Smith v Motor Discounts Ltd [1935] HCA 69; (1935) 54 CLR 107 (31 October 1935)

HIGH COURT OF AUSTRALIA

Smith Defendant, Appellant; and Motor Discounts Limited Plaintiff, Respondent.

H C of A

On appeal from the Supreme Court of New South Wales.

31 October 1935

Rich, Starke, Dixon, Evatt and McTiernan JJ.

Weston K.C. (with him Gain), for the appellant.

Roper, for the respondent.

Weston K.C., in reply.

The following written judgments were delivered:—

Oct. 31

Rich, Dixon, Evatt and McTiernan JJ.

By the judgment under appeal the Supreme Court of New South Wales, consisting of Davidson and Milner Stephen JJ. and Markell A.J., placed upon the Moratorium Act 1932 an interpretation which revived the personal liability of the mortgagor upon a limited class of instruments. Sec. 25 (7) of the Moratorium Act 1930-1931 (as amended by Act No. 66 of 1931) invalidated covenants, agreements or stipulations by a mortgagor for the payment of any mortgage moneys secured by a mortgage of real property, not only when the covenant, agreement or stipulation was contained in the mortgage, but also when it was contained in some other instrument.

In the opinion of their Honors, the effect of the Act of 1932 is again to validate the latter covenants, agreements and stipulations, viz., those contained, not in the mortgage of real property, but in some other instrument.

By sec. 3 of the Moratorium Act 1932, the earlier enactment is repealed. But sec. 3 expressly provides that the repeal shall not, unless the contrary intention appears, affect accrued rights and obligations, and that its so providing shall not be taken to limit any saving in the Interpretation Act of 1897. It is clear that sec. 8 of the Interpretation Act operates to continue the invalidity of covenants invalidated by the repealed legislation, except in so far as an intention to the contrary appears in the Act of 1932. Their Honors, however, found, to the extent stated, such a contrary intention. The provisions of the Act of 1932 in which the intention to revive collateral covenants was so found are secs. 8, 9 and 34. Davidson J. relied rather on secs. 8 and 9, and Milner Stephen J. on sec. 34. We are unable to agree in the opinion that these sections, or any others in the statute, disclose an intention to revive without any act of the parties the personal liability of a mortgagor upon a collateral covenant given by him for repayment of the mortgage moneys.

It is convenient, before dealing with the reasoning which commended itself to their Honors, to state what appears to us to be the effect of the provisions upon which the question depends. Sec. 9 is one of the chief provisions of Division I. of Part II. of the Act. That Part was meant to continue in force only for a limited time (sec. 49). Its general purpose is to impose a control upon the pursuit of the remedies which are available to a creditor under mortgages of real or personal property, under contracts of sale of land, under hire-purchase agreements and under judgments. It deals both with personal and proprietary remedies. Division I. relates to mortgages and to contracts of sale of land. Sec. 9 (1) provides that a mortgagee shall not without leave of the Court exercise any of the rights, powers or remedies expressly or impliedly given to him by the mortgage against the mortgagor or the mortgaged property for the recovery of the moneys secured by the mortgage or for the enforcement or realization of the security. The provision assumes the existence of the remedies to which it refers and proceeds to control them. It applies alike to mortgages given before the Act and those afterwards. It applies to mortgages of real property and mortgages of personal property. The assumption that the personal and proprietary remedies to which it refers exist within this large area of operation is, of course, well founded. But this does not mean that in every case within the operation of the section all such remedies exist, or that it assumes they do. If they exist, they are controlled. But their existence is entirely independent of the section. It depends upon the general law, including the other provisions of the moratorium legislation.

Sec. 8 contains a list of transactions which it excepts from the operation of the Part. The reasons for excluding them from the application of its provisions vary in the different cases. Par. a of sec. 8 excepts, among other transactions, mortgages executed after the enactment of the Moratorium Act, No. 48 of 1930, and before that of No. 43 of 1931, if the mortgages contained a covenant excluding the operation of the Moratorium Act, and had not, in the meantime, been declared invalid. The reason for this exemption is that contracting out of the operation of Act No. 48 of 1930 was permitted until the passing of Act No. 43 of 1931, which put an end to it for the future, and, as to past transactions, empowered the Court upon an application made within six months to declare void the clause excluding the operation of the Moratorium Act.

