Deane v City Bank of Sydney [1918] HCA 42; (1918) 25 CLR 215 (19 August 1918)

Deane Defendant, Appellant; and The City Bank of Sydney Plaintiffs, Respondents.

This is an action upon a bond given by the appellant to the respondent Bank. The bond was declared on as if it were single—that is, a simple bond without conditions. The sum mentioned in the bond was £9,858, and the sum claimed in the declaration was £6,100 9s. 5d. The only plea set up was the Statute of Limitations, and that plea has not been traversed. The replications were (1) acknowledgment in writing and (2) acknowledgment by part payment on account of the principal money and interest then due on the bond.

No attempt is made to support the first replication. Thus it appears that the respondent Bank's case rests on part payment of the specialty debt within twenty years before the suit, and that but for such payment the suit would be barred.

At the trial it appeared that before October 1894 and up till 30th June 1903 the sums shown in the particulars under the second replication were payments made by the appellant in reduction of the overdraft of his firm with the respondent Bank on the dates set out in those particulars.

Up till 30th June 1903 the appellant was in partnership with his brother William Deane. The business was then disposed of. The original debt of the two brothers, that is, the overdraft, was in existence before the execution of the bond, which is dated 11th October 1894. The advance account or overdraft, kept as such before the bond, was continued as such after its execution, and the accounts show that from some time in 1895 until the close of the account the Bank cashed no cheque for the debtors. In other words, the account was kept open purely in liquidation of the amount overdrawn from the first date mentioned in the account in evidence. On the other hand, there were frequent payments from, at any rate, 1897 on account of principal and interest, and in 1903 there were three payments of £25 each, and in 1905 one payment of £665. It was admitted that the payments were made by the appellant "in reduction of the overdraft of the firm." If these 1903 payments or any of them were part payment of the moneys due on the bond, the second replication was proved at the trial. The contention of the appellant has always been that they were appropriated only to the simple contract debt, and not to the specialty debt. It does not appear to be really disputed for the respondent Bank that all the payments in question were so appropriated by the appellant. The correspondence teems with references on both sides to "the overdraft" or the "overdrawn account," and to payments in reduction of it, though the payments of 1903 are not stated to have been accompanied by letters. Any letters of earlier date than 1894, if there were any such, are not in evidence. No mention is made of this bond, except in a letter from the Bank of 2nd October 1894, which merely purports to forward that document and others for execution. Nor does either the Bank or the firm make reference to the appropriation of any payment to reduction of the principal and interest on the specialty debt, or otherwise than to reduction of the simple contract debt. A verdict was formally entered for the plaintiffs (respondent Bank) in the amount of £6,100 9s. 5d., leave being reserved to the defendant (appellant) to enter a nonsuit or a verdict for him, the Court to be at liberty to draw inferences of fact. The motion made to the Full Court of New South Wales pursuant to leave reserved was dismissed with costs.

The bond was subject to several conditions, but, as I have pointed out, was declared on as if single. The proper course would have been to assign breaches, so that damages as to any condition broken might be assessed. That was not done, and it is more than probable that the appellant would be entitled, leaving the judgment to stand, to have the verdict set aside, so that the way might be opened for such assessment. But I think the appellant's rights go much further than that.

The view which commended itself to the Supreme Court was that every payment into the Bank to the credit of the account of the appellant and his partner with the Bank reduced not merely the overdraft but also their liability upon the bond. There is no doubt that when a bond secures a debt previously existing only as a simple contract debt the latter will merge in the specialty, provided that the parties are identical and that the specialty and the simple contract debt and the remedies on both are coextensive, and of course that no contrary intention is expressed. See Halsbury's Laws of England, vol. iii., art. 183, and cases there cited; also Ansell v. Baker[1]. But I do not think that there is a merger in this case, or that this simple contract debt is capable of merging into this specialty. The two contracts differ distinctly in their terms. The debt on the overdraft was joint. The debt on the specialty was joint and several. Thus the remedies available differed. For instance, no action could have been taken on the simple contract debt against one only of the debtors, but on the specialty action could have been taken against either or both. Moreover, to illustrate the inapplicability of the doctrine here, suppose that Henry Deane had died after the execution of the bond, say in 1895. The previously joint liability would have passed to William Deane as survivor, but the several liability of Henry Deane would have devolved on his personal representatives. If it were the case that the merely joint simple contract had been merged in the joint and several specialty, then Henry Deane's estate would have been subject to a liability from which the simple contract left it free. Then, if there is no merger, the appellant is perfectly entitled to say that a payment by the partners expressly with relation to the joint debt by simple contract cannot be claimed, at any rate without more shown, as applicable to the specialty debt so as to expose him to an added burden. I think, indeed, there was actual consent to the appropriations to the overdraft. Even if that were not so, surely the maxim applies, Quicquid solvitur, solvitur secundum modum solventis, and the debtor who makes the payment is entitled to say that his express appropriation of it to the joint simple contract debt cannot, against his consent, be changed into a payment on account of the joint and several specialty debt. More clearly is this the case, because the debt on the overdraft could become statute-barred at the end of six years, while that on the specialty could run for twenty years from the accrual of the cause of action before encountering any such bar. The money advanced may be the same, but the debtor was and is entitled to say:—"I applied my part payment, as I told you, to debt A, and I adhere to that. You cannot apply it to debt B so as to give yourself an action against me singly, and not only that, to give you fourteen years longer to sleep on your rights."

