Tilley v Official Receiver In Bankruptcy [1960] HCA 86; (1960) 103 CLR 529 (28 November 1960)

HIGH COURT OF AUSTRALIA

TILLEY v. OFFICIAL RECEIVER IN BANKRUPTCY [1960] HCA 86; (1960) 103 CLR 529

Bankruptcy

High Court of Australia
Dixon C.J.(1), Kitto(2) and Menzies(3) JJ.

CATCHWORDS

Bankruptcy - Offence - Undischarged bankrupt - Obtaining credit for 20 pounds or more without disclosing status - Cheques not post-dated given in payment of price of goods upon their delivery - Cheques dishonoured on presentation - Credit not thereby obtained - Bankruptcy Act 1924-1958 (Cth), s. 211 (a).*

HEARING

Sydney, 1960, August 29; November 28. 28:11:1960
APPEAL from the Supreme Court of Queensland exercising federal jurisdiction in bankruptcy.

DECISION

November 28.
The following written judgments were delivered:-
DIXON C.J. By s. 211 (a) of the Bankruptcy Act 1924-1958 an undischarged obtains credit to the extent of 20 pounds or upwards from any person without informing him that he is an undischarged bankrupt. The Supreme Court of Queensland sitting as a court of bankruptcy has convicted the appellant summarily of six offences under this provision and has imposed upon him concurrent sentences for such offences of six months' imprisonment. He appeals from the convictions. (at p531)

2. It appears from the findings of fact made by the learned judge who heard the charge (Stable J.) that in each case in respect of which he was convicted the appellant without disclosing his status bought goods for which he paid by cheque upon delivery. In each case the cheque was dishonoured. The question for decision is whether that constitutes "obtaining credit" within the meaning of s. 211 (a). (at p531)

3. The appellant was a builder by trade. A sequestration order was made against him on 18th July 1957. He went on in the building trade and the goods with respect to which he gave the cheques were purchased by him for jobs he was doing. They were drawn on bank accounts upon which it is said he was permitted to overdraw, but apparently he exceeded the limit of his overdraft. There is no finding that the appellant gave the cheques knowing that they were valueless, if that be a material fact. (at p531)

4. There are two grounds on which, in my opinion, the charge that in these transactions the appellant obtained credit is shown to be misconceived. The first is that the sellers of the goods never intended to give him credit and never did so, nor did he seek credit from them, expressly tacitly or impliedly. They sold for immediate payment and received what they considered immediate payment in a medium common enough commercially in the case of any large amount, namely a cheque. (at p532)

5. The second ground is that they took the cheques in the ordinary way, that is to say, as conditional payment. In each case until the cheque was dishonoured the debt was conditionally satisfied. We speak of it as conditional payment although no doubt it would be more technically accurate to say conditional satisfaction. Possibly if the cheque was given as a trick with full knowledge that it was valueless it might be considered to work no satisfaction, conditional or otherwise. But simply because of his trick the drawer of the cheque could not be said to have obtained credit. Credit would be neither given nor obtained. However, not only is there no finding that in the appellant's case it was but a trick, it is an inference of which no court could be satisfied beyond reasonable doubt in these criminal proceedings. The materials before the Court are insufficient. (at p532)