At the time of the passing of the Act of 1932, mortgages which fell within this category, whether of real or personal property, were effectual to give to the mortgagees whatever remedies against the mortgaged property the general law, apart from the Act, attached to the transaction, and, in the case of mortgages of chattels personal, whatever remedies existed under the general law against the mortgagor personally. But, in the case of mortgages of land, sec. 25 (7) and (8) had in the meantime annihilated the personal covenant. These sub-sections were introduced by Act No. 66 of 1931 and were expressed to apply notwithstanding anything in the Moratorium Act or any other Act. Sub-sec. 3 of sec. 25 had already made that section apply to all mortgages of real property whenever executed and notwithstanding any stipulation to the contrary. In spite of an argument advanced upon this appeal to the effect that no part of sec. 25 could apply to mortgages excluded by sec. 13 (1) (a) of the Moratorium Act 1930-1931 from its operation, it appears to be clear that sub-sec. 7 of sec. 25, by its force as a later inconsistent enactment, invalidated covenants contained in such mortgages. It follows that covenants, agreements or stipulations by a mortgagor for the repayment of any mortgage moneys secured by a mortgage of real property were, at the time of the passing of the Act of 1932, void, notwithstanding that the mortgage was executed between the passing of Act No. 48 of 1930 and the passing of Act No. 43 of 1931 and contained a clause excluding the operation of the Moratorium Act. In continuing the exclusion of such mortgages from the operation of the provisions controlling remedies and affecting times and payment and of similar provisions which are now contained in Part II. of the Act of 1932, sec. 8 (a) of that Act appears to intend no more than to leave mortgages executed during the period between the two Acts in the same position as it found them.

Sec. 34 of the Act of 1932 is the leading provision of Part III., which relates to the "Liability of Mortgagors of Land." Sub-sec. 1 of sec. 34 relates to the personal remedy for the recovery of moneys secured by a mortgage of land executed before the commencement of the Act of 1932. Sub-sec. 2 relates to the personal remedy for the payment by a mortgagor of principal moneys secured by a mortgage of land executed after the commencement of the Act. Sub-sec. 1 provides that no proceeding shall be brought for the payment by the mortgagor of such moneys, unless he has confirmed the covenant by an instrument under hand indorsed with a certificate of his knowledge and approval fulfilling certain requirements specified by sub-sec. 3. Sub-sec. 2 provides that no such proceeding shall be brought on a covenant given after the passing of the Act, unless the covenant is express and there is a similar certificate. The validity of covenants given after the Acts depends, of course, only upon the general law. But covenants given before the Act of the description covered by sub-sec. 1 were, until it was passed, invalid. Thus sub-sec. 1, if it stood alone, would impose conditions on the bringing of proceedings upon covenants, although, in any event, they were unenforceable and void. But it does not stand alone; for sub-sec. 4 provides that any covenant or agreement so confirmed and evidenced as in sub-sec. 3 of that section provided shall be as valid and effectual as if sub-sec. 7 of sec. 25 of the Moratorium Act had not been enacted. Thus the validity of the covenant is re-established by confirmation duly certified, and, at the same time, the obligation it expresses becomes actionable, subject to the requirement that the leave of the Court to proceed is obtained in cases which are not excepted from sec. 9 by par. a of sec. 8 or otherwise.

The avoidance of the personal liability which sec. 25 (7) of the repealed Moratorium Act worked did not affect the mortgagee's rights, powers and remedies against the mortgaged property, and that Act was so expressed. No doubt for greater precaution, a similar qualification is made of the requirement contained in sub-sec. 1 of sec. 34 that antecedent covenants shall be confirmed and certified. The qualification is expressed in par. a of sub-sec. 5.

The language of sub-sec. 1 and of sub-sec. 2, although not identical, is wide enough in each case to cover collateral securities, covenants, agreements and stipulations not contained in the mortgage of land. But apparently it was not desired to make certification a condition precedent to recovery upon obligations expressed in instruments collateral to the mortgage. Par. b of sub-sec. 5 of sec. 34 prevents that result. It provides that nothing in the section shall in any way affect any of the rights, powers, or remedies of a mortgagee upon any security for the payment of money other than a mortgage of land and whether collateral thereto or not. The form in which this provision is expressed has, however, another result which may not have been foreseen. It prevents sub-sec. 4 operating to validate obligations arising from instruments collateral to a mortgage of land. Confirmation and certification of a collateral instrument cannot revive the obligations arising from it, nor can they be revived by confirmation and certification of the mortgage itself. For nothing in sec. 34 is in any way to affect the rights or remedies of a mortgagee upon such a security for the payment of money. This seems anomalous, or, at any rate, asymmetrical.

