Bank of New South Wales v Rogers [1941] HCA 9

Bank of New South Wales v Rogers [1941] HCA 9 - HCA 1941 case summary — Zoe

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influence dies at the age of emancipation, which need not necessarily be the age of twenty-one. In Lancashire Loans Ltd. v. Black (1) Greer L.J. sets out the well-established rules applicable to this kind of transaction and the relationship that is necessary to be proved. Undue influence is based upon a relationship of trust and confidence, and, having established that, it is necessary to show that the transaction is improvident. Miss Rogers was a free agent knowing she was making a sacrifice and prepared to make it; she did this with her eyes open (Bainbrigge v. Browne (2); Turnbull & Co. v. Duval (3); Chaplin & Co. Ltd. v. Brammall (4); Yerkey v. Jones (5)). Those cases illustrate what the position of third parties is when undue influence has been exercised. In Lancashire Loans Ltd. v. Black (6) there was knowledge by the creditor of all the relevant facts. In this case there was no knowledge. In essence, the cases turn around. the fact that there is a relationship in the nature of an agency created between the creditor and his debtor, so that when the debtor exercises undue influence he is exercising it on behalf of the creditor. Alternatively, there is some relation between the debtor and the third party which is known to the creditor, and that relationship should lead the creditor to know that an influence may be exerted, and if he does not go to the extent of finding out what the true relationship is, and that no undue influence has been exercised, he takes the risk of having the transaction set aside. But in this case the bank did not leave everything to Gardiner, and that distinguishes this case from Duval's Case (3). It got into touch with Miss Rogers and obtained her signature to the equitable mortgage and the letter signed on the same day. There was nothing here to show there was any relationship between Gardiner and Miss Rogers, and the bank dealt directly with Miss Rogers. There was nothing to raise an equity against the bank. If Miss Rogers only pledged 200 shares she is guilty of estoppel, laches and acquiescence. She is now estopped from alleging that the equitable mortgage is not what it purports to be (Yerkey v. Jones (7) ). This case is covered by Bainbrigge v. Browne (2), rather than Duwal's 'Case (3) or Chaplin's Case (4). Where the relationship of husband and wife exists, there may be notice to the creditor, but in a case like this Miss Rogers must show that Gardiner was the agent for the creditor. There was no direction by the bank for Gardiner to go to Miss Rogers to get her signature to the equitable

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who is not shown to have taken with such notice of the circumstances under which the deed was executed " (Bainbrigge v. Browne (1) ). The facts are fully stated and discussed in the judgment of the learned judge, and I shall therefore refer only to the more outstanding features of the case. The respondent, who is a spinster, was born in 1868, and was therefore of mature age in the years 1930-1932 when the transactions took place which were challenged in the action. Her mother died when she was a child and her father in 1891, when she was twenty-three years of age. She then went to live with her uncle, C. L. Gardiner, and resided with him until he died in the year 1938, at the great age of ninety-four years. She lived as a member of her uncle's family, and was attached and grateful to him. The home appears to have been a comfortable one; the ordinary domestic help was available to its inmates. In 1923, when Mrs. Gardiner died, the respondent took charge of the house. She was an intelligent woman with a will of her own, not an aggressive woman, or one who yielded too easily, but in matters of business she relied upon and followed her uncle's advice without question. In short, there can be no doubt that Gardiner stood in loco parentis towards the respondent, and therefore in the special class of relationship from which undue influence is presumed unless rebutted. In 1930, the respondent was possessed of some property, which consisted of a small interest in her father's estate and some 1,340 shares of £1 each in the Adelaide Steamship Co. Ltd. It was all the property she had. It returned to her an income of about £2 10s. per week. About 1930, Gardiner found himself in a hopeless position financially : he owed the bank some £7,000 on overdraft and his property was heavily encumbered. His creditors, including the bank, began to press for payment. In this plight he, about the middle of 1930, approached his niece the respondent, told her that he was in financial difficulties, and requested that she should make 200 of her steamship shares available to him. She complied with this request and author- ized the solicitors who held the shares to hand to Gardiner "all my scrip for shares in the Adelaide Steamship Co. Ltd. for the purpose of getting 200 of the said shares transferred : the balance certificate for 1,140 shares to be returned to you for safe keeping." The 200 shares were transferred, sold, and the proceeds paid to Gardiner or his account. The steamship company issued new certificates for 1,140 shares, each for 570 shares, and posted them to the respondent, who acknowledged receipt. The respondent next signed blank transfer forms for these 1,140 shares and handed them with the share certificates to Gardiner. Gardiner at once saw the bank and

