Westpac Banking Corporation v Linda Yuen Heung Chan; Irene Kit Ying Wong; Connie Fu Kuen Mo and Eric John Walsh [1991] ACTSC 31; (1991) 104 ACTR 30; (1991) 104 FLR 37 (26 April 1991)

SUPREME COURT OF THE ACT

WESTPAC BANKING CORPORATION v. LINDA YUEN HEUNG CHAN; IRENE KIT YING WONG;
CONNIE FU KUEN MO and ERIC JOHN WALSH
S.C. No. 611 of 1990
S.C.A. No. 24 of 1991
Guarantee - Contract
[1991] ACTSC 31; (1991) 104 ACTR 30
(1991) 104 FLR 37

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Miles C.J.(1)

CATCHWORDS

Guarantee - effect of alteration on obligation under guarantee - guarantor signed form of guarantee with blank spaces - bank filled in limitation of amount - whether guarantee valid.

Contract - written contract - material alteration by promisee - effect on obligation of promisor.

Rothwells Limited (In Liquidation) v. Entity Group Limited and Others (Supreme Court of the ACT, No. SC 401 of 1990, 12 October 1990, unreported)

Halsbury's Laws of England 4th ed. Vol.9: Contract, para. 597

O'Donovan and Phillips, The Modern Contract of Guarantee (1985) at p 86

Pigot's Case (1614) 11 Co Rep 26b

Armor Coatings (Marketing) Pty. Ltd. v. General Credits (Finance) Pty. Ltd. (1978) 17 SASR 259

Warburton and Others v. National Westminster Finance Australia Ltd. (1988) 15 NSWLR 238

Outer Suburban Properties Ltd. v. Clarke (1933) SASR 221

Caltex Oil (Aust.) Pty. Limited v. Alderton and Another (1964) 81 NSW WN 297

Brunker v. Perpetual Trustee Company (Limited) [1937] HCA 29; (1937) 57 CLR 555 at p 592

Aldous v. Cornwell (1868) LR 3 QB 573

Argento v. Cooba Developments Pty. Ltd. (1987) 71 ALR 253

HEARING

CANBERRA
26:4:1991

Counsel for the Appellant: Mr R. Williams, QC with Mr B. Meagher

Solicitors for the Appellant: Gillespie Jones and Co.

Counsel for the Respondent: Mr R. Crowe

Solicitors for the Respondent: Minter Ellison

ORDER

1. The Court orders that the appeal be dismissed.

2. The order of the Master of 28 February 1991 be confirmed.

3. The appellant pay the respondent's costs.

DECISION

This is an appeal by the fourth defendant (the appellant) from a decision of the Master given on 28 February 1991 authorizing the entry of summary judgment by the plaintiff (the respondent) against the appellant under Order 15 of the Supreme Court Rules.

2. Under s.8AAA of the ACT Supreme Court Act 1933, the appeal is in effect a re-hearing. The principles were discussed by Higgins J. in Rothwells Limited (In Liquidation) v. Entity Group Limited and Others (Supreme Court of the ACT, No. SC 401 of 1990, 12 October 1990, unreported). The Judge hearing the appeal from the Master is obliged to have regard to the evidence given before the Master with a discretionary power to receive further evidence, and with power to draw inferences of fact and to affirm, vary or set aside the judgment of the Master. In the present case the point raised on the appeal is purely a question of law. No question relating to any finding of fact based upon observation of witnesses, and no exercise of a discretionary judgment on the part of the Master is involved.

3. By its second amended statement of claim of 7 December 1990, the respondent sued on a written guarantee dated 21 December 1984, alleging that the appellant guaranteed to the respondent the payment when demanded in writing of advances or accommodation granted or afforded by the respondent to a company called Carseland Holdings Pty. Ltd. It was alleged in the second amended statement of claim, and is not disputed, that as at 8 November 1990 Carseland Holdings Pty. Limited was indebted to the respondent in the amount of $251,293.70, with interest accruing, and further that as at that date the amount "secured" by the guarantee amounted to $212,576.30. It was not disputed that as a matter of arithmetic the latter figure was made up of the principal sum of $120,000 together with interest accruing from 2 August 1988 to 8 November 1990. It was further alleged and is not disputed that the respondent demanded payment of the monies alleged to be due in accordance with the guarantee given by the appellant and that the appellant failed or refused to pay.