Possibly the Legislature considered that, in all the complications of collateral obligations, it was better, for good or ill, to leave them untouched by the new legislation. Antecedent collateral obligations might thus remain void, but subsequent collateral obligations would be unaffected by any of the statutes. When a mortgagor is minded to confirm his personal covenant in the mortgage, there is not much inconvenience in his also executing a new collateral security, if it is desired that he should again become liable on an additional obligation not contained in the mortgage.

More probably, however, the matter was simply not adverted to.

Sec. 35 deals separately with guarantees and restores the liability upon them which sec. 25 (7) had annihilated. It does so by requiring that sec. 25 (7) shall be construed as if the word "mortgagor" in the sub-section did not include a person who has guaranteed the payment of money, even although the guarantee itself is secured by mortgage.

In this legislative scheme, we find nothing evidencing an intention contrary to the effect which sec. 8 of the Interpretation Act of 1897 would produce, viz., preventing a restoration of the personal liability upon covenants and agreements invalidated by sec. 25 (7) of the repealed Act.

On the other hand, the provisions contain strong confirmation of the intention that the personal liability should not be revived except when, in particular circumstances, the repealing Act expressly so provides. Thus, sub-sec. 4 specifically restores the covenant when there has been a confirmation and certification under sub-sec. 1; sub-sec. 6 expressly excludes from the application of sec. 25 of the repealed Act some specified classes of obligations, of which one is the obligation to a holder in due course of a negotiable instrument; sub-sec. 7 excludes its application in cases of bankruptcy, insolvency and winding up. Again, the express exclusion of guarantees from the operation of sec. 25 (7) would be quite unnecessary if rehabilitation of the personal obligation of collateral covenants was otherwise accomplished.

The reasoning which led Davidson J. to the conclusion that liability upon the personal covenant was revived was founded upon the provisions of sec. 8 (a) and sec. 9 (1) considered in combination. His Honor thought that these provisions treated the personal covenants in mortgages as effective for all purposes, including the right to sue for payment, as well as to proceed against the land; that they enabled a mortgagee, no matter when his mortgage was executed, to apply to the Court for leave to exercise his personal remedy, and, in the case of mortgages falling within sec. 8 (a), to pursue those remedies without leave. In this view, his Honor thought that the covenant could not but be revived and sec. 34 must, accordingly, be read as dealing only with proceedings and not as defining when liability should be revived; sub-sec. 5 (b) being no more than precautionary. The basis upon which this interpretation evidently rests is his Honor's view of the scope and effect of the exemption by sec. 8 (a) of mortgages executed between the respective dates of the enactment of the first and second Moratorium Acts, if they be expressed to exclude the operation of the legislation. His Honor impliedly adopts the view that this exemption is directed at the control, which sec. 9 would otherwise exert, of the liability of the mortgagor upon his personal covenant. But this does not appear to us to be a correct explanation of sec. 8 (a). It is true that sec. 9 includes the personal remedy. But it includes all remedies, personal or proprietary, upon all mortgages, whether of realty or of personalty and whenever made. The exemption in sec. 8 (a) is from the entire application of the Act, not merely from sec. 9. The scope of sec. 8 (a) is to give an immunity from all the restrictions which otherwise would apply. The scope of sec. 9 is to restrict all mortgage remedies which otherwise are available. The provisions are not pointed at personal covenants in mortgages of real property given between the dates of the commencement of the two earlier Acts. No inference arises that such covenants were regarded as necessarily efficacious.

Milner Stephen J. founded his opinion altogether upon the exhaustive nature which he attributed to the provisions of sec. 34. His Honor considered those provisions to amount to a complete code. So considering them, he could find no useful effect for the detailed provisions contained in sub-sec. 1 for immunity from action upon covenants, unless those covenants in themselves were no longer void. In our opinion the answer to his Honor's difficulty lies in sub-sec. 4, which expressly rehabilitates and gives validity to covenants confirmed and certified under sub-sec. 1. We cannot agree that sub-sec. 4 should be read as preserving the effect of covenants executed during the operation of Act No. 66 of 1931. It revives and restores their validity. It would be needless for it to do so if they were otherwise validated. It is precisely because they would remain void, that it makes them valid when the requirements of sub-sec. 1 have been complied with.

Markell A.J. gave no separate reasons, but concurred in the judgment of Davidson J.

For the reasons we have given we think that the personal obligation of a mortgagor arising under instruments collateral to a mortgage of real property is not revived by the Moratorium Act 1932. This is the only ground upon which the Supreme Court upheld the demurrer to the appellant's plea.