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amounts which he needed to draw to pay household accounts. After the bank obtained possession of the respondent's shares Gardiner was in substantially the same predicament. Entries in the diary, for example those on 26th February 1932 and 31st Decem- ber 1932, show that the deposit of the shares improved Gardiner's position but little, if at all. If the question had been considered, Gardiner and Sheridan would have realized that assets of the value of the respondent's shares could not save Gardiner from eventuad collapse. They could be a boon only to the bank. When the respondent signed the mortgage and the letter on 3rd February, Sheridan did not disclose more about Gardiner's position than the amount of his overdraft. Where a banker has no notice of any fiduciary or other special or peculiar relations between a customer and a person coming forward to guarantee the customer's account, there is no duty on the banker to disclose to the intending surety everything within his knowledge which is material to the formation of a judgment, whether it would be prudent to enter into the guaran- tee or not. In Hamilton v. Watson (1), Lord Campbell said: "If such was the rule, it would be indispensably necessary for the bankers to whom the security is to be given, to state how the account has been kept: whether the debtor was in the habit of overdrawing ; whether he was punctual in his dealings ; whether he performed his promises in an honourable manner ; for all these things are extremely material for the surety to know. But unless questions be particularly put by the surety to gain this information, I hold that it is quite unneces- sary for the creditor, to whom the suretyship is to be given, to make any such disclosure ; and I should think that this might be considered as the criterion whether the disclosure ought to be made voluntarily, namely, whether there is anything that might not naturally be expected to take place between the parties who are concerned in the transaction, that is, whether there be a contract between the debtor and the creditor, to the effect that his position shall be different from that which the surety might naturally expect; and, if so, the surety is to see whether that is disclosed to him. But if there be nothing which might not naturally take place between these parties, then, if the surety would guard against particular perils, he must put the question, and he must gain the information which he requires." In London General Omnibus Co. Ltd. v. Holloway (2), Farwell L.J. said: "No surety asked to guarantee a banking account is entitled to assume that the customer of the bank has not been in the habit of overdrawing ; the proper presumption in most instances is that he

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has been doing so, and wishes to do so again. That is a legitimate carrying on of business, and that is what the surety is asked to guarantee." Kennedy L.J. said: "On the other hand, in the case of the suretyship or guarantee of a financial account, the previous pecuniary dealings between the creditor and the person whose future lability the surety is invited to secure constitute only extrinsic circumstances. They may be material circumstances, such as might affect the Judgment of the person who is asked to be surety. But, in the language of Sir Frederick Pollock (Principles of Contract, 8th ed. (1911), p. 568), 'the creditor is not bound to volunteer information as to the general credit of the debtor or anything else which is not part of the transaction itself to which the suretyship relates ; and on this point there is no difference between law and equity.' The bank or other creditor cannot reasonably be taken as affirming, by mere silence respecting earlier dealings, the financial ability of the person whom the proposed surety is asked to guarantee. I say ' cannot reasonably be taken,' because, as Mr. Rowlatt in his work on Principal and Surety, (1898), p. 155 (citing Hamilton v. Watson (1) and other cases), pomts out, the probable reason for requiring a guarantee is dissatisfaction with the customer's credit. The law will rightly refuse to find in mere silence an implied representation to the surety in circumstances where the surety cannot reasonably contend that he inferred, in the absence of any statement to the contrary, that a particular state of facts existed different from that which did in truth exist " (2). There are, however, other rules which come into play. In Davies v. London and Provincial Marine Insurance Co. (3) Fry J., after affirming that there is no universal obligation on the creditor to make disclosure, said : " But I do think that the contract of suretyship is, as expressed by Lord Westbury in Williams v. Bayley (4), one which 'should be based upon the free and voluntary agency of the individual who enters into it.' I think that principle especially applicable here, because there is no consideration in this case, as in many cases of suretyship, for the contract so entered into; and therefore I think, to use the language of Lord Eldon in Turner v. Harvey (5), it is a contract in respect of which a very little is sufficient. Very little said which ought not to have been said, and very little not said which ought to have been said, would be sufficient to prevent the contract being valid. It is one, furthermore, in which I think that everything like pressure used by the intending creditor will have a very serious effect on the validity of the contract; and the case is

