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Case Number

Privy Council Appeal No. 28 of 1938

Advocates

Gard Lyell & Co.
Watts-Jones
Le Mesurier
John Bailey
A.M. Wallace
A. Barton
Wilfred
C.A. Settle

Judges

Romer
Wright
Macmillan
Russell Of Killowen
Justice Lords Atkin

Acts

Land Transfer Act, 1915,

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Smart Summary

Structured Summary of the Opinion (Privy Council — Lord Russell of Killowen)

Factual and Procedural Background

This appeal was brought by the plaintiffs (notably Douglas George Wright) from a judgment of the Court of Appeal of New Zealand affirming the trial Judge's decision. At trial judgment had been entered for the defendants (the New Zealand Farmers Co-operative Association of Canterbury, Limited) and on the defendants' counterclaim for a sum including 13,384 13s 9d.

The opinion addresses two separate questions arising from different factual matrices.

First factual matrix (mortgage and sale): - In July 1928 Wright owned a farm called "Cattle Peaks," subject to a prior first mortgage of 9425. - By memorandum of mortgage dated 27 July 1928 Wright mortgaged "Cattle Peaks" to the Association; the mortgage conferred a power of sale under the Land Transfer Act, 1915, including power to sell on terms and to rescind and resell "without being answerable for any loss or diminution in price." - On 8 May 1929 (when the power of sale was exercisable) the Association contracted to sell the land to Little for 15,317 5s 0d. Little paid 2000 on signing, agreed to assume the first mortgage of 9425, and to pay the balance of 3892 5s 0d later; interest at 9% was payable on unpaid purchase money. Little took possession but no transfer was effected. - Little defaulted; the Association rescinded the contract with Little and resold the land to another purchaser (completed for a considerably lower price). The Association credited Wright with monies received from Little and with the full price of the second sale. Wright claimed he should instead be credited with the full price contracted to be paid under the first agreement.

Second factual matrix (guarantee): - By a written guarantee dated 11 August 1909 Wright guaranteed payment by William and Robert Nosworthy of amounts owing to the Association. The guarantee was expressed to be continuing and, in Clause 2, to apply to "the balance that is now or may at any time hereafter be owing to you" by the Nosworthys. - Clause 3 permitted the Association to grant time or other indulgence to the Nosworthys without discharging the guarantor; Clause 4 waived suretyship rights inconsistent with the guarantee. - Wright terminated the guarantee by letter dated 25 April 1931. On that date the balance due by the Nosworthys was 11,816 10s 4d; the account was then ruled off and further transactions recorded in a fresh "1-A" account. - The Nosworthys defaulted; the Association counterclaimed against Wright for the then-due balance and interest. Wright pleaded that the claim was barred by limitation statutes (21 James I, c. 16 or alternatively 3 & 4 Wm. IV, c. 42), relying on the decision in Parr's Banking Co. Ltd v. Yates (1898) to argue that liability as guarantor was barred as to each advance after six years. - The trial Judge rejected the limitation defence and entered judgment for the Association for 13,384 13s 9d (representing the Nosworthys' balance plus interest and after credits); the Court of Appeal dismissed Wright's appeal. The Privy Council heard two questions only and dismissed the appeal.

Legal Issues Presented

Whether a mortgagee, who in exercise of a power of sale contracts to sell mortgaged land and thereafter rescinds that contract before the purchaser is vested and resells at a lower price, is accountable to the mortgagor for the purchase money contracted for under the first (rescinded) contract which the mortgagee never in fact received.
Whether the Association's claim under the guarantor's continuing guarantee (dated 11 August 1909), for the balance due from the Nosworthys as constituted at the date of counterclaim, was barred by the statutes of limitation (as argued by reliance on Parr's Banking Co. Ltd v. Yates), i.e., whether each individual advance was the subject of a separate cause of action becoming statute-barred six years after the advance.

Arguments of the Parties

Appellant (Wright)'s Arguments

In respect of the mortgage sale: Wright contended that he was entitled to be credited with the whole price for which the property was contracted to be sold under the first agreement with Little (i.e., the 15,317 5s 0d), notwithstanding the Association's rescission and subsequent resale at a lower price.
In respect of the guarantee: Wright asserted that his liability as guarantor was barred in respect of each advance made to the Nosworthys on the expiration of six years from the date of that advance, relying on Parr's Banking Co. Ltd v. Yates. He therefore pleaded limitation under 21 James I c.16 or 3 & 4 Wm. IV c.42.

