8th day of November
1991, and witnessed by an independent solicitor.
2. The statement in the second paragraph of your letter that
our client 'does not propose to pursue the proceedings' is
misleading, unless it can be read with the additional words
'at this stage'. Our client only ever agreed to adjourn the
matter to 10 June 1994. If the $1,500.00 payment is received
before the hearing date, then our client will agree to a
further adjournment, subject to the parties complying with
their future repayment obligations. If that payment is not
received or those repayment obligations are breached, then it
is our client's intention to take immediate action against
both the Nicholson and Pirrotta properties, and to enforce
its order against the Passaniti property.
3. We further enclose copy of document entitled
'Acknowledgment by Mortgagor and Certificate by Independent
Solicitor' executed by your clients and by the independent
solicitor, Melissa Ballantyne. Our client is clearly
entitled to rely on the statements made by your clients and
the independent solicitor in that document, and also on the
form of proof which is incorporated in the mortgage document.
4. There is no basis for the suggestion that our client was
in any way involved in misrepresenting the extent of your
client's liability under the mortgage. None of the documents
refer to any such limit, and your clients were required to
have the documents explained by an independent solicitor
prior to execution. They have signed an acknowledgement that
the relevant explanation was given, which acknowledgment
contains the following:
'In particular, do you understand that if the borrower
fails to pay all of the moneys due by the Borrower to
Citibank, then Citibank will be entitled to sell your
property to recover the moneys due to it?'
'Yes'
If your clients misunderstood the extent of their liability
(which is not admitted), then clearly the blame lies with the
other guarantors or the independent solicitor who was
engaged.
5. We point out that not only was Mrs Nicholson a director of
the borrower company at the time of the transaction, but she
was also a signatory on the account.
6. The principles set down by King CJ of the South Australian
Supreme Court in Challenge Bank Limited v. Pandea (60 SASR
330) clearly have no application to the present case. The
financier in that case did not require the guarantors to
seek independent legal advice before executing the documents
- in fact, the court held that the Bank was well aware that
such advice was unlikely to be obtained. The facts relating
to Mr and Mrs Nicholson are clearly distinguishable, and
there is no basis for arguing that our client is affected by
any fraudulent conduct or misrepresentation on the part of
the other guarantors.
We will confirm whether the $1,500.00 payment has been
received in due course.
Yours faithfully
KELLY and CO
per: (Signature)
P J INGRAM."
30. If, therefore, the co-guarantors have been released from their liability it is a result, at least from their point of view, of a fortunate mistake on the part of the respondent.
31. It also appears tolerably clear that the "agreement" reached between Ms Passaniti and the respondent was not so much to protect her position, but rather to protect the position of one of the co-guarantors, namely the Pirrottas. Of course, notwithstanding there was no intention to release the guarantors, that does not mean the guarantors were not released. It is not unusual that guarantors are inadvertently released after a transaction between the financier and a co-guarantor.
32. The appellants therefore pursued their application claiming that the arrangements made between Ms Passiniti and Citibank were such that the original facility had been discharged and therefore the guarantee supporting it was no longer enforceable and that in those circumstances, the respondent's claim for vacant possession, based upon a mortgage which was no longer security for any debt, must inevitably fail.
33. The orders sought were:
"1. that summary judgment be entered for the defendants
herein;
2. that the plaintiff pay the defendants' costs of this
action;
3. such further or other order as this Honourable Court may
deem fit."
34. The matter was heard before the Master on 10 January 1995, who reached the conclusion that the arrangement did not amount to an accord and satisfaction, and therefore the application under Rule 25.04 had to fail.
35. It is from that decision that the appellants have appealed. The grounds upon which the appellants have appealed are:
"1. that the learned Master erred in confining the authority
of Webb v Hewitt to cases of an agreement phrased as an
unconditional release and ought to have held it applicable to
all cases of accord and satisfaction;
2. that the learned Master erred in law in holding that the
arrangements between the plaintiff and the Passanitis (sic)
family, referred to in His Honour's reasons, did not amount
to an accord and satisfaction by which the debt the subject
of the plaintiff's action herein was extinguished;
3. that the learned Master erred in law in holding that there
is a distinction between a covenant not to sue over an
indeterminate period of time for so long as the covenantee
pays interest and a relending of the principal amount the
subject of the covenant;
4. that, in characterising the said arrangements, the learned
Master ought not to have taken into consideration the
subjective intention of the plaintiff as to their effect;
5. that on the whole of the evidence, the learned Master
ought to have found that the said arrangements amounted to a
refinancing of the loan made between the plaintiff and SSAI
Agencies Pty Ltd and as such, an accord and satisfaction of
the debt sued on."
36. When the matter first came before me on 28 March 1995 I raised with senior counsel, who led for the appellants, that if the argument that was advanced was right, then the effect of the argument was that all of the guarantors had been released from their obligations by reason of Tina Passaniti undertaking simply to bring the interest payments up to date and by that same agreement Ms Passaniti, upon the argument being advanced, had become entirely liable for the whole of the amount of the credit facility to the exclusion of the former guarantors. I raised at that stage whether those other parties, having regard to the argument that was being put forward, ought to be given notice of that argument. In particular, it seemed to me that Tina Passiniti ought to be given some notice of the application, because upon the appellant's argument, if successful, she would become obliged for the whole of the amount.