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stronger where that pressure is the result of maintaining a false conclusion in the mind of the person pressed." If the pressure or undue influence were exerted by the debtor on the surety and the creditor has notice actual cr constructive of the circumstances, the creditor would be no less liable to the surety's equity to set aside the suretyship than if the pressure or undue influence came from him. In Owen and Gutch y. Homan (1), Lord Chancellor Cranworth said : " Without saying that in every case a creditor is bound to inquire under what circumstances his debtor has obtained the concurrence of a surety, it may safely be stated that if the dealings are such as fairly to lead a reasonable man to believe that fraud must have been used in order to obtain such concurrence, he is bound to make Inquiry, and cannot shelter himself under the plea that he was not called on to ask, and did not ask, any questions on the subject. In some cases wilful ignorance is not to be distinguished in its equitable consequences from knowledge. If a person abstains from inquiry because he sees that the result of inquiry will probably be to show that a transaction in which he is engaging is tainted with fraud, his want of knowledge of the fraud will afford no excuse. Now, here, not only were the circumstances such (I take them of course solely from the answer) as made the inquiry natural, but they were such as made abstaining from the inquiry unnatural." This principle applies whatever be the kind of fraud used by the creditor. '' This court has an undoubted jurisdiction to relieve against every species of fraud." After making this observation, Lord Chancellor Hardwicke described a species of fraud in these words: " A third kind of fraud is, which may be presumed from the circumstances and condition of the parties contracting: and this goes further than the rule of law; which is, that it must be proved, not presumed : but it is wisely established in this court to prevent taking surreptitious advantage of the weakness or necessity of another: which knowingly to do is equally against the conscience as to take advantage of his ignorance: a person is equally unable to judge for himself in one as the other" (Chesterfield (Earl of) v. Janssen (2) ).

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The jurisdiction invoked by the respondent is that which courts of equity exercise in watching and controlling transactions between persons standing in a confidential relationship or in a situation exposing the giver of a benefit to the pressure or domination of the recipient. The courts do not intervene in such cases to discourage generosity or folly, but for reasons of public policy and utility, to protect persons from being deprived of their property by force or fraud of any kind (Allcard v. Skinner (3) ). A surety is within the protection of this principle. In Sercombe v. Sanders (4) the Master of the Rolls (Sir John Romilly) said: "It is important that creditors should understand that they cannot improve their security, taken from persons to whom they have given credit, by inducing them, at the last moment, to compel near relations or persons under their influence, and not in a situation to resist their importunity, to pay their debts." Nor can a creditor take advantage of security if he has notice that it has been obtained by such means. In Berdoe yv. Dawson (5) the principle is well illustrated. A father, who was pressed for payment of a debt, with the knowledge of the creditor induced his two sons, then of the respective ages of twenty-five and twenty-three, to join in securing his debt. The father and sons executed an indenture whereby they assigned all their interests under a will to secure the debt and interest. The sons were resident with and maintained by their father until his death. He died insol- vent. The creditor was well acquainted with the family. The Master of the Rolls said: '' When a person executes a deed by which his father or any other person nearly related and connected with him, or who, from any other cause, has necessarily a considerable influence over him is benefited, then the person who claims the benefit of that deed is bound to establish two things : - he is bound to establish, in the first place, that the person who executed the

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It should be observed that much that is material in the present case came to the knowledge only of the respondent, Gardiner and Sheridan. Sheridan died in 1936. The respondent alone lived to tell what she remembered of the dealings. Sheridan's diary record- ing his dealings with Gardiner was put in evidence on the respondent's behalf without objection. The question of what credence is to be given to her evidence is of the highest importance. Angas Parsons J. considered it with great care and expressed his conclusion in these words : - "It seems to me that the first approach should be to determine what credence I am entitled to give to the plaintifi's evidence. After serious consideration and a close observation of her in the box, I am of opinion that she is a truthful witness. I should estimate her as being a person with a will of her own; not an aggressive woman or one who yields too easily. I detected nothing to cause me to suspect that she was avaricious. I do not think that she tried to hide anything. On the contrary, she impressed me that she was making a genuine effort to tell the court all she knew. She uttered no word of complaint or reproach against her uncle. She said nothing against Mr. Sheridan. She made no claim to what she had given and intended to give to her uncle - the 200 shares, the £225 out of her father's estate, and various small sums which from time to time she had given him out of her slender resources in the Savings Bank. Generally speaking she showed a restraint which was impressive, and not to be expected in one who was telling a false story" (2). That opinion, formed with the aid of personal observation of the witness, is more likely to be correct than a different opinion arrived at without such assistance but by forming theories upon the materials in the transcript. I think we should act upon his Honour's opinion. The respondent's evidence is proof of any fact as to which it speaks. But there may be a more probable inference from other evidence to which the law gives equal credence. As regards such a fact her proof would fail.

