Consolidated Trust Co Ltd v Naylor [1936] HCA 33; (1936) 55 CLR 423 (12 August 1936)

Consolidated Trust Company Limited Plaintiff, Appellant; and Naylor Defendant, Respondent.

The questions in this appeal arise upon demurrer. The declaration alleges that King William Mansions Ltd. executed a memorandum of mortgage, which was registered under the provisions of the Real Property Act 1900 of New South Wales, whereby it mortgaged certain lands to Charles Clarence Gale to secure a sum of £2,000 with interest thereon, that the respondent Naylor, for valuable consideration, in and by the memorandum guaranteed Gale the repayment of the moneys, that the mortgage was duly transferred to the appellant by a transfer, and that he is now registered as the proprietor thereof. The appellant's claim is against the respondent upon his guarantee contained in the mortgage, and is founded upon the provisions of secs. 51 and 52 (1) of the Act. The former section provides: "Upon the registration of any transfer, the estate or interest of the transferor as set forth in such instrument, with all rights powers and privileges thereto belonging or appertaining, shall pass to the transferee, and such transferee shall thereupon become subject to and liable for all and every the same requirements and liabilities to which he would have been subject and liable if named in such instrument originally as mortgagee, encumbrancee, or lessee, of such land, estate, or interest." The latter provision declares: "By virtue of every such transfer, the right to sue upon any memorandum of mortgage or other instrument and to recover any debt, sum of money, annuity, or damages thereunder (notwithstanding the same may be deemed or held to constitute a chose in action), and all interest in any such debt, sum of money, annuity, or damages shall be transferred so as to vest the same at law as well as in equity in the transferee thereof." The purpose of these provisions is to transfer the mortgage security and the rights, powers and privileges relating to the debt secured by the mortgage. But the provisions do not, I think, extend to collateral obligations, such as guarantees, given by strangers to the mortgage transaction. Measures v. McFadyen[1] supports this conclusion.

Another count of the declaration alleges a mortgage by deed, of land, by King William Mansions Ltd., to Gale to secure certain moneys, and interest, and a guarantee contained therein on the part of the respondent Naylor. It is not alleged that the land is under, or that the mortgage is registered under, the Real Property Act; it is a mortgage of land operating under the general law. But the count goes on to allege that the mortgage was by an indorsement thereon duly transferred to the plaintiff (the appellant), and that the indorsement was in the words and figures following: "In consideration of the sum of One thousand seven hundred and fifty pounds paid to me by Consolidated Trust Company Limited, a company duly incorporated and having its registered office at No. 26 Hunter Street, Sydney (the receipt whereof is hereby acknowledged) I hereby assign unto the said Consolidated Trust Company Limited all moneys secured by the within written mortgage and all my rights powers and remedies thereunder and all my estate and interest in the land therein described." This indorsement follows the form in the fifth schedule of the Conveyancing Act 1919 of New South Wales, which is allowed by sec. 91 of that Act, and its effect is stated in sub-sec. 4 of that section: "Every such memorandum of transfer shall operate as a deed of assignment of the mortgage debt, and as a deed of conveyance of the estate and interest of the mortgagee of and in the mortgaged property, and shall vest the debt and estate and interest in the assignee, together with all the rights, powers, and remedies of the mortgagee expressed or implied in the mortgage." But here again, the purpose of the Act is to convey the estate or interest mortgaged, and all the rights, powers, and remedies in relation to the debt secured by the mortgage. The provision does not, any more than does the Real Property Act, extend to collateral obligations, such as guarantees, given by strangers to the mortgage transaction.