37. The appellants sought an adjournment of the appeal to consider their position, and I adjourned the matter to 29 May 1995. On 18 May 1995 the appellants sought the following orders:
"1. Providing for the joinder as defendants herein of
Patricia Tina Passaniti, Angelo Passaniti, Connie Passaniti,
Pasquale Pirrotta and Filomena Pirrotta;
2. Providing for the costs of this application;
3. And such further or other order as this Honourable Court
may deem fit."
38. The grounds upon which the joinder was sought were set out in a further affidavit of Mr Manetta, sworn on 18 May 1995, and they are these:-
"(a) the action herein is for enforcement of a guarantee
mortgage given by the defendants in favour of the plaintiff;
(b) the person (sic) sought to be joined are co-guarantors
with the defendants of the debt the subject of the
enforcement proceedings;
(c) the defendants resist the action on the basis that the
effect of a certain agreement entered into between the
plaintiff and Patricia Tina Passaniti is to discharge the
defendants' guarantee;
(d) the discharge claimed by the defendants will deprive
Patricia Tina Passaniti of any right, or potential right, of
contribution which she might otherwise have had against the
defendants in respect of the debt and, to the extent that the
guarantees given by the other persons sought to be joined are
not similarly to be discharged, will deprive those other
persons of any right, or potential right of, contribution
against the defendants in respect of the debt."
39. He subsequently filed a further affidavit in relation to service of those documents. When the matter resumed before me on 29 May 1995, the application to join those parties was abandoned and as a result I dismissed the application.
40. However, after further argument the appellants renewed their application to join those parties and the matter was adjourned once again so that notice could be given to the parties that the application, which had been abandoned, was to be pursued. The matter was adjourned to 19 June 1995 for further hearing when upon the application of the appellants, and where neither the respondent nor any of the proposed parties objected, I made an order that the Official Receiver, Angelo Passaniti, Connie Passaniti, Pasquale Pirrotta and Filomena Pirrotta be joined as defendants to the proceedings.
41. On 29 June 1995 the matter was further argued. None of the defendants joined pursuant to that order sought to be heard on the appeal.
42. The jurisdiction which is given, pursuant to Rule 25.04 of the Supreme Court Rules, is a jurisdiction which is only ever exercised sparingly, where there is no serious question to be tried, and where it is clear that the plaintiff's action is totally devoid of merit. See Harrison v STA (Supreme Court, Full Court Judgment No. 698, 7 June 1988). It is necessary for the defendant to establish that on any view of the matter that the plaintiff's claim simply cannot succeed. See Rogers v Legal Services Commission (Full Court Judgment No. 5238, delivered 31 August 1995, (1995) 64 SASR 572)
43. In those circumstances the appellants must have a difficult task in convincing a Court, on an appeal, that a Master wrongly refused to summarily enter judgment in favour of the appellants at an interlocutory hearing.
44. The appellants argued that the arrangement entered into by Tina Passaniti could be characterized as a refinancing of the original debt, because she had assumed a fresh obligation to pay monthly instalments of interest and to repay the principal outstanding upon the same terms as the original loan. It was put that the original transaction between the respondent and the company was a loan of $260,000, which the company was not obliged to repay unless and until the company became in default and then the full amount became repayable pursuant to clause 4 of the agreement.
45. The submission was that until default occurred and the moneys became due and payable, then the agreement could be characterized as a loan which allowed the company to lawfully retain the funds of the respondent. It was not, it was submitted, a debt because the debt did not become due and payable until such time as there was a default. Default is defined by clause 21 of the standard terms and conditions, which must be read in conjunction with paragraph 4 of the agreement.
46. It was submitted that the agreement between Tina Passaniti and the respondent was an accord and satisfaction and in those circumstances discharged the guarantor's liability under the guarantee. It was said that it was more than the giving of time which would have been permissible under the guarantee and not interfered with each of the co-guarantors' obligations under the guarantee.
47. The argument depended for its integrity on the proposition that the original agreement was an open-ended transaction which could be characterized upon the basis that the moneys were not repayable by the company until such time as there was a default in repayment of interest. The argument, when developed, required a further assumption and that is that the loan was terminated by the respondent's demand for repayment of the principal and accrued interest and the respondent's action in accepting the breach and terminating the contract.
48. I think there is great difficulty with that proposition. If that proposition was right, then all of the obligations would have terminated at that same time and none of the guarantors, including Tina Passaniti, would have been liable in respect of the loan.