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appears to have filled the gap created by the father's death. He took her into his home, which is at Semaphore, and she lived there as a member of his family until his death. Gardiner's wife died in 1923, and since then he and the respondent, who remained a spinster, were, apart from domestics, the only occupants of the home. She received no wages and had no employment outside the home. She was twenty-three years of age when she was received into Gardiner's household. She received a legacy of £500 under her grandfather's will about seven years afterwards. Until then her only income was that derived from the small life interest under her father's will. Gardiner advised her to invest the legacy of £500 in a house property. She kept this property for about seven years. When she became dissatisfied with it, it was sold, and Gardiner advised her to invest the proceeds in Adelaide Steamship Co. Ltd. shares. Subsequently she purchased more of this company's shares, again acting on Gardiner's advice. By 1921 she had acquired by purchases, all made on his advice, and as a result of capital distributions 1,340 of the company's £1 shares. It was Gardiner who assumed the respon- sibility of lodging the share certificates for safe custody at the office of a firm of solicitors. She said in evidence that he had told her that he had done so. The dividend cheques were posted to her at Gardiner's home, and she indorsed them and paid them into her savings bank account. Gardiner was kind to her and she was fond of him. His manner was forceful, hers deferential. She had attained her 64th year when she gave the appellant security over her shares. I should think that she was becoming more dependent on her uncle for her home. Her wealth and business experience were small in comparison with his. She counted on him as her adviser. In evidence she said : - "I knew nothing about business. I trusted Mr. Gardiner absolutely. He was the only person who could help me in my affairs. He was the only person I did consult in business matters."

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that representation she signed the letter; that there was no discus- sion about his reason for borrowing the shares or the use he would make of them. The respondent said she believed, presumably because the letter mentioned 200 shares, that he wanted to borrow that number. There was not, however, separate scrip for 200 shares. The respondent said that Gardiner asked her to sign another letter drafted by him asking the solicitors to hand him all her scrip for the purpose of getting 200 of them transferred and that again she complied. This letter, which was dated 22nd May 1930, contained a promise that the balance certificate for 1,140 shares would be returned to the solicitors for safe keeping. The promise was not fulfilled. There is a letter dated Ist July 1930 bearing the respon- dent's signature and addressed to the solicitors, authorizing them to hand all scrip in her name to Gardiner. This letter released Gardiner from any obligation arising under the terms of the letter of 22nd May 1930 to return the balance of the scrip for 1,140 shares. The respondent said she did not remember signing this letter. The transfers of share certificates which the respondent signed and two letters dated respectively 19th June 1930 and 25th August 1930, which are signed by the respondent and addressed to the bank, show how the shares were disposed of after Gardiner took them out of safe custody. All transfers signed by her are witnessed by Gardiner. She signed transfers enabling the sale of 200 to be completed. Gardiner got the benefit of the entire proceeds of sale. On 19th June Gardiner deposited with the bank a certificate for 570 of her shares with a blank transfer signed by her. The letter dated 19th June 1930 says that Gardiner would lodge that certificate ; that she was the registered holder of the shares; and it purported to convey a request by her to the manager to realize the shares at current prices and credit the proceeds to Gardiner's account. The letter also states that Gardiner would lodge shortly a further 430 shares. Referring to these shares the letter concludes: "On which I shall be glad if you will realize similarly placing proceeds of the shares also to Mr. Gardiner's credit with you." The letter has as a footnote : "One thousand shares (1,000 shares)." The letter strikes a note of gladness which would come strangely from the respondent ; but the letter was drawn and typed by the bank. The respondent said. in evidence that she did not recollect the letter at all. On the same date Gardiner gave the certificate for the balance of the respondent's shares, 570, to a broker, and 153 of these shares were sold, as already mentioned, on 3rd July and 30th September, Gardiner getting the benefit of the proceeds of sale. There remained only 417 of the respondent's original holding of 1,340 shares. These 417 shares

