Deane v City Bank of Sydney [1904] HCA 44; (1904) 2 CLR 198 (19 December 1904)

This is an appeal from a judgment of the Supreme Court of New South Wales refusing to make absolute a rule nisi for a new trial in an action brought by the City Bank of Sydney against Deane and others, sureties under a cash credit bond given to secure an advance to the Burwood Land, Building, and Investment Co., the principal debtors. The question before us arises on an equitable plea in the following words. [His Honor read the plea as set out above.] The evidence offered to prove the agreement consisted of a conversation between the manager of the plaintiff bank and the appellant Deane (who was one of the directors of the company, and its solicitor), followed by a letter written to him the next day by the manager of the bank, together with other circumstances. At the trial before Mr. Justice Owen, His Honor ruled that the alleged agreement was contained in the letter, and refused to leave any question to the jury as to the agreement, holding that it was a matter of law for him to determine. It was contended before the Supreme Court for the defendants that, under the circumstances, the agreement being contained partly in the conversation and partly in the letter, its construction was a question of fact for the jury, and a new trial was asked for on that ground. The learned Judges seem to have differed in opinion somewhat on this point, Darley C.J., and Simpson J., being of opinion that the agreement was contained in the letter only, while Pring J. is reported to have said that the whole evidence of the agreement was to be found in the conversation, and that the letter was immaterial, but that, the terms of the conversation being exactly stated, and uncontradicted, the learned Judge who presided at the trial was right in construing them. He says[1]: "The agreement here having been proved solely by parol evidence, which was not contradicted, I am of opinion that His Honor was right in deciding its meaning as a question of law, and in refusing to leave it to the jury."

Now it is well settled law that, when an agreement is made out by parol evidence, its construction is a matter for the jury, but that if, on the other hand, the agreement is in writing, then it is for the Court, not the jury, to construe it. I cannot help thinking that, although His Honor is reported to have said this, what he really meant was that, if upon the evidence as to a verbal agreement there was nothing to warrant the jury in placing any but one construction upon it, there would be no real question for the jury, and the Judge would be practically bound to treat the construction as a matter of law, and in that sense what he said was quite right. The evidence of the conversation is set out in the judgment of Darley C.J. [His Honor then read from the judgment the conversation as set out above and proceeded]: It is another well known rule of construction, that, when a contract is partly in writing and partly verbal, all the circumstances may be looked at and considered for the purpose of construing the contract, and even to vary the written documents, and the whole matter is one for the jury. In the present case the first question is, what is the agreement? Is it the writing, or the verbal conversation, or is it to be gathered from the conversation and the letter with all the other circumstances? Possibly it was open to the jury to find that the agreement was contained in the writing, but whether it was or not was a preliminary question of fact for the jury to determine on the evidence. If the question were one for this Court, I should be disposed to say that the agreement was contained in both. We think that, upon the evidence, there was material on which the jury could have found either that the plaintiff bank made an agreement for valuable consideration to give further time to the principal debtor, or that it did not. We assume that such an agreement for extension of time in the case of a cash credit bond would be a binding agreement under the rule commonly known as the rule in Rees v. Berrington[2]. The best that can be said in favour of the plaintiff's view is that it was a question of fact. In either view there was a question of fact which should have been left to the jury. So that upon that point it would appear that the defendants are primâ facie entitled to a new trial, to have the question of fact determined by a jury. But that does not conclude the case. Supposing that the question had been left to the jury, and they had found in the defendants' favour (for the defendants are entitled to be placed in the position in which they would have been if that had happened), let us deal with the case on that footing. It is necessary first to look at the plea itself more closely to see whether it affords any defence to the action, or whether, even if the jury had found in his favour on the issue raised, the plaintiff would not have been entitled to judgment, non obstante veredicto. Because, if so, we cannot send the case to a new trial upon an immaterial issue.

The plea is that a binding agreement had been made and executed, giving time to the principal debtor without the knowledge or assent of the sureties, with the consequence of discharging those sureties. The material words of the plea are "without the consent of the defendants and the other sureties." We are told that the defence intended to be set up by that plea was founded on this supposition, that if the creditor gives time to the principal debtor, without the consent of all the sureties, all the sureties are discharged; and from that point of view, evidence was given that one of the sureties did not know of or assent to the giving of time by the bank. The assumption on which this plea was pleaded was that the extension of time granted to the principal debtor without the consent of all the sureties, operates as a discharge even of those sureties who had knowledge of it and assented to it. But there is no such rule. No trace of any such rule is to be found in the books, and, when one considers the principle which is the foundation of the doctrine, it is clear that there cannot be any such rule. The doctrine is nowhere better stated than by Blackburn J. in the case of Polak v. Everett[3]. He says: "It has been established for a very long time, beginning with Rees v. Berrington to the present day, without a single case going to the contrary, that on the principles of equity a surety is discharged when the creditor, without his assent, gives time to the principal debtor, because by so doing he deprives the surety of part of the right he would have had from the mere fact of entering into the suretyship, namely, to use the name of the creditor to sue the principal debtor, and if this right be suspended for a day or an hour, not injuring the surety to the value of one farthing, and even positively benefiting him, nevertheless, by the principles of equity, it is established that this discharges the surety altogether." He then makes some further observations, in which he expresses some disapproval of the rule, but says that it is now too late to alter it. But when the assent of the surety is given, the foundation of the rule is gone. When the giving of time is at the surety's request, how can it be said that he has suffered any injury? That this is the foundation of the rule appears from the words of Lord Loughborough L.C., in the case of Rees v. Berrington[4]: "It is the clearest and most evident equity, not to carry on any transaction without the privity of him who must necessarily have a concern in every transaction with the principal debtor. You cannot keep him bound, and transact his affairs (for they are as much his as your own) without consulting him. You must let him judge, whether he will give that indulgence contrary to the nature of his engagement."