But the respondent has attempted to support the judgment appealed from on other grounds. The most formidable of these is that the plea fails to allege enough to bring the covenant sued upon within the operation of sec. 25 (7) of the repealed Act as modified by sec. 35 (1) of the repealing Act. The modification excludes guarantors from the ambit of the invalidating provision. The plea must, therefore, show that the defendant is a mortgagor other than a guarantor. The instrument sued upon is, as appears from the plea, a collateral security given by the defendant for payment of mortgage moneys secured by a mortgage given by himself and two others, of whom he alone undertook a personal liability. The plea is in many respects unsatisfactory, but it is not disputed that it should be understood as alleging that both instruments related to the same sum of money. The instrument sued upon is, however, expressed as a guarantee; a guarantee of the payment of money "paid to The Picton Lakes Village T.B. Settlement." The question is whether it appears from the plea that no primary or principal liability was incurred by "The Picton Lakes Village T.B. Settlement" and consequently that the so-called guarantee was only an additional obligation on the part of the obligor to pay his own debt due upon the mortgage. The plea alleges that, at the time of the execution of the documents, there was no person or persons, or no entity juristic or otherwise, known as "The Picton Lakes Village T.B. Settlement." It also alleges that the documents were executed in pursuance of an agreement to lend the money to the defendant appellant and the two other persons, and that the agreement was that, of them, he alone should incur a personal liability. These allegations are inconsistent with the existence of a primary liability elsewhere than in the defendant, because they make the loan one to him and his associates to the exclusion of anybody intended to be represented by the expression "The Picton Lakes Village T.B. Settlement," and of any other body.

In spite of its unsatisfactory nature, the plea upon demurrer is enough to take the covenant sued upon out of the qualification of sec. 25 (7) of the Act of 1930-1931 introduced by sec. 35 (1) of the Act of 1932. It was argued, however, that nevertheless the covenant did not fall within sec. 25 (7), because it was not given by the defendant in his character of mortgagor. This argument is somewhat elusive, because it substitutes the indefinite expression "character of a mortgagor" for the exact words of the invalidating provision. The transaction clearly falls within the fair meaning of those words.

The appeal should be allowed.

The judgment of the Supreme Court should be discharged and in lieu thereof the demurrer should be overruled.

Starke J.

The plaintiff, Motor Discounts Ltd.—the respondent here—sought in this action to recover from the defendant—the appellant here—certain moneys upon a covenant contained in an indenture dated 10th July 1931. The indenture was set out verbatim in the declaration, and according to its terms as so set out the appellant was called surety and the respondent mortgagee, and the consideration recited was the sum of £2,100, paid at the request of the surety to the Picton Lakes Village T.B. Settlement by the mortgagee, and the provisions of the Moratorium Act were excluded.

The substance of the first plea to the declaration was that the respondent agreed to lend the appellant and others certain moneys to be secured by a mortgage of real property containing a personal covenant, on the part of the appellant alone, and the covenant set forth in the indenture, and that the mortgage dated 7th July 1931 set out in the plea, and the indenture set out in the declaration, were executed pursuant to this agreement and not otherwise, and that there was no person or persons, or no entity juristic or otherwise, known as Picton Lakes Village T.B. Settlement. The plaintiff demurred to this plea, and the Supreme Court of New South Wales gave judgment in its favour. Hence this appeal.

The questions involved depend upon the construction of some confused legislation in New South Wales known as the Moratorium Acts 1930-1931 and 1932. The Moratorium and Interest Reduction (Amendment) Act, 1931, No. 66, sec. 4, enacted—without any provision for compensation whatever—that all covenants, agreements and stipulations by a mortgagor for the payment or repayment of any moneys secured by a mortgage of real property should, except for the purpose of enabling a mortgagee to exercise all or any of his rights against the mortgaged property, be void and of no effect for any purpose whatsoever. The section applies to all mortgages of real property, whether executed before or after the commencement of the Moratorium Act and notwithstanding any stipulation to the contrary (Act, 1931, No. 43, sec. 25 (3)). The definitions of mortgage and mortgagor are very wide (see Act, 1930, No. 48, sec. 2) and make it plain that the covenant or stipulation to pay, in the indenture declared upon, is a covenant or stipulation by a mortgagor for the payment of moneys secured by a mortgage of real property. It was urged that the covenant was not given by the mortgagor in his character of, or as, a mortgagor, but it is enough to say that the Act avoids covenants and stipulations by a person who is a mortgagor; therefore the covenant in the indenture is prima facie avoided by the Act. But several arguments have been advanced in opposition to this conclusion.