It is contended, however, that the words of the indorsement operate as an absolute assignment in writing to the appellant of the debt or legal chose in action arising under the guarantee, and constitute a sufficient notice in writing for the purposes of sec. 12 of the Conveyancing Act 1919. Apart from the Conveyancing Act 1919, the words used in the indorsement do not amount to an absolute assignment in writing of the debt or legal chose in action created by the guarantee. The indorsement relates, in my judgment, to the moneys secured by mortgage, and the rights, powers, and remedies in relation to that debt, and not to collateral obligations, such as guarantees, given by strangers to the mortgage transaction. But its proper construction is, I think, placed beyond doubt when it is read in conjunction with the Conveyancing Act 1919, which authorizes the form, and provides how that form shall operate and what it shall vest in the transferee or assignee. For the Act, as already indicated, does not vest in the transferee or assignee obligations collateral to the mortgage transaction.

In my opinion, the judgment of the Supreme Court was right, and this appeal should be dismissed.

The defendant joined as guarantor in two mortgage instruments. One was a mortgage of land under the Real Property Act; the other was a mortgage of land under the general law.

The plaintiff is transferee or assignee of the mortgages and sues upon the covenants of guarantee which they contain.

The question is whether the cause of action given by either covenant has been vested at law in the plaintiff so as to enable it to sue in its own name. The question arises on demurrer to the declaration.

The count which declares on the instrument containing the mortgage under the Real Property Act does not set out any of the terms of the memorandum of transfer, but alleges simply that the memorandum of mortgage was, by transfer registered under a certain number, duly transferred to the plaintiff. Under this count, therefore, the plaintiff's title to sue must rest upon the provisions of the Real Property Act which, upon registration of a transfer of mortgage, vest the mortgage in the transferee. These provisions are contained in secs. 51 and 52. Sec. 51 says that the estate or interest of the transferor as set forth in the instrument of transfer with all rights, powers and privileges thereto belonging shall pass to the transferee. Sec. 52 says that by virtue of the transfer the right to sue upon the memorandum of mortgage and to recover any debt or sum of money thereunder, notwithstanding that it is a chose in action, and all interest in the debt or sum of money shall be transferred so as to vest the same at law as well as in equity in the transferee. Such language is not incapable of including among the rights which pass to the transferee the benefit of the covenant by a surety who joins as a party in the instrument of mortgage for the purpose of giving the covenant. But, in our opinion, the language should not be so interpreted. The statute is concerned with dealings in land and it is because a mortgage involves such a dealing that the statute prescribes how mortgages may be transferred and with what consequences. It is concerned with the mortgage transaction in its entirety as it affects the land, and, therefore, extends to the personal liability of the mortgagor for the mortgage debt because that liability is intimately connected with the rights of property arising out of the mortgage transaction. A surety's obligation stands in a different relation to the dealing. His liability is introduced by way of additional security. It is personal and, except as a result of subrogation, does not directly or indirectly affect the land. Rights of subrogation are not of a kind falling within the scope of the Real Property Act. A guarantee is thus collateral to the mortgage transaction, and the circumstance that the obligation is expressed in the mortgage instrument must be regarded as accidental to the mortgage transaction and not as characteristic of the dealing contemplated by the legislation. In relation to transfers of mortgage secs. 51 and 52 should be understood as dealing only with rights, powers, privileges, debts and sums of money affecting the mortgage transaction as between mortgagor and mortgagee.

The second count in the declaration sets out the terms of the document relied upon as effecting an assignment of the covenant contained in the mortgage under the general law. It is an indorsement upon the mortgage following the form given by the Conveyancing Act 1919-1932 as sufficient to transfer such a mortgage (Schedule V. (5)). Sec. 91 (1) (e) of that Act provides that in the case of every mortgage, the mortgage may be transferred by a memorandum indorsed on or annexed to the mortgage and signed by the persons bound thereby and attested by one witness. By sec. 91 (2) it is provided that the memorandum may be in the form already mentioned and shall operate as a deed. By sec. 91 (4) it is enacted that the memorandum of transfer shall operate as a deed of assignment of the mortgage debt and as a deed of conveyance of the estate and interest of the mortgagee of and in the mortgaged property, and shall vest the debt and estate and interest in the assignee, together with all rights, powers and remedies of the mortgagee expressed or implied in the mortgage. In the same way as in the case of the similar provisions of the Real Property Act, the plaintiff relies upon these sub-sections as vesting in it the benefit of the defendant's covenant as guarantor.