Holding that view, I do not think that the payments in question are evidence in support of the second replication so as to give a new cause of action on the bond. As that reply fails the respondent Bank, the plea is proved, and the action barred.

There are other points applicable to the pleadings and, perhaps, the evidence, but I think that to which I have addressed myself is by itself conclusive of the case.

I am of opinion, therefore, that the appellant should have succeeded in his motion before the Supreme Court, that their order should be discharged, and that the judgment at the trial should be set aside and a verdict entered for the appellant.

This case is nominally an action by the City Bank of Sydney against Henry Deane to recover £6,100 9s. 5d. on a bond. In reality, however, the Bank has no interest whatever in the action, and would not receive a penny of the verdict now standing for the full amount claimed. The sum referred to is the balance of an account current which was owing to the Bank by Henry Deane and his partner William Deane. William became bankrupt in May 1905, and in January 1914 one Sampson Palmer purchased from the Bank all its interest in the bankrupt estate. His learned counsel informed us at the Bar that the bond now sued on was assigned by the Bank to Sampson Palmer for the sum of £10. Palmer is a clerk in the employ of the solicitor for the official assignee of William Deane. The question really is whether he had made an extremely lucky speculation or has lost £10.

It is manifestly a case where the Court is not called upon to display any indulgence to either party, but to hold both not only to their strict rights as the law requires but also to the precise procedure they have respectively followed in the course of the case. We apply this observation to the appellant with respect to his contention that the procedure of finding a verdict for a definite sum at this stage is wrong. He did not dissent from that course at the trial, and he must abide by his conduct of the case there. We apply it to the respondent by adhering strictly to the pleadings.

As to the merits, the bond was executed in October 1894 by the appellant and his brother William, who were then in partnership and had a joint account current at the Bank in respect of which they were heavily indebted. The circumstances leading up to the execution of the bond are not before us, nor does the evidence state the amount that was actually owing at the time the bond was given. It was undoubtedly heavy, nearly £6,000 at least. The earliest date we have in respect of the account current is 30th June 1895, when a balance was owing to the Bank of £5,594 16s. It is not contested that the liability of the two Deanes was primarily a simple contract liability as an ordinary banking account, and that it did not merge in the bond. From June 1895 the account has not been operative in any extensive way. The Bank charged half-yearly interest regularly down to 31st December 1905; it has regularly brought down the accumulated half-yearly balance and charged the banking fee for keeping the account as an ordinary banking account down to the end of 1903. Though a small item, the charge of the fee shows unmistakably that the account was regarded as on the footing of an ordinary simple contract. On the other hand, the fact that the charge stopped at the end of 1903 indicates that the Bank henceforth regarded it as a dead account except for interest and maintenance and realization of securities. Even interest ceased to be charged after 15th May 1905, the date of William Deane's sequestration. Except for possible realization the Bank apparently considered the liability as a bad debt after May 1905. On the other side of the account stand amounts paid in at various times. From 1897 to 1903, inclusive, various sums were paid off, and the pressure upon the firm by the Bank to make these payments can be seen in the correspondence. In November 1905—that is, after the bankruptcy of William—the appellant, Henry Deane, directed £655, the proceeds of some land at Lavender Bay, to be paid in to the credit of the account. The land was then held as security for the joint indebtedness.

Looking at the circumstances as they appear, it is clear that the bond was taken, not as destroying the nature of the banking account, but as security for the existing indebtedness of the firm and for any further advances to and payments for the firm, and as giving, if needed, a more convenient remedy. It was something which the Bank held in reserve. The bond resembled a bond given in a cash credit banking transaction, but the facts do not enable us definitely to say whether any cash credit was actually established. Judging by the appearance of the account, we should think not.

In any event, two distinct obligations existed. One a simple contract debt, in respect of which Henry and William were jointly liable, the remedy for which could be barred in six years, and which, if sued upon, must be strictly proved unless admitted; the other a specialty debt, of a joint and several nature, of a nominal amount of £9,858, probably far in excess of the actual indebtedness of the firm, though we are left in doubt how it was arrived at, an obligation requiring twenty years' limitation, and containing a very special provision in its third condition, making, at the option of the Bank, strict proof unnecessary. That the two sets of legal relations were in law distinct is apparent from such cases as Henniker v. Wigg[2] and Swan v. Blair[3]. It is trite law that originally at common law the full amount of the bond was recoverable on breach of condition and nothing further. Then equity interposed, and on the one hand restrained the obligee from recovering more than the sum intended to be secured, and on the other hand allowed in certain circumstances a sum larger than the amount of the bond to be recovered (Grant v. Grant[4]). The two obligations are thus entirely distinct in law. Statutes have now rendered equitable interposition unnecessary in the former case. It is also clear that the Bank thought the two obligations distinct, because in February 1914, that is, after the assignment of the bond to Sampson Palmer, the Bank proved in the estate of William Deane for £6,114 2s. 4d., but without reference to the bond. This would probably have been in the interests and under the direction of Sampson Palmer, because he had purchased the Bank's interest in the bankrupt estate in the preceding month. In those proceedings it was stated that the Bank still held security worth £20. Therefore the bond debt sold for £10 could not have included the current account, which was worth admittedly more to keep. The two debts, being in law distinct, were thus apparently kept distinct by the Bank and by Sampson Palmer.