6. Prima facie when a cheque is taken for the price of goods, or for that matter in respect of any other debt contracted, it operates as conditional payment. The condition is that the cheque be paid on presentation: if it is dishonoured the debt upon the original consideration revives. The rule is, of course, an old one and the presumption applies to other negotiable instruments as well as to cheques, although perhaps not necessarily with the same strength. Not unnaturally it is sometimes said that the remedy for the primary debt is suspended; but this has no different meaning, for the suspension is the consequence of the conditional nature of the payment. In Bottomley v. Nuttall [1858] EngR 1197; (1858) 5 CB (NS) 122 (141 ER 48) , Williams J. describes it as "the true doctrine upon which this branch of the law is founded, viz. that, in the case of a money demand, if the creditor accepts a bill or note for and on account of the debt, that operates as a conditional payment" (1858) 5 CB (NS), at p 144 (141 ER, at p 57) . On the same page in reiterating the rule of law he says that it is established in all the cases and is summed up by Maule J. in Belshaw v. Bush [1851] EngR 4; (1851) 11 CB 191, at pp 205-207 [1851] EngR 4; (138 ER 444, at p 450) . In Allen v. Royal Bank of Canada (1925) 134 LT 194; 41 TLR 625 Lord Atkinson, speaking for the Privy Council, cited a passage from Byles on Bills expressing the rule in terms of the suspension of remedy. As some reliance has been placed on this as pointing against the principle of conditional payment it may be as well to refer to the formulation which Byles J. made judicially of the rule in Bottomley v. Nuttall [1858] EngR 1197; (1858) 5 CB (NS) 122 (141 ER 48) . His Lordship said: "it is the first learning that taking a bill for and on account of a debt does not operate as an absolute discharge of the debt. At the most it is only a conditional payment, which is defeated by the subsequent dishonour of the bill, whether total or partial" (1858) 5 CB (NS), at p 148 (141 ER, at pp 58, 59) . In the well-known judgment delivered by Lush J. for the Exchequer Chamber in Currie v. Misa (1875) LR 10 Ex 153 this passage occurs: "the title of a creditor to a bill given on account of a pre-existing debt, and payable at a future day, does not rest upon the implied agreement to suspend his remedies. The true reason is that given by the Court of Common Pleas in Belshaw v. Bush [1851] EngR 4; (1858) 11 CB 191; 22 LJ (CP) 24 as the foundation of the judgment in that case, namely, that a negotiable security given for such a purpose is a conditional payment of the debt, the condition being that the debt revives if the security is not realized" (1875) LR 10 Ex, at p 163 . In the present case therefore once the cheque was taken by or on behalf of a seller of the goods the debt was conditionally satisfied; accepting the cheque could not amount to giving credit, but once the cheque was dishonoured the debt revived and of course a cause of action also arose upon the cheque. There was at that stage no question of giving or obtaining credit. (at p533)

7. For the foregoing reasons I think that whatever offences the appellant may have committed he did not commit those with which he was charged under s. 211 (a). The convictions cannot therefore be sustained and the appeal should be allowed. (at p533)

KITTO J. The appellant was convicted on six charges under s. 211 (a) of the Bankruptcy Act 1924-1958 (Cth). The charge in each instance was that, being an undischarged bankrupt, the appellant obtained credit to the extent of 20 pounds or upwards from a named person without informing him that he was an undischarged bankrupt. (at p533)

2. On each of the occasions charged, the appellant bought goods and took delivery of them in exchange for his cheque, which was not post-dated, for the amount of the price, without disclosing that he was an undischarged bankrupt. There was no arrangement for any delay in presentation of the cheque to the appellant's bank, both parties treating the transaction as a sale on a cash basis. The seller had no reason to doubt that the cheque would be honoured on presentation. It was, however, dishonoured. The result was that a price which the seller intended should be paid at the time of the sale and believed was then in fact paid, turned out to be unpaid. (at p533)