Upon grounds analogous to those we have already given in relation to the construction of secs. 51 and 52 of the Real Property Act, we think the meaning of the sub-sections of sec. 91 of the Conveyancing Act should be confined so as to exclude the obligation of suretyship.

The expression "mortgage debt" in sub-sec. 4 does not, in our opinion, naturally include the secondary and collateral liability of a guarantor. The "rights, powers, and remedies of the mortgagee expressed or implied in the mortgage" are those arising out of the transaction between the mortgagor and mortgagee, and do not extend to the rights and remedies of the mortgagee against a third party who is a stranger to the estate and joins in the instrument of mortgage only to give a personal obligation by way of additional security for the loan.

But the count in which the plaintiff declares on the covenant contained in the mortgage under the general law does not depend only upon sec. 91 of the Conveyancing Act. The count, besides setting out the memorandum of transfer indorsed on the mortgage, also states the terms of another document, which the plaintiff says constitutes an express notice in writing to the defendant of an assignment to the plaintiff of the defendant's covenant. The contention on behalf of the plaintiff is that the indorsed transfer is expressed in language which, according to its natural meaning and apart altogether from sec. 91, would be effective to assign the benefit of the defendant's covenant, and that the subsequent document amounted to express notice in writing of the assignment. If this be so, then under the provisions of sec. 12 of the Conveyancing Act, taken from sec. 25 (6) of the Judicature Act 1873, the plaintiff would be entitled to sue on the covenant in the plaintiff's own name.

In our opinion the indorsed memorandum of transfer does amount to an assignment by writing of the defendant's covenant sufficient to satisfy sec. 12. It is under the mortgagee's hand and it states that he thereby assigns unto the plaintiff company all moneys secured by the mortgage written within it and all his rights, powers and remedies thereunder. Because it is indorsed on the mortgage and refers to it as "the within written mortgage," the memorandum of transfer must be read as it would be if it contained a full recital of the mortgage. Unless, therefore, the circumstance that it is taken from a statutory form makes it proper to place some artificial limitation upon the natural meaning which the memorandum read in this manner would bear, the assignment of all moneys secured by the mortgage would be interpreted as an assignment of all the rights to recover such moneys which the instrument bearing the indorsement gave. An assignment of moneys that are secured by personal obligations means an assignment of the obligations securing them. The same moneys could not have been intended to belong to the transferee, the plaintiff, if paid by the mortgagor, but to the transferor, the mortgagor, if paid by the surety, the defendant. We do not think the circumstance that the indorsed memorandum is in fact expressed in the form given by Schedule V. (5) of the Conveyancing Act should lead to its receiving a narrower interpretation. No doubt that form is not expressed as it is for the purpose of transferring or assigning the benefit of the collateral obligations of a guarantor. That purpose is absent because the inclusion of such obligations in the mortgage is not contemplated by sec. 91, and sub-sec. 4 of that section does not give the form an operation vesting the benefit of such obligations in the transferee. But the terms adopted in the form are apt to cover all rights and remedies by means of which the mortgage moneys might be reduced into possession and a general reference to such rights and remedies seems to us to be intended by the form. There is no reason to give an artificial meaning to the language of the form merely because the statutory enactment, which gives it an operation not otherwise belonging to it, relates to a specific subject matter only, namely, the transaction between the mortgagor and the mortgagee. When the general language of the form is applied by the parties to a larger transaction, we see no reason why they should not be taken to intend that it should operate according to its meaning in relation to that transaction. We are, therefore, of opinion that the benefit of the defendant's covenant was included in the assignment expressed by the indorsed memorandum. It thus becomes necessary to consider whether express notice in writing has been given of the assignment.