The declaration and issues in this case resulted in a specific claim for £6,100 9s. 5d. The only plea was that the cause of action did not accrue within twenty years before suit. It is a fact, though a singular one, that this plea is not traversed. The fact alleged is admitted, because undenied. Whatever may be said of the first two conditions of the bond, the third is a distinct condition, the obligation of which expressly arises on demand. As to the Statute of Limitations, the only replication was that the Statute was avoided by acknowledgments in writing and by part payment. By the admission that the Statute, if not so avoided, is an answer, the plaintiff is bound, notwithstanding the incongruity of dates and the effect of the third condition. It remains only to see whether the plaintiff's replications were proved. The Supreme Court thought they were proved, because the simple contract debt and the specialty debt were one. As to acknowledgment in writing, it is clear the correspondence relied on refers only to the account current. As to payment, it is equally clear, and is not really denied, that the payments were made in respect of the account current. On what principle can they be attributed to the bond? We do not lose sight of the observations of Erle J. in Walker v. Butler[5], followed in Friend v. Young[6] and In re Boswell; Merritt v. Boswell[7]. Speaking of the appropriation of a payment where there are two debts, Erle J. says:—"It must depend upon the special circumstances of each case. In general, there would be evidence to go to the jury of a payment on account of both debts." We have considered the special circumstances of this case, and having regard to the terms of the communications asking for reduction of the account current, to the method of payment, the way in which the £665 was obtained, and the distinct and relative natures of the two debts (particularly the third condition of the bond), and the documents and accounts in evidence, we are unable to conclude, or to find as a fact, that any of these payments were intended by either of the parties as made under the bond.

It was considered by the Supreme Court that unless the two obligations are regarded as one, and the payments made in direct reference to simple contract debt are considered as also made in relation to the specialty debt, banking operations would be hampered. When the position is examined, that would not appear to follow either under the terms of this particular bond or as a practice. There are three conditions to the bond. The first binds the obligors to pay all future advances and past advances; the second requires the obligors to indemnify the Bank; and the third requires the obligors to pay on delivered demand, not the moneys actually advanced as in the other conditions and as they are advanced, but the balance of the account current as it stands in the Bank's books at the time the demand is made. It is clear that whatever might be said of the first two—and certainly the second is doubtful—the cause of action under the third cannot arise until demand is actually made. (See Sicklemore v. Thistleton[8]; In re Tidd[9]; and also In re Brown's Estate; Brown v. Brown[10], which was distinguished in Commercial Bank of Australia v. Colonial Finance, Mortgage, Investment and Guarantee Corporation[11].) Demand here was stipulated for as to the third condition. The prior conditions may possibly have been broken directly the deed was executed as to the amount then owing, and directly any future advance or payment took place as to that advance or payment. But as to the third condition, it could not be broken until demand made and uncomplied with. The Bank was perfectly safe without confusing the two obligations. However, admission of the plea admits all necessary facts to support it. In the result, the plaintiff has failed to prove any acknowledgment of the bond, either in writing or by payment on the footing of the bond, as distinguished from the account current. Sec. 41 of the Act 5 Vict. No. 9 requires, as to a specialty debt, that the acknowledgment by part payment shall be "on account of the principal or interest due thereon," that is, on the bond. The plaintiff has failed to show that this was complied with.

The reservation included liberty to the Court to draw inferences of fact, and the proper inference here, on the meagre evidence adduced, is that the part payments were in respect of the simple contract debt, and were not made in the capacity of obligors of the bond.

The judgment should therefore be reversed, and a verdict entered for the defendant.

Appeal allowed. Order appealed from discharged. Verdict for the plaintiffs set aside and verdict entered for the defendant. Respondents to pay costs throughout.

[1] 15 Q.B., 20.

[2] 4 Q.B., 792.

[3] [1835] EngR 147; 3 Cl. & Fin., 610, particularly at pp. 635, 636.

[4] 3 Russ., 598; 3 Sim., 340.

[5] [1856] EngR 536; 6 El. & Bl., 506, at p. 510.

[6] (1897) 2 Ch., 421, at p. 435.

[7] (1906) 2 Ch., 359, at p. 366.

[8] [1817] EngR 235; 6 M. & S., 9.

[9] (1893) 3 Ch., 154.

[10] (1893) 2 Ch., 300.

[11] [1906] HCA 30; 4 C.L.R., 57, at p. 65.

High Court of Australia

Deane v City Bank of Sydney [1918] HCA 42; (1918) 25 CLR 215 (19 August 1918)

HIGH COURT OF AUSTRALIA