Respondent (Association)'s Position (as reflected in the record)

The Association rescinded Little's contract after default and resold the property, credited Wright with monies received from Little and with the full price actually obtained on the subsequent sale; it asserted that it was not accountable to Wright for the unpaid balance of the rescinded contract which it had never received.
On the guarantee it maintained that the guarantee, by its terms (Clause 2), applied to the balance owing from time to time and that the counterclaim for the unpaid balance (as constituted) was not barred by limitation.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Irving v. Commercial Banking Co. of Sydney, 19 NSWLR Cases in Eq 54	Authority that a mortgagee who contracts to sell and thereafter rescinds the contract (before the purchaser becomes vested and without the mortgagee having received the full purchase money) is not accountable to the mortgagor for purchase money which the mortgagee never in fact received.	The Privy Council treated this case as directly deciding the point and relied on it in rejecting Wright's claim that he should be credited with the full contract price of the rescinded sale.
Parr's Banking Co. Ltd v. Yates, (1898) 2 QB 460 (= 67 LJ QB 851 = 47 WR 42)	Decision construing a guarantee as giving rise to a cause of action in respect of each individual item debited (advances, interest, charges), such that items older than six years were statute-barred.	The Board distinguished the Parr decision from the present guarantee: it found Parr concerned a differently worded guarantee (not guaranteeing the balance from time to time). The Privy Council did not apply Parr to bar the Association's claim and expressly refrained from deciding whether Parr was right or wrong, leaving that question open.

Court's Reasoning and Analysis

Issue 1 — Mortgagee's accountability for the price of a rescinded sale:

The Court first examined the terms of the mortgagee's power of sale (given under the Land Transfer Act, 1915). The power expressly permitted the mortgagee to sell on such terms as to time or mode of payment as he thinks fit and included a power to rescind any contract for sale and to resell without being answerable for any loss or diminution in price.
The Board held that there is no principle in law or equity supporting the proposition that a mortgagee who has contracted to sell and subsequently rescinds that contract (before the purchaser is vested and without the mortgagee having received the purchase-money) is accountable to the mortgagor for purchase-money which the mortgagee never received.
Authority (Irving v. Commercial Banking Co. of Sydney) was cited as directly deciding that exact point and supporting the rejection of Wright's claim.
The Court contrasted the present facts with cases where the mortgagee completed a sale on terms that part of the price remains on mortgage: in those completed transactions the property vested in the purchaser and the mortgagee was treated as having received the whole purchase price (with a part effectively advanced as a loan), thus justifying accountability by the mortgagee for the whole price. That contrast demonstrated that the present case was different because the first contract was rescinded and the larger price never “arose” to the mortgagee.
Because the mortgage power expressly allowed rescission and resale without being answerable for any diminution in price, that provision was inconsistent with the mortgagor's contention that the mortgagee remained answerable for the larger, unpaid contracted price.
Conclusion for issue 1: Wright's claim that he was entitled to be credited with the full purchase price under the rescinded contract failed.

Issue 2 — Construction of the guarantee and the effect of limitation:

The Board focused on the proper construction of the written guarantee. Clause 2 explicitly stated that the guarantee "shall apply to the balance that is now or may at any time hereafter be owing to you by the said William Nosworthy and Robert Nosworthy."
The Privy Council reasoned that this language is most naturally read as guaranteeing repayment of the balance as it exists from time to time — i.e., the guarantor guarantees the repayment of every debit balance as it is constituted during the continuance of the guarantee by the excess of total debits over total credits.
On that construction, the number of years since any individual debit was incurred became immaterial. The limitation inquiry would instead focus on when the particular guaranteed balance (the right sued on) was constituted — not the date of each underlying individual item indefinitely in the past.
The Board considered the Parr decision relied on by Wright and explained that Parr involved a different guarantee wording and was construed there as giving rise to a separate cause of action in respect of each debited item. The Privy Council therefore distinguished Parr as not applicable to the guarantee in the present case.
The Court expressly declined to express a view on whether Parr was correctly decided, leaving that question open. It found, however, that Parr did not determine the present dispute because of the different terms of the guarantee before the Board.
Because the guarantee was construed as a continuing guarantee of the balance (as constituted), the Association's counterclaim for the unpaid balance (including interest) as at the date of counterclaim was not statute-barred.