But, when he is consulted as to the proposal to give time and assents to it, he cannot complain; à fortiori when the time is given at his own request. Volenti non fit injuria. Again, it is a settled rule that, even if the extension of time is given without the consent of the surety, but he afterwards assents to it, and promises to pay, his liability revives. The authority for that is the case of Mayhew v. Crickett[5], which was a case of one of two joint sureties. There is therefore neither principle nor authority for the proposition that, when a creditor gives time to the principal debtor at the request of a surety, that surety can complain, or say that he is discharged thereby. So that, taking the plea, and reading it as it was intended, it is clearly bad. If on the other hand, the plea is read distributively that the extension was given to the company without the consent of the sureties severally, there was no evidence of it, because the appellant has proved that the extension was granted at his own request. Therefore, whichever way the plea is construed, the appellant fails, because upon one construction it is a bad plea, and the respondent would be entitled to judgment non obstante veredicto, even if the appellant obtained a verdict; and, upon the other, it is not supported by the evidence, because the appellant's own evidence negatives it.

We are told, however, that this is rather hard on the appellant, because the plea was pleaded in reliance upon the case of the Australian Joint Stock Bank v. Bailey[6]. That was a case in which an instrument of suretyship was altered after execution with the consent of some but not all of the sureties, and the Supreme Court held that the bond was thereby rendered void against them all. That is an entirely different proposition from the one now set up, viz., that one surety, who requests that time be given to the principal debtor, may take advantage of it as discharging himself. That case, therefore, has no bearing upon the present case. Then it was suggested that, if the matter had been left to the jury, or if there were a new trial, it might be possible for the appellant to convince the jury that there was a term to be implied from the conversation (which was given in detail) that it was intended that the original bond should remain in full force as against all the sureties. If it was part of the arrangement that the original bond was so to remain in force, then the rights would be reserved against the sureties, and there would be nothing in the defence, because the sureties were not discharged. If, on the other hand, that was not a term of the agreement, then, whatever the arrangement was, it was made at the request of the defendant, and he cannot take advantage of it as discharging him. So that, from whatever point of view it is regarded, the position of the defendant is hopeless. It was suggested that it might be shown that one term of the agreement was that the bank should obtain the consent of the other sureties to the extension of time. It would be very strange indeed if that should be so, that the bank should agree to ask for the consent of all the sureties to do something which they could have done without their consent, by merely stating that they reserved their rights against the sureties. On all points therefore the defence fails, and we are not justified, after trial, when the plaintiff is clearly entitled, whatever the verdict, to judgment, either for want of evidence for the defendant, or non obstante veredicto, in allowing the whole matter to be re-opened. If the appellant has any equitable defence, it is a different one altogether from that which he has set up. Whether he would be allowed to set it up in a Court of Equity is a matter with which we have no concern here. If he can set it up, he may still do so; if not, it would be for reasons which make it equally unjust for us to allow him to set it up now.

I will add a few words as to the case of Rouse v. Bradford Banking Co. Ltd.[7], on which the Supreme Court relied for the proposition that an agreement to extend the limit of an overdraft for a specified time does not suspend the rights of the creditor and so discharge the sureties. That was a case of an overdraft, but it depended entirely upon its own facts. In that case the overdraft was not secured by a bond. It was a simple contract debt due both by the principal and surety, and the House of Lords found as a fact, upon the terms of the agreement, that it was not an agreement to give time to the debtor. But it does not follow that no such agreement can be made in the case of an overdraft. We have already said that in our opinion the jury might have found on the evidence that there was such an agreement in the present case.

For these reasons we are of opinion that the defendant's appeal fails, and must be dismissed, but, under the circumstances, without costs.

[1] (1904) 4 S.R. (N.S.W.), at p. 196.

[2] 2 Ves., 540; 2 Wh. & T.L.C., 4th ed., 974.

[3] 1 Q.B.D., 669, at p. 673.

[4] 2 Ves., 540, at p. 543.

[5] [1818] EngR 333; 2 Swans., 185.

[6] 18 N.S.W. L.R. (L.), 103.

[7] (1894), A.C., 586.

High Court of Australia

Deane v City Bank of Sydney [1904] HCA 44; (1904) 2 CLR 198 (19 December 1904)

HIGH COURT OF AUSTRALIA