3. The question upon which the appeal depends is whether it can be said a bankrupt "obtains credit", in the sense in which s. 211 (a) uses the expression, whenever he buys goods for which, in the light of after events, it is found that he did not pay at once, or whether it is a necessary element in obtaining credit that the other party to the transaction has assented to payment being deferred. In my opinion the latter is the correct alternative. The mischief to which the provision is directed is that which arises when (I am taking the simple case) a seller of goods delivers them to the buyer without requiring immediate payment, and does so without having present to his mind that the prospect of his receiving payment is subject to the special doubt which arises from the buyer's being an undischarged bankrupt. The section is therefore concerned to protect people in the giving of credit, and it deals with the obtaining of credit as the obverse of that. Accordingly, in my opinion, an obtaining of credit by a bankrupt involves, in addition to conduct on his part which results in a debt remaining for a time unpaid, an assent by his creditor to its remaining unpaid. The assent need not be contractual, and it need not be expressed: Reg. v. Peters (1886) 16 QBD 636 . The time allowed may be brief, and it need not be of fixed duration. In Reg. v. Peters (1886) 16 QBD 636 there was no period fixed, but the seller, when he dispatched his horse to the buyer without payment, plainly did so in reliance upon a future payment, though no doubt he expected that it would not be long delayed. In Reg. v. Jones (1898) 1 QB 119 the time allowed was only that between the beginning of a meal and the end of it. The point is that the intending payee must part with his goods (or whatever it be that he does) "without insisting on prepayment or upon interchangeable payment", "relying on the readiness and ability of the (bankrupt) to pay": Reg. v. Jones (1898) 1 QB, at p 125 . The situation is entirely different where the bankrupt leads a person to believe that he is being paid instanter, when in fact he is not. In such a case the bankrupt gains time which the other party has no intention of giving; and gaining time is not the same thing as obtaining credit. As Donovan J. said in the judgment which he delivered for the Court of Criminal Appeal in Reg. v. Ingram (1956) 2 QB 424 "Mere delay in paying a debt . . . is not a criminal offence" (1956) 2 QB, at p 431 . What is a criminal offence is a bankrupt's obtaining, without giving the information that he is a bankrupt, a person's acquiescence in his leaving unpaid for a while what otherwise he would have to pay at once. (at p534)

4. This does not mean that the liability to pay must be postponed. It is enough that the discharge of the liability is left, by consent, to the future. The dissenting judgment of Manisty J. in Reg. v. Peters (1886) 16 QBD 636 was based on the view that a sale under which the price can be immediately sued for is not a credit transaction but a cash transaction. The majority judgment shows that it is not to the point that a sale is a cash transaction as so defined. What matters in the case of a sale is that for a substantial period of time the price remains unpaid, the seller making, in the words of Webster's Dictionary which Lord Coleridge C.J. quoted (1886) 16 QBD, at p 641 a "transfer of goods in confidence of future payment". The contrast is obvious between such a case and one in which there is a cash sale, using the expression in a sense different from that in which Manisty J. used it, that is to say a sale in which the seller never agrees to or acquiesces in any postponement of payment, and parts with his goods on terms of immediate payment but accepts a cheque in the confidence that in a practical sense it is as good as cash. In such a case what the buyer obtains in exchange for the cheque is goods, not credit. A court consisting of Lord Alverstone C.J. and Mathew, Wills, Grantham and Bingham JJ. had before it the very case, in R. v. Cosnett (1901) 84 LT 800 . The prisoner was convicted of obtaining goods by a false pretence. The prosecution had proved the giving of a worthless cheque in exchange for goods bought on terms of immediate payment, in circumstances implying a representation that the cheque would be paid when presented; and that, of course, was a pretence that the cheque was a good and valid order, and as such was "equal to cash": Reg v. Hazelton (1874) LR 2 CCR 134, at p 139 . The prisoner contended that what he got by the false pretence was credit, and not goods. The contention failed. (at p535)

5. There can be no doubt that the acceptance of a payment by cheque implies, if there be nothing to the contrary, an agreement that it shall be considered as payment, subject to the condition subsequent that if the cheque be dishonoured it shall no longer be so considered: Mackenzie v. Rees [1941] HCA 21; (1941) 65 CLR 1, at p 15 . "It has been established", said Bowen L.J. in In re Romer & Haslam (1893) 2 QB 286 , "by a series of authorities, which it would be ridiculous to go through seriatim, that a bill of exchange given for a debt amounts to conditional payment of that debt, and is only conditional payment so long as it is running; the payment is liable to be defeated when the bill is dishonoured" (1893) 2 QB, at p 300 . But although a person who takes a bill as conditional payment does so in confidence that the payment will not be defeated, the trust he reposes is not that the drawer of the cheque will in the future pay him the amount for which the cheque is taken. On the contrary, he believes that the amount has been paid. He does, of course, trust that a future payment will be forthcoming, but that is a payment by the drawee of the bill (the bank in the case of a cheque), not a payment by the drawer. It is true that if the bill be dishonoured, the original amount may be sued for as if the bill had never been given; the creditor may then look to the debtor for payment. But that is certainly not because he ever intended to give the debtor time for payment. (at p536)