Holding and Implications

Holding: The Privy Council dismissed the appeal. The Board agreed with the judgments below: (1) Wright was not entitled to be credited with the full price of the contract with Little which had been rescinded and which the mortgagee had never actually received; and (2) the Association's claim under the continuing guarantee was not barred by the statutes of limitation on the construction of the guarantee adopted by the Court. The appellants (Wright) were ordered to pay the costs of the appeal.

Implications:

Direct effect on the parties: the lower-court judgment and the counterclaim in favour of the Association were affirmed; Wright's claim to be credited with the first contract price failed, and Wright remained liable under the continuing guarantee for the balance as constituted (judgment for 13,384 13s 9d was maintained).
Scope of precedent and doctrine: the Board relied on Irving v. Commercial Banking Co. of Sydney for the point about rescinded sales and expressly distinguished Parr's Banking Co. Ltd v. Yates on the question of guarantee construction. The Privy Council did not decide whether Parr was right or wrong and left that question open for future consideration; accordingly, the Board confined its ruling to the construction and application of the particular guarantee before it rather than resolving the broader doctrinal question raised by Parr.

Disposition: Appeal dismissed.

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Douglas George Wright And Another v. New Zealand Farmers Co-Operative Association Of Canterbury Ltd.

Lord Russell of Killowen:-

This appeal was brought by the plaintiffs in an action against the New Zealand Farmers Co-operative Association of Canterbury, Limited (hereinafter referred to as the Association) from a judgment of the Court of Appeal of New Zealand which affirmed the judgment of the trial Judge, by which judgment was entered for the defendants in the action, and judgment was entered for the defendants on a counter-claim by them for, (amongst other relief) a sum of 13,384 13s 9d. Two questions only were argued before their Lordships' Board; they are unconnected, and may be dealt with separately. The relevant facts upon which the first question is founded may first be stated. In July 1928, the plaintiff Wright owned a farm called "Cattle Peaks," which was subject to a first mortgage for 9425. By memorandum of mortgage dated 27th July 1928, the plaintiff Wright mortgaged "Cattle Peaks" to the Association, subject to the beforementioned mortgage. By virtue of the Land Transfer Act, 1915, the mortgage of 27th July 1928 conferred upon the Association a power of sale in the following terms:

The mortgagee may sell the mortgaged property, or any part thereof, either altogether or in lots, by public auction or by private contract, or partly by the one and partly by the other of such modes of sale, and subject to such conditions as to title or evidence of title, time or mode of payment of purchase-money or otherwise as the mortgagee thinks fit, with power to the mortgagee to buy in the mortgaged property or any part thereof at any sale by auction or to rescind any contract for the sale thereof, and to resell the same without being answerable for any loss or diminution in price, and with power to execute assurances, give effectual receipts for the purchase-money, and do all such other acts and things for completing the sale as he may think proper: And also that the mortgagee may exercise such other incidental powers in that behalf as are conferred upon mortgagees by the Land Transfer Act, 1915 : And, lastly, that the mortgagee will apply the moneys arising from any such sale as aforesaid, in the first place in payment of the costs and expenses incidental to the sale or otherwise incurred in respect of the mortgage, and in the second place in satisfaction of the principal interest and other moneys for the time being owing under the mortgage, and in the third place in payment of the moneys owing under subsequent registered mortgages (if any) in the order of their priority; and will pay the surplus (if any) to the mortgagor.

By an agreement dated 8th May 1929, the power of sale being then exercisable, the Association as mortgagee agreed to sell "Cattle Peaks" to one Little for the sum of 15,317 5s Od. The purchase money was to be paid as to 2000 on the signing of the agreement; this was duly paid. The sum of 9425 was to be paid by Little assuming liability for the first mortgage of that amount, and the balance of 3892 5s Od was to be paid on 23rd March 1934. Interest on the unpaid purchase money was payable by Little at the rate of 9 per cent. per annum. Little was given possession of the land, but no transfer of the property to him was ever effected. The agreement however provided that if Little made default, the Association might re-enter on the land, and (whether it had re-entered or not) resell the land. Little failed to carry out the contract, and the Association rescinded the agreement with Little and sold "Cattle Peaks" to another purchaser, but for a price considerably lower than that payable under the first agreement. The second agreement has been carried to completion and the land has been vested in the second purchaser. The second purchaser was in fact Little's wife, but nothing turns on this. Neither the propriety nor the validity of that sale is questioned. The Association has credited the plaintiff Wright with all moneys received from Little under the agreement of 8th May 1929, and with the full price for which the property was sold under the second agreement. The plaintiff Wright however is not satisfied; he claims that he is not concerned with the second sale, but that he is entitled to be credited with the whole of the price for which the property was contracted to be sold under the first agreement. The first question arising on this appeal is whether that claim is well-founded or not.

