Palmer v Bank of NSW [1975] HCA 51; (1975) 133 CLR 150 (29 October 1975)

HIGH COURT OF AUSTRALIA

PALMER v. BANK OF NEW SOUTH WALES [1975] HCA 51; (1975) 133 CLR 150

Gift - Will

High Court of Australia
Barwick C.J.(1), Menzies, Gibbs(2), Stephen(3) and Mason(4) JJ.
(THE RIGHT HONOURABLE MR. JUSTICE MENZIES died before judgment was delivered in this case.)

CATCHWORDS

Gift - Trust - Resulting trust - Joint bank account - Either contributor able to operate account - Balance to belong to survivor - Death of one contributor - Moneys paid into account in unequal shares - Whether resulting trust to estate of deceased contributor - Whether transaction testamentary in character.

Will - Promise not to revoke - Consideration undertaking to look after testator - Whether promise to ensure that certain assets comprised in estate at death implied - Transfer of funds into joint banking account with stranger in order to diminish property available to promisee - Whether breach of promise - Whether transaction nullified by intention to deplete estate.

HEARING

Sydney, 1974, August 7,8; 1975, October 29. 29:10:1975
APPEAL from the Supreme Court of New South Wales.

DECISION

1975, October 29.
The following written judgments were delivered:-
BARWICK C.J. The appellants, husband and wife, by originating summons in the following orders and declarations:
1. That it may be declared that the moneys standing to the credit of account no. 007547 in the name of E. & T. Hull at the Bank of New South Wales, Coffs Harbour branch, form part of the Estate of the late Frederick Ashley Smith.
2. Alternatively that it may be declared that such of the moneys standing to the credit of the said account as have been provided by or deposited in the same by or on behalf of the deceased form part of his said estate.
3. That it may be declared that it was agreed by and between the appellants and the deceased that in consideration of the appellants looking after and keeping the deceased and paying all normal expenses incurred on his property at lot 14, section 6, Lyons Road, Sawtell, the deceased agreed that in return for such services all his property would pass to the appellants on his decease with no encumbrances and that such agreement is valid and enforceable by the appellants.
4. That it may be declared that such of the said moneys, referred to in par. 2, are held in trust absolutely for the benefit of the appellants.
5. That it may be declared that the appellants are entitled to such moneys as were standing to the credit of the account in the names of Frank Davis, Iris and Joe Palmer, at the Bank of New South Wales, Coffs Harbour branch, at the time of the closing of such account by the deceased.
6. That the Bank of New South Wales be restrained from making any payment out of the moneys standing to the credit of account no. 007547 in the name of E. & T. Hull at its Coffs Harbour branch, without the consent of the appellants.
7. That the second named respondent be ordered to pay the appellants' costs of this suit. (at p154)

2. Their suit was dismissed by the Supreme Court (Mahoney J.). An appeal brought by them to the Court of Appeal Division of the Supreme Court was also dismissed (1973) 2 NSWLR 244 . (at p155)

3. The foundation of the appellants' claim was an arrangement made orally in August 1965 between the appellants and the late Frederick Ashley Smith (the deceased) that he would not revoke a will which he had then made, and which he then exhibited to them, leaving the whole of his estate to them if, on the death of a Mrs. Page, they would come to live in his house at Sawtell and look after him until his death. In the event, Mrs. Page predeceased the deceased. The appellants did come to live in the deceased's house in Sawtell on the north coast of New South Wales in 1967 when Mrs. Page died. They did look after him until his death in January 1971. The deceased did not revoke the will he had shown the appellants and, on his death, the house at Sawtell was included in the assets which passed under the will. (at p155)

4. It appears that, some time around July 1966, the deceased and Mrs. Page opened a joint account with a savings bank in the name of "F. Davis and/or A. Davis House A/c". It was a joint account to be operated by either the deceased or Mrs. Page under the pseudonyms chosen for the names on the account. The survivor of them was expressed to be entitled to the then balance. (at p155)

5. In February 1967, soon after the appellants came to the house in Sawtell, a document was signed by the deceased and the appellants of which the following is the operative part:

"We the undersigned I.G. and J.J. Palmer have agreed to
look after and keep Mr. F.A. Smith and we are to pay all
normal expenses incurred on his property at Lot 14, Sec. 6,
Lyons Road, Sawtell but we do not pay rent.
I F.A. Smith do agree that in return for such services that
my property at above address shall pass to I.G. and J.J.
Palmer on my decease with no encumbrances." (at p155)

6. In February 1970, the deceased and the secondnamed respondent, Mrs. Evelyn Brooks, opened a joint account with a savings bank under the names of Tom Hull and Eve Hull, the account being operable by either the deceased or Mrs. Brooks under those names. The survivor was to be entitled to the balance in the account at the time the first of them should die. (at p155)

7. In accordance with the arrangement made between them before or at the time of opening the account, the deceased paid into this account a sum in the order of $6,620 and Mrs. Brooks paid into it a sum of the order of $2,780. The only operation on this account during the lifetime of the deceased was the withdrawal by him of $10. The balance in the account at the date of the death of the deceased was $9,725.58. It may well be, and indeed some parts of the evidence before the primary judge would appear to indicate, that the money paid into the account by the deceased was money withdrawn by him from the savings bank account in the name of F. and A. Davis. (at p156)

8. The learned primary judge was prepared to accept on the evidence before him that the moneys paid by the deceased into the joint account with Mrs. Brooks were "paid with the knowledge that his obligation to the plaintiffs would thereby be defeated and for that purpose". He was not prepared to accept the evidence of Mrs. Brooks given in the case "that she was not aware that Mr. Smith had made the promise in question to the plaintiffs and was acting so as to benefit Mrs. Brooks at their expense". (at p156)

9. The primary judge found that, in fact, the deceased did promise the appellants that he would not revoke the will which he had shown them by which the whole of his estate on death was to be theirs on condition that on Mrs. Page's death they promised to come to live in his house in Sawtell and look after him until his death. His Honour held that the parties intended the creation of legal obligations: but, feeling constrained by the decision of this Court in Horton v. Jones [1935] HCA 7; (1935) 53 CLR 475 , he found that the promise of the appellants to "look after" the deceased was too vague to be enforced and afforded no consideration for the deceased's promise not to revoke the will. (at p156)

10. Before the primary judge, the appellants sought to establish a further promise by the deceased, not merely not to revoke his will, but that his assets at death would include particular assets, namely, the house at Sawtell and the amount in the Davis account to which by February 1967 the deceased had become solely entitled. His Honour refused to find that any such promise was made. (at p156)

11. Upon appeal by the appellants to the Court of Appeal Division of the Supreme Court, the Court was prepared to accept that the arrangement of 1965 was supported by consideration and binding. (at p156)

12. But the Court was not prepared to find that that oral agreement contained a term that the deceased would not reduce the extent or value of his property or would not dispose of any substantial part of it. Also, the Court was of opinion that the writing of February 1967, "whilst it varied it, did not discharge" the oral arrangement: that is to say, that notwithstanding that writing, the promise not to revoke the will remained on foot. (at p156)

13. However, the Court considered and rejected the submission that the creation of the joint account under the name of Tom Hull and Eve Hull was a quasi-testamentary act or in the nature of an equitable fraud on the promise not to revoke the will so that a court of equity would nullify the transaction. (at p157)

14. Conceding that a promise to make and not revoke a will in favour of a named person or persons may be broken by a transaction inter vivos which is testamentary in its form or nature, the Court found in substance that the creation of the joint account was not in the nature of a testamentary transaction. The Court accepted that, in opening the joint account and contributing to it, the deceased had not reserved to himself for his life the whole of the amount in the joint account or the amount of his contribution to it or any interest in any of that money (1973) 2 NSWLR 244 . (at p157)