Firstly, that the provisions of sec. 13 of the Moratorium Act, 1930, No. 48, exclude from the operation of the Act a mortgage executed after 19th December 1930, if it contains a covenant expressly excluding the provisions of the Act. But the provisions of the Acts of 1931, Nos. 43 and 66, sec. 25 (3) and (7), are later than the Act of 1930, and explicitly provide for the avoidance of covenants and stipulations notwithstanding anything in any other Act contained.

Secondly, that the Moratorium Act 1930-1931, and sec. 4 of the Act, 1931, No. 66, avoiding covenants and stipulations for payment of money secured by a mortgage of real property, have been repealed by the Moratorium Act, 1932, No. 57, sec. 3. But the Interpretation Act, No. 4 of 1897, of New South Wales, sec. 8 (a), provides that where an Act repeals, in the whole or in part, a former Act, then, unless the contrary intention appears, the repeal shall not affect the previous operation of an enactment so repealed. The repeal of the Act of 1930-1931 cannot, therefore, revive the covenant or stipulation in the indenture sued upon.

Thirdly, that the Moratorium Act, No. 57 of 1932, sec. 35, provides that the word "mortgagor" in the provision (sec. 25 (7), No. 66 of 1931) avoiding covenants and stipulations for the payment of moneys secured by mortgages of real property shall not include a person who has guaranteed the payment of any money, notwithstanding that the payment of such money is secured by a mortgage as defined by the Act. But, despite the form of the indenture declared upon, the plea sufficiently alleges that the covenant or promise of the appellant is not by way of guarantee. A guarantee is a collateral contract postulating the principal liability of another (Rowlatt on Principal and Surety, 2nd ed. (1926), p. 1). The plea in this case excludes the liability of any other person, and alleges that the appellant's obligation is not founded upon the liability of another but upon his own debt or liability.

Lastly, it was contended that though the mere repeal of an Act does not affect the previous operation of the Act so repealed, yet it is otherwise where a contrary intention is expressed in the repealing Act, and that this is done in the Moratorium Act, No. 57 of 1932. Doubtless, in some of the provisions of that Act such an intention is expressed. Thus covenants and agreements falling within the earlier provisions of sec. 34, confirmed and evidenced in the manner required by that section, are as valid and effectual as if the provisions in the Act of 1931 avoiding covenants and stipulations for the payment of moneys secured by a mortgage of real property had not been enacted. But these provisions of sec. 34 do not cover the present case, for it is not alleged that the mortgage or indenture declared upon has been confirmed and evidenced in the manner required. However, it was argued that the provisions of sub-sec. 5 (b) of sec. 34 recognize and restore by implication the obligation created by such documents as the indenture declared upon in this case: "Nothing in this section contained shall in any way affect ... any of the rights, powers, or remedies of a mortgagee upon any security for the payment of money other than a mortgage of land and whether collateral thereto or not, and whether such security gives a charge over property or not." But the sub-section does not create or revive any right; it only preserves rights, powers or remedies that exist under such securities free from the restriction on the rights of mortgagees imposed under the earlier provisions of sec. 34. An obligation that has been avoided under sec. 25 (7) of the Moratorium Act 1931 does not exist, and gains nothing in effect from the provision contained in sub-sec. 5. Again, secs. 8 and 9 of the Moratorium Act, No. 57 of 1932, were relied upon. But sec. 9 only limits the exercise of rights, powers or remedies on the part of the mortgagee. It creates no rights, and revives no rights; it operates upon rights that exist and are recognized in law. An obligation that is avoided is no right. Sec. 8 withdraws certain transactions from the operation of Part II. of the Act. But it does not create any right or revive any right that has been destroyed; indeed, the final words of par. a of the section give no little support to this view. Finally it was urged that the repeal of the Act of 1930-1931 and the substitution of a new set of provisions—a complete code, it was called—regulating the rights of mortgagors and mortgagees operated as the expression of a general intent to restore rights that had been destroyed by the repealed legislation. But legislative intent can only be gathered from what the Legislature has chosen to enact, either in express words or by reasonable and necessary implication. The Act No. 57 of 1932 explicitly states the legislative intent, as in sec. 34, and beyond the intent so expressed the Courts cannot go.

In my opinion the result is that the appeal should be allowed.

Appeal allowed with costs. Demurrer overruled.

Solicitor for the appellant, F. P. Donohoe.

Solicitor for the respondent, R. S. B. Sillar.