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Gardiner apparently stated vaguely what his rights in the shares would be, as Sheridan wrote in his diary that the shares "are evidently being lent to him." It is there silent about the ownership of the shares. An entry in the diary records an interview between Sheridan and Gardiner on 19th June 1930. It refers to a memor- andum of an interview on 16th June 1930, when Gardiner " faithfully promised to come in on Thursday 19th instant and deposit scrip for 1,000 shares in the Adelaide Steamship Co. Ltd." Sheridan was obviously pressing Gardiner to find additional security. He must have known that Gardiner had no tangible security to offer the lender of the shares. The diary shows that Gardiner brought in 570 shares on 19th June, that the letter of deposit, though bearing that date, was signed afterwards, and that Gardiner was then commissioned by Sheridan to obtain the respondent's signature and bring the letter to him. The note of the interview of 19th June is: "Mr. Gardiner today lodged the share certificates for 570 shares in the name of Miss M. E. A. Rogers and requested us to sell the same through R. W. H. Turner" (a broker) "and place proceeds to the credit of his account with us. He" (Gardiner) "stated that in a day or two he will lodge further scrip certificate making the total number of shares 1,000. These shares to be treated similarly. Handed him an authority for Miss Rogers to sign and return to us, which he promised to bring in tomorrow." It appears that the respondent had not in fact given Gardiner any written authority to lodge the scrip for 570 shares and the blank transfer with the bank. Sheridan was content to take both without the respondent's authority, and he apparently relied upon Gardiner to be able to obtain her con- firmation. Although she does not recollect signing the letter dated 19th June, she does not repudiate the signature. It is clear that Sheridan recognized that the respondent had not parted with her property in the shares to Gardiner. On 24th June the diary shows that Sheridan gave Gardiner "an authority to be signed by Miss Rogers depositing as security 1,000 shares in the Adelaide Steamship Co. Ltd. as additional security for his own overdraft and 560 of these shares have been deposited already." Gardiner got the respondent's signature. The authority was the letter dated 25th August 1930. The date is in Gardiner's own handwriting. On 31st July the diary shows that Sheridan " arranged with him to get from Miss Rogers a proper charge over her 1,000 shares in the Adelaide Steamship Co. Ltd. as a security for Mr. Gardiner's over- draft." But the matter rested until 26th January 1932 when, as it appears from the diary, the bank paid Gardiner's cheque for £8 on

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his undertaking to pay in £20 to the credit of his account in a fort- night. The diary adds: " He also promised to bring in Miss Rogers to enable us to take full security over the shares which she has already lodged as part security for his overdraft." Action followed on 3rd February 1932, when the equitable mortgage was signed. The diary and, of course, the respondent's evidence give accounts of what happened on this occasion. The note in the diary says that Gardiner " brought in Miss Rogers", and that she signed the mort- gage over the shares formerly deposited by her "and to secure Gardiner's account." The diary records that "the whole situation was fully explained to Miss Rogers, who stated that she was quite

content to sign the equitable charge and appreciated that the shares covered by same which she had lodged as security were to stand as a full security for any overdraft Mr. Gardiner may have with the bank." It is impossible to gather from this entry what was included in the explanation of the "whole situation"; and the distinction which Sheridan drew between a security and a full security might well have been obscure even to a more experienced person than the respondent. The respondent's account is that a few days before Gardiner told her that " Mr. Sheridan wanted to see me at the bank about my Adelaide Steamship shares - that he wanted me to sign a paper . . . I thought he meant the 200 shares he had borrowed from me. I did not ask him why Mr. Sheridan wanted the paper signed and he did not tell me why." Upon arrival at the bank, as the respondent said, Sheridan had a paper brought to him. This was the first time the respondent ever saw the printed form of mortgage. She said: " He read it deliberately - slowly : I did not understand it. J can't remember what was said at the interview - nothing important: the business was conducted and then there was a little social chat." If in the reading of this long and complicated form, which does not mention her Adelaide Steamship shares at all, the respondent failed to appreciate that she was giving a charge over 987 of them, her failure is not surprising. The mortgage, how- ever, bears her signature. She said in her evidence that she read the letter of 3rd February 1932. This bears her signature also. The note in the diary makes no reference to the letter. Referrmg to the letter she said : - "I did not read it at the time. I never saw the number of shares. I do not remember the footnote above my second signature." She denies the statement in Sheridan's diary that she was content to sign the printed form. She said : - "T had no belief as to what the printed document was about. I did not understand it. . . . I see there is a reference in the letter to Mr. Gardiner's overdraft. I read that at the time. No