The document relied upon is a notice given by the plaintiff company to the defendant for the purposes of the Moratorium Act 1932. In the course of the notice, the plaintiff company is described as the transferee from the mortgagee of the mortgages, and those instruments are identified by their registration numbers. The document then states that the plaintiff company thereby gives the defendant notice that it intends to exercise all or any of its rights, powers and remedies against him as guarantor of the due payment of the principal and interest moneys after three months, unless he pays in the meantime to it all principal and interest moneys owing to it under the mortgages.

This document acquaints the defendant with the fact that the plaintiff company is or claims to be the transferee of the mortgages, and is or claims to be entitled to the rights and remedies the mortgages confer against the defendant. But it does not identify any particular document or documents as instruments constituting the transfer. In Denney, Gasquet, and Metcalfe v. Conklin[2] Atkin J. said that it appeared from the section that the notice which has to be given in order to pass the legal right to the debt to the assignee is express notice in writing of an absolute assignment by writing under the hand of the assignor. He held that a written statement which referred to the trustees of a deed of arrangement and indicated that the debt was included sufficed, although the names of the assignees were not disclosed. But the notice gave the date of the deed and described it as executed by the assignor, and the reason for the decision was that there was "an express and accurate reference to the deed to which the trustees were parties."

A difficulty in the present case is that there is no reference to any document but merely to the status or position of the plaintiff company as "transferee" of the mortgages. Of course, in point of law, it could not be transferee of either mortgage except as a result of a written instrument under the hand of the assignor. But the notice must be express, and, if the section requires not merely notice that there has been an assignment but that the assignment is in writing, it is difficult to say that the notice of the latter fact was express.

The dictum of Lord Atkin is stated in terms literally meaning that notice of a written instrument must be expressly given. On the other hand, in General Motors Acceptance Corporation v. Johnson[3] Hyndman J.A. said:—"It seems clear from these authorities that no special form of notice is necessary, it being sufficient if the effect upon the debtor is to convey to him with sufficient certainty the fact that the obligation is transferred to a third person as assignee." He held that a writing written for another purpose amounted to a sufficient notice because it conveyed the information that an assignment had taken place, to a debtor who actually had seen the document constituting the assignment. But the text of the informal notice did not disclose that the assignment was in writing.

The object of the requirement made by the words "of which express notice in writing shall have been given" is, we think, correctly stated in Warren's Choses in Action (1899), at pp. 177, 178. "The term express notice is doubtless employed by way of opposition to notice arising by implication or operation of law, and to what was known in equity as constructive notice. It means a notice which indicates an express intention—a direct and definite statement of a thing, as distinguished from supplying materials from which the existence of such a thing may be inferred." The purpose is to make essential actual notice that the debt has been assigned. "One of the objects of the giving of notice to the debtor is that he shall know with certainty in whom the legal right to sue him is vested" (McIntosh v. Shashoua[4], per Evatt J.). The purpose does not extend to giving the debtor particulars of the assignment. The assignment must be by writing, but, if it is in writing, then notice to the debtor is necessary only to acquaint him with the fact that the debt is payable to the assignee and the statute requires that he shall be expressly notified. But, neither in its exact terms, nor according to its general intent, does the provision appear to make it essential that the notice should contain an express statement that the assignment is a written one.

We think the notice relied upon in the second count is sufficient to perfect the assignment for the purposes of sec. 12 of the Conveyancing Act. The demurrer to that count should, therefore, have been overruled.

In our opinion the appeal should be allowed, and judgment in demurrer should be given for the plaintiff upon the second count of the declaration.

Appeal allowed with costs. Judgment of the Supreme Court in demurrer on second count of the declaration set aside and demurrer to that count overruled.

[1] [1910] HCA 74; (1910) 11 C.L.R. 723.

[2] (1913) 3 K.B. 177, at p. 180.

[3] (1930) 4 D.L.R., at p. 297.

[4] [1931] HCA 56; (1931) 46 C.L.R. 494, at p. 515.

High Court of Australia

Consolidated Trust Co Ltd v Naylor [1936] HCA 33; (1936) 55 CLR 423 (12 August 1936)

HIGH COURT OF AUSTRALIA