4. In an affidavit sworn on 11 December 1990, the appellant stated that all negotiations with the respondent concerning the advance to Carseland Holdings Pty. Limited and the guarantee were carried out not by him but by Linda Chan (one of the other defendants) and the other defendants. He further stated in para 2 that subsequent to those negotiations Linda Chan said to him words to the effect of "The bank wants a guarantee from the directors. We've borrowed $120,000. Your share is a quarter of that." The appellant further stated that Linda Chan subsequently made arrangements for him to sign the guarantee at the bank and that on or about 21 December 1984 he signed the sixth page of a form of guarantee. He stated that he signed it when he was in a hurry to get away from Canberra and did not read it. In particular he stated in para 3 as follows:
"I did not initial the spaces on the first and third

pages where there are provisions that require completion.
So far as I am aware the guarantee was incomplete when I
signed it. I assumed that the guarantee would contain the
terms advised to me by Linda Chan and trusted the bank to
complete the guarantee in accordance with those terms."

5. The reference to the spaces on the first and third pages are references to spaces left in the body of the document to allow insertion on the first page of the name of the debtor and of the guarantor, and on the third page the limitation of the amount payable by the guarantor under the guarantee in clause 8. That clause may be reproduced. It is as follows:

"8. THAT this Guarantee is to be security for the
whole of the moneys hereby secured but nevertheless the
total moneys payable hereunder by the Guarantor shall not
exceed the amount of ONE HUNDRED AND TWENTY THOUSAND DOLLARS
AUSTRALIAN CURRENCY together with a sum equal to one year's
interest on the said amount at the rate aforesaid (the
aggregate of which amount and sum is hereinafter called "the
stated sum") and the costs charges and expenses of obtaining
or attempting to obtain payment from the Guarantor referred
to in the last preceding clause and interest on the stated
sum at the rate aforesaid from the date when demand shall
have been made hereunder by the Bank upon the Guarantor
until payment of the total amount payable hereunder by the
Guarantor AND it is expressly agreed and declared that
nothing in this clause shall in any way give rise to or
support any inference that the Bank is hereafter to be
affected in any way in its dealings with the Debtor by the
amount of the stated sum and it is further expressly agreed
and declared that the amount and extent of the advances or
accommodation which the Bank may hereafter from time to time
grant to the Debtor need not bear any relationship to the
amount of the stated sum."

6. In some short evidence given before the Master, the appellant said that on the night before 21 December 1990 he was informed by Mrs. Chan that "they needed to borrow money from the Bank of New South Wales" and that because of the requirement of the bank, arrangements had been made for persons to sign documents on 24 December 1990. He said that he informed Mrs. Chan that he was leaving for Queensland the next day (21 December 1990), and so arrangements were made on the morning of that day for him to go to the bank at Kingston and sign what he described as "my share of the guarantee". He said he did this rather hastily and left. He said it was his rigid practice to initial any insertion into a printed document.

7. It may be observed that the appellant did not state expressly that he was aware that the space available for inserting the amount of the guarantee was left blank at the time of signing the document. Presumably the inference is sought to be drawn that because there is an absence of his initials, the words did not appear in the spaces at the time he signed the document.

8. There was no evidence of any transactions between the respondent and the appellant relating to the amount the subject of the guarantee. The only evidence of the source of the appellant's belief that his liability was so restricted was his statement in para 2 of his affidavit sworn 11 December 1990.

9. There was, as the Master observed in his reasons, no evidence that the respondent ever held out to the appellant that he was to be liable for any lesser amount than that provided for in the document, or that it was aware of anything that the first defendant might have told the appellant. The Master concluded that there was an arguable case that the respondent filled in the "limitation of liability" after the appellant signed the document, but since on his own evidence that is what the appellant trusted the respondent to do and expected to do, the respondent was not making a material alteration without the appellant's consent when it did so. The Master's ultimate conclusion was that the evidence did not disclose a triable issue which raised a defence to the action. Accordingly, the Master granted liberty to the respondent to enter judgment against the appellant.

10. The major point raised on the appeal was that the Master was in error in ruling that there had not been a material alteration of the written guarantee without the knowledge or consent of the appellant. It was submitted that as a matter of law any insertion into a document signed by a party is regarded as an alteration of the document, that there was evidence that such alteration occurred without the knowledge or consent of the appellant, and that as the alteration affected the limits of the appellant's liability under the guarantee as he understood it, then the alteration was a material alteration which avoided the appellant's liability under the guarantee.

11. For these propositions counsel for the appellant relied on the following passage in Halsbury's Laws of England 4th ed. Vol. 9: Contract, para. 597, which is in the following terms:

"597. Unauthorised material alteration. If, after
a written contract has been executed, a promisee
intentionally alters it in a material respect without the
consent of the promisor, whether by adding anything to it or
by striking out any part of it or otherwise, the promisor is
discharged, even if the original words can still be read.
The rule applies not only to contracts under seal, but to
all contracts in writing and written instruments.
A party seeking to enforce an altered instrument
must show that it is not invalidated by the alteration."