It is to be observed that in the present case the mortgagee's power of sale authorized a sale

"subject to such conditions as to ... time or mode of payment of purchase money.....as the mortgagee thinks fit,"

words wide enough to constitute an authority to the mortgagee from the mortgagor to sell on credit. This feature however appears to be of no materiality to the point under consideration; its only importance lies in the fact that it makes it impossible for the mortgagor to contend that the contract with Little was in excess of the mortgagee's power. That he does not seek to do; indeed his whole contention is based upon the view that the contract constituted an effective sale under the power, and that the price payable thereunder must be credited to him by the mortgagee.

Their Lordships agree with both of the Courts in the Dominion in rejecting this claim. They know of no principle legal or equitable upon which can rest the proposition that a mortgagee who has contracted to sell in exercise of his power of sale, and who (the land not having become vested in the purchaser) rescinds the contract, is accountable to the mortgagor for purchase money which he has never received. Authority is against such a proposition. The exact point has been decided, and their Lordships think, rightly decided by the Courts in New South Wales, Irving v. Commercial Banking Co. of Sydney, 19 NSWLR Cases in Eq 54.

The case is patently different from those cases in which it has been held that a mortgagee, who sells upon the terms that part of the purchase price shall remain on mortgagee, is accountable to the mortgagor for the whole purchase money. In such cases the contract has been carried to completion, the property has been vested in the purchaser, and the power of the mortgagor to get back his property freed from the mortgage has been not merely suspended but destroyed. The transaction is only consistent with the view that the whole purchase money was received by the mortgagee in the first instance, and subsequently, as to part, advanced by way of loan to the purchaser. Moreover the terms of the power of sale which is here in question, negative the existence of the right claimed. The mortgagee's obligation as to the application of the sale moneys is only expressed to exist in relation to "the moneys arising from any such sale;" and moneys which have never been forthcoming, cannot be said to "arise" at all. Further the power includes a power in the mortgagee to rescind and resell "without being answerable for any loss or diminution of price." Such a provision seems inconsistent with the view that he is answerable for the larger price. Their Lordships feel no doubt that the plaintiff Wright's first contention must fail.

The facts relevant to the second point must now be stated. By a guarantee in writing, dated 11th August 1909, the plaintiff Wright, guaranteed to the Association payment by two sheep-farmers named Nosworthy, of their indebtedness to the Association in the following terms:

IN consideration of your supplying goods and making advances to William Nosworthy and Robert Nosworthy both of Mt. Somers, Sheep-farmers, I, Douglas George Wright of Windermere, Sheepfarmer, hereby agree with you as follows :

1. To guarantee to you the payment by the said William Nosworthy and Robert Nosworthy of all goods already supplied or hereafter supplied by you to them and of all advances already made or hereafter made by you to them together with interest thereon at the current rate charged by you and together with such charges as are usually made by you.

2. THIS guarantee shall be a continuing guarantee and shall apply to the balance that is now or may at any time hereafter be owing to you by the said William Nosworthy and Robert Nosworthy on their current account with you for goods supplied and advances made by you as aforesaid and interest and other charges as aforesaid.

3. YOU shall be at liberty without discharging me from liability hereunder to grant time or other indulgence to the said William Nosworthy and Robert Nosworthy in respect of goods supplied and advances made by you to them and the interest thereon and other charges as aforesaid and to accept payment from them in cash or by means of negotiable instruments or otherwise and to treat them in all respects as though I were jointly liable with them as a debtor instead of being merely a surety for them. You shall also be at liberty to take any securities you may think fit from the said William Nosworthy and Robert Nosworthy for the purpose of securing payment of the moneys which I hereby guarantee to pay and such securities at your own discretion to release and discharge or otherwise deal with.

4. IN order to give full effect to the provisions of this guarantee I hereby waive all suretyship and other rights inconsistent with such provisions and which I might otherwise be entitled to claim and enforce.