15. I would first dispose of the submission made on behalf of the appellants that there was a resulting trust to the deceased of the balance of the joint account at his death or at least of so much thereof as represented his contribution to the account. This submission is plainly erroneous. There can be no doubt - and, indeed, the trial judge's finding to which I have already referred as to the purpose of the deceased in opening the joint account, leaves no doubt - that the deceased intended to benefit Mrs. Brooks by the opening of and contribution to the account. She had a right of withdrawal in her lifetime for her own benefit of the whole or any part of the money to the credit of the account: and, if she survived him, she was to have for herself the balance then remaining in the account. On the other hand, the deceased, as one of the parties to the joint account, had the right to withdraw the whole or any part of the amount in the account, not merely of the amount of his contribution to it. The only right or interest which the deceased had in the money to the credit of the account he derived from the fact that he was one of the persons in whose names the account jointly stood. These consequences flowed from the express arrangement between the deceased and Mrs. Brooks made before the account was actually opened. It was then arranged that Mrs. Brooks should contribute to the account but have the rights I have indicated in the total amount standing to the credit of the account. Although it was submitted that Mrs. Brooks in relation to the account was a volunteer, she plainly was not. (at p157)

16. We were referred, in connexion with the proposition that there was a resulting trust, to Russell v. Scott [1936] HCA 34; (1936) 55 CLR 440 ; Standing v. Bowring (1885) 31 Ch D 282 ; Young v. Sealey (1949) Ch 278 ; Jacobs' Law of Trusts, 3rd ed. (1971), pp. 332-333 and Lewin on Trusts, 16th ed. (1964), pp. 118, 129-133. It is sufficient to say that nothing said in these cases or these textbooks supports the proposition that, in the circumstances in which this joint account was opened and on the basis on which it was intended to be operated, there was any resulting trust in favour of either party to the account: nor do they suggest any ground on which a court of equity would treat the parties' rights in relation to the account otherwise than as they existed at law. (at p158)

17. Of course, there may be a resulting trust if money is put in the name of a stranger, there being no presumption of advancement. But nothing is clearer than, if it is established that a beneficial interest was intended to be created in the stranger, no resulting trust is created. Further, the case of the joint purchase of property, with unequal contributions of the purchase money, bears no analogy whatever to the case of a joint account unequally fed but with the right in each of the parties to it to withdraw the whole. The nature of the joint account in this case and the circumstances in which it was created, including the express provision for survivorship, in my opinion, leave no room whatever for a resulting trust in either party to the account as to any part of it, and particularly as to such part of it as represents the contribution of either of them. Nor do these decisions or textbooks give any support to the proposition that, in the facts and circumstances of this case, the moneys in the joint account were in equity held in common either equally or in shares equal to their respective contributions. (at p158)

18. It was then submitted that the promise by the deceased not to revoke the will he exhibited to the appellants meant that he promised to leave his property at death to the appellants. It was then said that any property which he transferred in his lifetime but in which he kept any interest for himself, could be traced and recovered as part of the property of the deceased passing under the will. This was said to be so because, by so reserving an interest to himself, the disposition was not absolute and was testamentary in nature. It was also submitted that, because the deceased contributed to the joint account in order to deprive the appellants of the benefit of the money paid into the account, the opening of the joint account and the payment into it was an equitable fraud on his promise. (at p158)

19. In support of these propositions, reference was made to Gregor v. Kemp (1722) 3 Swans 482 (36 ER 926) ; Jones v. Martin (1798) 6 Brown 437 [1798] EngR 18; (2 ER 1184); 5 Ves Jun 276 (31 ER 582). ; Fortescue v. Hennah [1812] EngR 210; (1812) 19 Ves Jun 66 (34 ER 443) ; and In re Bennett; Bennett v. Bennett (1934) WN 177 . (at p158)

20. It is necessary at the outset to emphasize that the promise which has been found was no more at best than a promise to leave the appellants by will the deceased's estate at death. It is well established that such a promise does not involve an obligation not to part with any property during life: and, in any case, the primary judge did not find that a promise had been made to keep until death the assets owned at the time of the exhibition of the will, or at least any particular assets. But such a promise to leave by will does mean that no property will be disposed of in lifetime by a transaction which in substance, if not in form, is testamentary: that is to say, such a promise means that the only testamentary disposition of the property of the promisor shall be by will. A transaction by which the promisor has placed his property in the name of another and for the benefit of that other on his death, whilst really retaining it for himself in his lifetime, is for the purpose in hand a testamentary transaction which would be in breach of a promise to leave by will: see Fortescue v. Hennah [1812] EngR 210; (1812) 19 Ves Jun 66 (34 ER 443) ; Logan v. Weinholt [1833] EngR 238; (1833) 1 Cl & F 611 (6 ER 1046) ; Jones v. Martin (1798) 6 Brown 437 [1798] EngR 18; (2 ER 1184); 5 Ves Jun 276 (31 ER 582) ; and cf. Turner v. Jennings [1708] EngR 58; (1708) 2 Vern 612 (23 ER 1000) ; and In re Bennett; Bennett v. Bennett (1934) WN 177 . The underlying reasoning of those cases is that, whilst the promisor is free to divest himself of the property by a transaction inter vivos, he may not either enter into an illusory transaction whereby he appears, contrary to the reality, to have parted with his property, or into a transaction whereby he keeps an interest in the property during his lifetime, so arranging the transaction that the property passes on his death to the person into whose name he has transferred it. So to do is to deal with the property in a testamentary fashion in breach of the promise. (at p159)