6. Accordingly, in the present case the basis on which the sellers gave up their goods in exchange for the appellant's cheques was that they were not going to wait for their money, but, on the contrary, were being paid there and then, since the cheques, they supposed, were good and valid orders for immediate payment of the full price. In my opinion the sellers gave no credit, and the bankrupt obtained none. (at p536)

7. I should add that I have not meant in the foregoing to indicate any view on the question which arose in Reg. v. Ingram (1956) 2 QB 424 namely, whether "credit" is obtained when time is allowed for the doing of something other than the payment of money. (at p536)

8. I agree that the appeal should be allowed. (at p536)

MENZIES J. The appellant was convicted upon a number of counts of having, while an undischarged bankrupt and without disclosing this, obtained credit to the extent of 20 pounds or upwards contrary to s. 211 (a) of the Bankruptcy Act (Cth). On each occasion the appellant ordered building material and, instead of paying for it in cash upon delivery - as in some cases he had agreed to do expressly - he gave the supplier or his agent a cheque which was dishonoured upon presentation. Stable J. decided that in so doing, the appellant obtained credit within the meaning of the section and, as the other elements of the offence were proved, convicted him. It is from that decision that this appeal has been brought. (at p536)

2. The case for the appellant is that he obtained no credit because in each case he gave and the supplier accepted a cheque for the goods. It was not suggested that on any occasion the supplier's acceptance of the appellant's cheque amounted to more than conditional payment, but it was argued that the making of such payment at the time of delivery was inconsistent with the appellant's having obtained credit for the goods which he bought; he paid at once and was not given time to pay. (at p537)

3. Although to take a cheque is to receive payment conditionally, upon the dishonour of the cheque there never was any payment for the goods for which it was given, so to obtain goods by giving a cheque which is dishonoured upon presentation does, in fact, amount to obtaining goods without payment. As was said by Cockburn C.J. in Cohen v. Hale (1878) 3 QBD 371 : "It is very true that a man who takes a cheque may be estopped from proceeding to enforce payment of the debt until presentment of the cheque, and if the cheque is ultimately paid the debt is extinguished. . . . But when the cheque is presented and dishonoured, the debt, the remedy for which was suspended until presentment of the cheque, may be treated as a debt subsisting all along, just as if the cheque had never been given. . . . Therefore when the Midland Railway Company stopped this cheque it was, in my opinion, as if it had never been given. . . . The suspension of the remedy then ceased, and the debt remained just as if the cheque had never been given" (1878) 3 QBD, at p 373 . In these circumstances it was held that a garnishee order, obtained against the Midland Railway Company after the giving and before the stopping of a cheque in payment of a debt, was effectual to attach the debt which remained owing by the company to the judgment debtor. On no occasion, therefore, with which we are concerned was there payment for the goods which the appellant received, and in every case the appellant upon delivery of the goods became a debtor of the supplier for the price of the goods. (at p537)

4. The question is then whether a buyer of goods who does not pay for them upon delivery to him and so becomes a debtor ipso facto obtains credit from the seller. Although it is true that to give time to pay is to give credit, it does not follow that to gain time to pay is always to obtain credit, for credit involves the creditor trusting the debtor to pay. In this case the suppliers did not trust the appellant to pay for the goods supplied to him; their belief, mistaken as it turned out to be, was that he paid upon delivery, not that he would pay later. I will not elaborate this further myself because I agree with the reasons given by Kitto J. for the conclusion that in all the circumstances the appellant did not obtain credit from his suppliers. The appeal must therefore be allowed. (at p537)

ORDER

Appeal allowed. Order of the Supreme Court of Queensland exercising jurisdiction in bankruptcy dated 19th July 1960, whereby the appellant was found guilty on certain charges and a sentence was imposed upon him, discharged. In lieu thereof order that the appellant be acquitted and that he be discharged from his recognizances and from the order of 9th August 1960 made by Windeyer J.