12. Counsel for the appellant also relied on the following passage from O'Donovan and Phillips, The Modern Contract of Guarantee (1985) at p 86:

"(viii) Alterations after signature
Where a guarantee is materially altered after
signature the guarantor will not be bound by the amended
document unless he indorses it. It is not necessary for him
to sign the indorsement containing the alteration but he
should do something which authenticates his original
signature, he must confirm in some way that it extends to
the altered guarantee."

13. Numerous cases are cited both in Halsbury and in O'Donovan and Phillips.

14. However, as was submitted on behalf of the respondent, it is the cases themselves which need examination rather than the statements in the text books. The general proposition that a promisor is discharged from an obligation arising out of a written contract if a promisee intentionally alters the document in a material respect without the consent of the promisor derives from Pigot's Case (1614) 11 Co Rep 26b. Doubts have been expressed for at least a century about how far the principle in Pigot's Case extends. The authorities in general were discussed fully by Bray C.J. in Armor Coatings (Marketing) Pty. Ltd. v. General Credits (Finance) Pty. Ltd. (1978) 17 SASR 259. On p 277 his Honour said as follows:

"First, I agree with the learned Judge that there is
a distinction between cases where the formal document in
question embodies a previous agreement in fact between the
parties, so that in a proper case a court of equity would
rectify it to make it conform to that previous agreement,
and a case where the document itself for the first time puts
the parties into a contractual relationship. In the second
type of case, as in Outer Suburban
Properties Ltd. v. Clarke (1933) SASR 221, there may
well be no implied authority to supplement it after one
party has signed it. The signatory may be regarded as
offering to treat on the basis of what he has signed and any
additional particulars subsequently attached may amount to a
counter offer by the other party needing acceptance by the
first before any contract comes into existence.
Where, however, an agreement in fact has been
reached between the parties and one of them subsequently
executes the formal document and hands it over to the other,
I think he will readily be regarded as having conferred on
that other implied authority to fill up blanks, which he
must be taken to know were present in the document when he
signed it, and to alter the document if necessary to make it
conform to the common contractual intention where by mistake
it does not do so."

15. The judgment of Bray C.J. was approved and applied by the Court of Appeal in New South Wales in Warburton and Others v. National Westminster Finance Australia Ltd. (1988) 15 NSWLR 238.

16. In the present case there was no suggestion on behalf of the respondent or the appellant that any mistake attended the reduction to writing of an agreement between the respondent and the appellant. Nevertheless, in my view, the principles enunciated by Bray C.J. apply in like circumstances, such as those in the present case. Where there is a common contractual intention to which the document might conform, the person filling in blanks in the document may be taken to be authorised to do so to make the document conform to that common contractual intention.

17. Such a common contractual intention is to be spelled out from the dealings between the parties to the contract, whether contained in other documents, or in words, or implied by conduct if there is evidence of such matters. In this case there was no evidence. The Master was correct in holding that there was simply no evidence to permit a finding that the respondent agreed to limit the liability of the appellant to one quarter of that of the principal debtor. The assertion by the appellant that he "trusted the bank to complete it in accordance with the terms that he had been told about by the first defendant" raises no arguable issue from which a defence at law or in equity to the respondent's claim might emerge.

18. However, the Master's decision assumes that it was permissible to go outside the terms of the written guarantee in order to ascertain the common contractual intention.

19. Both Armor Coatings v. General Credits and Warburton v. National Westminster Finance were cases where there was an agreement between the parties prior to the execution of the document in question, so that it was relevant to enquire whether any alteration made to the document by one of the parties conformed to the common contractual intention. In Armor Coatings Bray C.J. contrasted that type of case with the case where the document itself constituted the contract between the parties. His Honour suggested that in the latter type of case there may well be no implied authority to supplement the document after one party has signed it, and that the signatory was to be regarded as making an offer on the basis of what he had signed, which might be subject to a counter offer, constituted by the altered document, requiring acceptance before any contract came into existence. Outer Suburban Properties Ltd. v. Clarke was cited as authority. That was a case concerned with a written contract for the sale of land. The names, addresses and descriptions of the vendor and registered proprietor and particulars relating to the deposited plan of sub-division were omitted from the printed form of contract signed by the purchaser and only afterwards inserted by the agent for the vendor. The Supreme Court of South Australia in banco held that the insertion of the particulars was a material alteration of the document.