21. This Court decided in Russell v. Scott [1936] HCA 34; (1936) 55 CLR 440 that to place a person's money in a joint account in the name of that person and a stranger, with the intention that the account should be used for the benefit of that person during life and that the balance in the account at death should belong to the person in whose name the account stood, was not to enter into a transaction of a testamentary character. The present case is a fortiori of that case. There, the money was to be used exclusively for the elderly lady during her life: the right of the appellant in that case arose by survivorship. It did not arise by virtue of a transmission on death from the deceased "of an interest which up to the moment of death belongs absolutely and indefeasibly to the deceased" (1936) 55 CLR, at p 454 . Here, the interest of Mrs. Brooks in the whole of the money to the credit of the account arose instantly on the opening of the account in accordance with the prior arrangement. The reasons why the opening of the joint account in that case was not a testamentary disposition are fully and, indeed, more particularly applicable in this: see per Starke J. (1936) 55 CLR, at pp 448-449 ; per Dixon and Evatt JJ. (1936) 55 CLR, at pp 454-455 . (at p160)

22. I have already indicated that, in opening and contributing to the joint account in accordance with the prior arrangements with Mrs. Brooks, the deceased was not reserving to himself any interest in the joint account. His interest in and entitlement to any money standing to the credit of that account was derived exclusively from the terms of the joint account and as one of the persons in whose name it stood. (at p160)

23. Thus, in my opinion, opening and contributing to the joint account cannot be held to be a breach of the promise found in this case, neither because any interest in the money contributed was reserved by the deceased exclusively for himself for life nor because the circumstances of the joint account constituted a transaction of a testamentary nature. (at p160)

24. But it was sought to erect a separate equity upon the finding of the primary judge that the "deceased paid money into the joint account with the knowledge that his obligation to the plaintiffs would thereby be defeated and for that purpose". I should immediately observe that this finding exhibits some obscurity for, in truth, upon his Honour's other findings, the deceased had no obligation to the appellants not to use the moneys and he had no obligation to retain them against his death so that they should pass to the appellants under his will. But let it be supposed that the deceased did act so as to reduce the estate of which he might die possessed and thus reduce the benefit which the appellants might derive from his promise. The payment into the account with that intention was said to be an equitable fraud on the promise. I find the greatest difficulty in understanding how what is not a breach of the promise can be a fraud upon it. To so conclude would in truth be to add to the promise that very element which a promise to leave by will does not contain: and, indeed, an element which in this case the primary judge refused to find to exist in fact. (at p160)

25. The appellants sought to derive support for this submission from the decision of Macclesfield L.C. in Gregor v. Kemp (1722) 3 Swans 482 (36 ER 926) and from the dissenting judgment of Lord Simon in Schaefer v. Schuhmann (1972) AC 572 . In the former case, a mother covenanted in marriage articles executed in consideration of the marriage of her eldest son that she would by her last will leave one fourth of her estate to that son, his executors or administrators. The contemplated marriage took place. But the mother, fearful that by reason of the possible death of her son the promised share of her estate would pass into the hands of strangers, within three days of her death disposed of $2,000 of cash, partly to her daughter and partly to trustees for several of her grandchildren. The Lord Chancellor considered that the covenant to leave by will did not prevent the mother "from disposing of her estate in any way in her lifetime" with the exception that she could not make "a distribution on purpose to defeat the covenant" (1722) 3 Swans, at p 482 (36 ER, at p 926) His Lordship thought that the dispositions of the mother were "a plain fraud" (1722) 3 Swans, at p 482 (36 ER, at p 926) . He also thought that, in any case, the gifts were each a donatio mortis causa: and that the covenant in the marriage articles had been "eluded by a disposition a day or two before death" (1722) 3 Swans at p 482 (36 ER, at p 927) . (at p161)