By letter dated 25th April 1931, the plaintiff Wright terminated his said guarantee. The balance due on that date by the Nosworthys to the Association was the sum of 11,816 10s 4d. The account was ruled off in the Association's books at that figure; and all subsequent debits and credits to the Nosworthys were entered in a fresh account called the 1-A account. The Nosworthys having made default, the Association counterclaimed in the action for payment by the plaintiff Wright of the said sum of 11,816 10s 4d with interest thereon. The plaintiff Wright pleaded that the claim was barred by the Limitation Act (21 James I, c. 16) or in the alternative by the Statute 3 & 4 Wm. IV, c. 42, his contention being that, upon the authority of the decision in Parr's Banking Co. Ltd. v. Yates, (1898) 2 QB 460=67 LJ QB 851=47 WR 42, his liability as guarantor was barred in respect of each advance made to the Nosworthys on the expiration of six years from the date of the advance. The second question to be decided is whether that contention is sound. The trial Judge held that it was not, and entered judgment for the Association for 13,384 13s 9d in respect of the guarantee, representing the said sum of 11,816 10s 4d and interest to judgment, after taking into account a credit ex isting on the 1-A account. The appeal from that judgment was dismissed.

Their Lordships agree with those decisions. In their opinion the matter is determined by the true construction of the guarantee which they proceed to consider, and in the first instance, apart from authorities. It is no doubt a guarantee that the Association will be repaid by the Nosworthys advances made and to be made to them by the Association together with interest and charges; but it specifies in Cl. 2 how that guarantee will operate, viz., that it will apply to (i. e., the guarantor guarantees repayment of) the balance which at any time thereafter is owing by the Nosworthys to the Association. It is difficult to see how effect can be given to this provision except by holding that the repayment of every debit balance is guaranteed as it is constituted from time to time, during the continuance of the guarantee, by the excess of the total debits over the total credits. If that be the true construction of this document, as their Lordships think it is, the number of years which have expired since any individual debit was incurred is immaterial. The question of limitation could only arise in regard to the time which had elapsed since the balance guaranteed and sued for had been constituted.

It is said however that the decision in (1898) 2 QB 4602 is inconsistent with this view, and excludes its entertainment. In that case there was in terms no guarantee of every debit balance existing from time to time; nor does the clause as to evidence, which appears in the Law Journal report, operate to create such a guarantee. There had been no debits to the account of the guaranteed party, except debits of interest and charges, since 3rd December 1890, but payments to its credit had been made down to March or April 1897, when the guaranteed party disappeared. The writ was issued on 3rd September, 1897. Counsel for the plaintiff argued that on the true construction of the guarantee it did guarantee payment of whatever was from time to time due on the account of the principal debtor, and that what was sued for was the guaranteed payment of the balance due in 1897. As their Lordships read the judgments, the Court of Appeal refused to accept that construction of the guarantee there in question; they construed it as a guarantee of the repayment of each individual item debited to the guaranteed party whether in respect of advances, interest, commission or other charges. Thus A. L. Smith L. J. said as to the guarantee that

"upon the true construction of it, no advances having been made for a period of more than six years before the date of the writ in the action, the plaintiff's right of action in respect of the advances is barred by the Statute of Limitations;"

but he held the defendant bound to pay the interest, commission and charges, the repayment of which had also been guaranteed, because they had accrued against the guaranteed party within the six years. Rigby L. J. also rejected the construction which gave a fresh right of action from day to day, in other words he rejected the construction that the repayment of balances was guaranteed. Vaughan Williams L. J. also rejected that construction in holding that under the guarantee the cause of action arose as to each item, whether principal, interest, commission or other banking charge, as soon as that item became due.

Their Lordships express no opinion whether that particular decision was right or wrong. They would wish to keep that question open for further consideration should the necessity to determine it ever arise. They are however satisfied that it has no application to the rights and liabilities of the parties to the guarantee which is under examination on this appeal. That document, in their opinion, clearly guarantees the repayment of each debit balance as constituted from time to time, during the continuance of the guarantee, by the surplus of the total debits over the total credits, and accordingly at the date of the counterclaim the Association's claim against the plaintiff for payment of the unpaid balance due from the Nosworthys with interest was not statute-barred. It is not necessary to decide the exact point of time from which the limitation period would commence to run in a case such as this, because no claim was made before their Lordships to alter the amount of the judgment on the guarantee, in the event of the contention as to the Statutes of Limitation being unsuccessful. For the reasons indicated their Lordships are of opinion, and they will humbly advise His Majesty, that this appeal should be dismissed. The appellants must pay the costs of the appeal.

Appeal dismissed.

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