20. However, I think that Outer Suburban Properties Ltd. v. Clarke turned on its own facts and the terms of the particular documents. It is of little assistance in the present appeal. A deed of guarantee which constituted a guarantee unlimited to amount, but which concluded with the words "but the amount ultimately payable by the guarantor hereunder shall not exceed the sum of: pounds....." was held to evince an intention by the parties that there should be a guarantee unlimited in amount: Caltex Oil (Aust.) Pty. Limited v. Alderton and Another (1964) 81 NSW WN 297. In the present case the respondent's claim is pleaded as a claim based upon the contract constituted by the written guarantee. No matter is raised by way of defence which denies that the contract between the respondent and the appellant was entirely in writing. On the authority of the Caltex Oil case, the appellant must be taken to have been a party to a written guarantee, unlimited as to amount at the time he became a party to it. The alteration unilaterally restricted that amount to $120,000.

21. Although there is authority to the effect that any alteration which affects the legal effect of a contract in writing, or which alters the rights and obligations of any of the parties, discharges them from their obligations, I think that the better view is that if the alteration by the promisee limits or reduces the liability of the promisor, then it may not be regarded as material for the purpose of permitting the promisor to avoid his or her obligations according to the terms of the contract.

22. In Brunker v. Perpetual Trustee Company (Limited) [1937] HCA 29; (1937) 57 CLR 555, Latham C.J. (dissenting on another aspect) said at p 592:

"If, however, contrary to the view that I have
expressed and to Barker v. Weld (1884) 3 NZLR 104, the
insertion of the reference to the mortgage did alter the
legal effect of the document, the alteration was for the
benefit of the transferor (or his estate). Such an
alteration was held not to be a material alteration in Darcy
and Sharpe's case (1584) 1 Leon 282 (74 ER 257) decided
in 1584, at a time when rules with respect to the effect of
altering a document were very strict indeed."

23. Latham C.J. also referred to Aldous v. Cornwell (1868) LR 3 QB 573 where the Court of Queen's Bench said:

"We are certainly not disposed to lay it down as a
rule of law that the addition of words which cannot possibly
prejudice anyone, destroys the validity of the note."

24. Bray C.J. in Armor Coatings acknowledged the above and also "much authority the other way" and concluded as follows at p 282:

"On the whole, though I admit that the general
current of the authorities is the other way, I do not think
that any authority binding on me prevents
me from following Darcy and Sharpe's case and the opinion of
Sir John Latham, and it is highly desirable, in my view,
that this primitive and arbitrary rule should be confined as
closely as respect for the doctrine of precedent will admit.
If the lender, in a mood of muddled benevolence, alters the
document by substituting $500 for $1,000 as the amount of
the loan, I really do not see why he should lose the whole
of his debt. There is no reason in logic, justice or common
sense why he should. The evil which the rule is designed to
prevent is entirely lacking in such a case. A stricter rule
may be necessary in the case of negotiable instruments to
which, as I have said, special considerations apply, since
they can pass readily from hand to hand. Negotiable
instruments have been the subject of some surprising
decisions: e.g. Suffell v. The Bank of England (1882) 9
QBD 555."

25. So I think it is in the present case. If the insertion of the figure of $120,000 on the part of the respondent had not taken place, then the appellant would have been liable on the face of it to guarantee the principal debt, unlimited as to amount. The fact that the bank caused to be inserted a figure which limited the liability of the guarantor to $120,000 does not, in my view, relieve the appellant from liability under the guarantee.

26. The further argument was raised on behalf of the appellant that the respondent should not be permitted to proceed to summary judgment because it had failed to comply with the provisions of Order 15. Whilst this may have been arguable prior to the amendment brought about by Statutory Instrument No. 273 of 1989 (see Argento v. Cooba Developments Pty. Ltd. (1987) 71 ALR 253), it is not so in the present case. The indorsement on the writ bears the heading "Statement of Claim" and it is what it purports to be, setting out in conventional form the essential allegations necessary to found a claim on a written guarantee, and signed by the solicitors for the plaintiff. The subsequent amendment of the statement of claim pursuant to orders made on 23 November and 7 December 1990 did little more than to bring up to date the amount owing as interest accrued and to give particulars of the rates of interest used to calculate the amount owing. There was no argument that the amendments destroyed the respondent's right to proceed to summary judgment under Order 15 and, in my view, any such argument would have been futile.

27. The appeal is dismissed and the order of the Master of 28 February 1991 is confirmed. The appellant is to pay the respondent's costs.