49. There is, however, a further problem. I do not accept the premise that the original transaction could be characterized in the manner suggested by the appellants. Whilst it is true that the facility did not provide for a date for repayment of the principal sum, I do not accept therefore that the moneys were not repayable unless there was a default in the payment of interest. I think, in the absence of an agreement as to when those moneys were repayable, they were repayable instanter. In Ogilvie v Adams (1981) VR 1041, Fullagar J said at page 1043:
"In my opinion there can be no doubt as to how the aforesaid
question of construction should be answered, and indeed I
consider that, from the late seventeenth century at the
latest, there could be only one answer to it, namely, that
the case discloses a loan the only terms of which were those
acknowledged in writing by the borrower to the lender, and no
demand is necessary to found the cause of action for
repayment, and the cause of action commenced instanter upon
the making of the loan. Where there is a loan of money
simpliciter (i.e. with nothing at all said as to repayment),
the money is repayable instanter. Where there is a loan of
money and the borrower contracts to repay on demand, again
the money is repayable instanter. Where there is a loan of
money which is recorded or acknowledged by the parties to be
a loan repayable on demand, again the money is repayable
instanter.
The common law has always regarded the fact of indebtedness
as a continuing detention by the debtor of the creditor's
money, and this whether the creditor brought an action of
debt or an action in indebitatis assumpsit. Therefore if A
lends money to B, then instantly B is detaining A's money.
In order to prevent a cause of action for recovery arising in
A instantaneously on paying the money, the parties must
expressly contract out of that situation by words clearly
inconsistent with that situation. The courts have long since
settled it that a mere statement or agreement that the money
is repayable on demand (or request or at call) is not
sufficient to contract out of that situation where all else
that is known of the terms of the contract is that A has paid
money to B by way of loan. The lender's cause of action
still arises instanter on the receipt of the money by the
borrower, so that the lender's cause of action becomes
statute barred at the expiry of six years after the receipt
of the money."
50. The respondent, on the other hand, says that this was not an accord and satisfaction at all, but merely the giving of time to a co-guarantor, which does not relieve the other guarantors from their liabilities under the guarantee.
51. It was put, as previously noticed, that the respondent clearly did not intend to release the co-guarantors from their obligations under the guarantees. Whilst I agree with that submission, that is not decisive of the matter because it is not unusual for a co-guarantor to be released in error.
52. The guarantee allowed for the giving of time. Clause 6 provided, inter alia:
"LIABILITY NOT AFFECTED
The liability of the Guarantor and the rights of the
Financier under this Guarantee are not affected by anything
which but for this clause may operate to release or effect
its obligations including without limitation:-
(a) the grant of any time waiver or other indulgence to or
compounding or compromising with the Debtor or any other
person;
(b) the release or discharge of the Debtor, a co-surety or
co-indemnifier for the Secured Money or any other person in
whole or in part."
53. A number of indicia were pointed to by Mr Durrant, who appeared for the respondent, which, he submitted, indicated the fact that this was a matter of giving time, and no more. He pointed out the following matters as indicative of a transaction which he says had the characterization that he submitted:
1. The fact that the respondent had reserved its rights and
its Notice of Intention to obtain possession.
2. The fact that the respondent received payments and agreed
to adjourn all of the actions to the same date.
3. The letter of Kelly and Co to Baker O'Loughlin, dated
8 June 1994, which indicates:-
(i) that the matter be adjourned until 10 June 1994 only if
payment received before hearing date; and
(ii) a further adjournment be agreed if continued payments
are made;
(iii) a reservation of rights to take immediate action
against the property if there is default.
54. It was pointed out by Mr Durrant that the guarantee and indemnity contained a reservation of rights clause in what might be described as standard form, together with an unconditional and irrevocable indemnity and a continuing guarantee and indemnity provision.
55. In all of those circumstances it was his submission that the arrangement between the respondent and Ms Passaniti was no more than the giving of time and therefore not such as to discharge co-guarantors from their obligations.
56. I cannot accept the premise upon which the appellants argument was based, which was that because the original transaction between the respondent and the company did not require the company to repay the loan until there was default in the payment of interest that in those circumstances the agreement could be characterized not as a debt, but a lawful withholding of moneys until default. The moneys were lent and borrowed. There was at that time a debt owing by the company to the respondent. The principal became repayable when the company failed to meet the interest repayments. At that time by reason of the agreement, and by reason of the guarantee, each of the guarantors became liable to the respondent. The failure to pay the interest did not terminate the loan but simply crystallized the obligation by the company to repay both the principal and the interest. It also crystallized the several obligations of each of the guarantors.
57. By reason of clause 6 of the guarantee, the respondent could, without discharging the liability of any of the co-guarantors, deal with one or more of the guarantors and in so doing, give time to each of the guarantors to pay. Indeed, not only did the respondent give time to Ms Passaniti, the respondent gave time to Mr and Mrs Pirrotta and the appellants.
58. The entry into a further arrangement, whereby the respondent agreed that it would take no steps to enforce the repayment of the principal was not an arrangement or agreement that could be characterized as a discharge of the obligations of the company and all the guarantors under the original agreement, and the entry by the respondent into a new agreement solely with Tina Passaniti.
59. There has not been a discharge of that previous agreement so as to release the company, and therefore the co-guarantors. It would follow that Webb v Hewitt (1857) 3 K and J 438 has no application.
60. In my opinion, the dealing with Ms Passaniti was no more than to give her and all the guarantors time. None of the parties intended to reach, nor was any agreement reached that discharged the company, and by the discharge of the company discharged all guarantors except Ms Passaniti.
61. For these reasons, it is my opinion that the appellants' appeal must fail.
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