26. Lord Simon of Glaisdale, in his dissenting opinion in Schaefer v. Schuhmann (1972) AC, at p 599 , relied on this decision for the proposition that in relation to a promise to leave by will, "the testator will not be permitted fraudulently (in the sense used in equity) to render the promise nugatory by making substantial gifts inter vivos or by way of specific legacy". (at p161)

27. Gregor v. Kemp was decided in 1722, Jones v. Martin (1798) 6 Brown 437 [1798] EngR 18; (2 ER 1184); 5 Ves Jun 276 (31 ER 582). in 1798, and Fortescue v. Hennah [1812] EngR 210; (1812) 19 Ves Jun 66 (34 ER 443) in 1812. These later cases recognized that, in order that a transaction inter vivos be in breach of a promise to leave by will, it must be of a testamentary nature. (at p161)

28. It was that nature of the transaction which constituted the breach of the promise. Nowhere in these cases is the mere intention to reduce the value of the estate which will pass by will said to be a breach of such a promise: and, in principle, as I have said, that which is not a breach of the promise can scarce be said to be a fraud on the promise. (at p161)

29. It may be that in the circumstances of the case the actions of the mother in Gregor v. Kemp (1722) 3 Swans 482 (36 ER 926) might possibly have been regarded as in substance testamentary. But I have no need here to consider whether such a conclusion would have been correct. However, if to dispose of her assets inter vivos absolutely, as it is said in the later case, was no breach of the promise to leave by will, it could not matter, in my opinion, quo animo the disposition was made. It was, in any case, not a breach of the promise. If a promisee desires to prevent such a disposition, the promise itself must be larger than simply a promise to leave by will. If Lord Simon of Glaisdale meant to treat a promise to leave by will as if it involves a promise not to dispose of assets inter vivos so as to deplete the estate at death, that would be to accept a proposition that the cases since Gregor v. Kemp have uniformly denied. (at p162)

30. In my opinion, there is no equity to nullify a transaction inter vivos which is not itself a breach of a promise to leave by will simply because the promisor enters into the transaction with an intention or desire to deplete the estate which might pass under the will. The rights of the parties under such a contract are contractual. What may be a breach will be determined by the nature and extent of the promise. In my opinion, it is the testamentary nature of the transaction inter vivos which makes it a breach of a promise to leave by will, not the intention with which it is effected. (at p162)

31. I agree with the statement by Hutley J.A. in this case that, "if the parties intend not only that the testator's general estate, whatever it is, should pass to the promisee on his death, but that his power to use his property in any manner he thinks fit in his lifetime should be curtailed, an express contract to that effect is necessary" (1973) 2 NSWLR, at p 255 . (at p162)

32. It was conceded in Birmingham v. Renfrew that the making of an agreement for mutual wills did not preclude the alienation of property during the lifetime of the promisors (1937) 57 CLR, at p 675 . When in that case Dixon J. spoke of "gifts and settlements, inter vivos . . . calculated to defeat the intention of the compact" (1937) 57 CLR, at p 689 he no doubt had in mind gifts and settlements which were either testamentary in nature or which were in contravention of the terms of the particular contract, spelled out of the expressions actually used, bearing in mind the circumstances in which it was made. (at p162)

33. Otherwise, I do not consider Birmingham v. Renfrew to have any bearing on the decision of the instant case. (at p162)

34. In my opinion, the appeal should be dismissed. (at p162)

GIBBS J. I have had the advantage of reading the reasons prepared by the Chief Justice and am in agreement with them. (at p162)

STEPHEN J. I am in full agreement with the reasons for judgment prepared by the Chief Justice. (at p162)

MASON J. In this case I have had the advantage of reading the reasons for judgment prepared by the Chief Justice. I am in agreement with those reasons and also agree that the appeal should be dismissed. (at p163)

ORDER

Appeal dismissed with costs.