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Sheridan to allow him to cash cheques for household expenses. It is more probable than not that Sheridan knew that the respondent was not a boarder or a guest at Semaphore. If Sheridan was indeed ignorant of the fact that the respondent was Gardiner's niece and had been treated by him as a daughter, it is probable that Sheridan realized that their living in the same house was significant of their near relationship. The inference from the diary entry of 19th June is that Gardiner's attitude was one of confidence in his power to obtain the respondent's signature to the letter and to get it promptly. An indication that Sheridan believed that there was some special relationship between Gardiner and the respondent is that he accepted the 570 shares from him on 19th June without any written authority from the respondent. Although the full number of shares promised by the letter of that date were not deposited, there is no notice in the diary that Sheridan ever referred to her about this departure from the terms of the letter. Sheridan did recognize the respondent as the owner of the shares, but in the period from May 1930 until February 1932 he never had any com- munication with her at all. If Sheridan had given any consideration to the matter, he had ample ground for thinking that her compliance with all the demands which he moyed Gardiner to make on her was inconsistent with any prudent consideration on her part of the circumstances in which Gardiner stood and of her own interests. I think that the circumstances put Sheridan on inquiry whether the enterimg by the respondent into this suretyship was an act of pure volition uninfluenced by Gardiner. The respondent's dealing with her property does not look as if it proceeded from rational considera- tion on her part and from her own pure volition. If the bank had made reasonable inquiries, it would have ascertained the facts about the situation in which the respondent stood to Gardiner and that she was necessarily exposed to influence founded upon her relations of confidence and dependence with him. "When it is said that a person is put on inquiry, the result in point of law is that he is deemed to know the facts which he would have ascertained if he had made inquiry " (London Joint Stock Bank v. Simmons (1), per Lord Herschell). There were strong grounds for suspecting that there was some special or peculiar relation between Gardiner and the respondent which enabled him to dominate her will, and also that she had no independent advice. No draft of the mortgage or of any letter was sent to her beforehand or to any person acting on her behalf. The respondent was, it is true, of mature age. But the dominion resulting from the long-standing quasi-parental relationship

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undoubtedly remained in Gardiner even if the relationship had become modified in course of time. The bank is deemed to have known of this relation of influence. Sheridan's breach of duty may be described in the words of the Vice-Chancellor (Sir L. Shadwell) in Maitland v. Irving (1): " Butit seems to me to be very extraordinary that, when men of mature age, who were carrying on a lucrative business, were told by a gentleman who was himself unable to perform his contract with them that he would procure a young lady who was residing with him, who was possessed of a large fortune, and to whom he had been guardian, to give them a guarantee for the fulfilment of his contract - it seems, I say, very extraordinary that, with full knowledge of all those circumstances, they should have at once acceded to the proposal, without making any inquiry or taking any pains to ascertain whether the young lady was a free agent, and perfectly willing, with a full knowledge of the consequences to do what the guardian said he would invite her or propose to her to do." In Maitland v. Backhouse (2), the court restrained a banker from suing a young lady on a note which was drawn in his favour by her guardian and which she indorsed at his request when she was still residing with him. At the time she indorsed the note she was twenty-three years of age. The Lord Chancellor (Lord Cottenham) said that the question was whether he found that "the facts raise a reasonable suspicion so as to affect the defendants with the equities which, beyond all doubt, affect the immediate parties to the transaction" (3). In Espey v. Lake (4) the Vice-Chancellor (Sir G. J. Turner) said: "I take it to be quite clear that the principles of this court go to this extent - that in the case of a security taken from a person just of age, living under the influence and in the house of another person, with a relationship subsisting between such other person and the person from whom the security is taken, which con- stitutes anything in the nature of a trust, or anything approaching to the relation of guardian and ward, or of standing in loco parentis to the surety, this court will not allow such security to be enforced against the person from whom it is taken, unless the court shall be perfectly satisfied that the security was given freely and voluntarily, and without any influence having been exercised by the party in whose favour the security is made, or by the party who was the medium or instrument of obtaining it." Speaking about the creditor, the Vice-Chancellor said : - "'I do not believe that there was any

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moral fraud on his part, nor might he have been aware of the prin- ciples which guide the court with regard to securities taken from a person in the situation of Miss Espey at that time. But what does the defendant say? Why, that he left it wholly to Speakman. That is, he himself allowed a party standing in the relation of guardian to this young lady to persuade her to join in this security for a sum of £500. In the application of the principles of the court, I see no distinction between the case of one who himself exercises a direct influence, or of another who makes himself a party with the guardian who obtains such a security from his ward" (1) - -See also Ardglasse (Earl of) v. Pitt (2); but see also Thornber v. Sheard (3), and Corbett v. Brock (4), where the securities were not set aside. There was no attempt to explain to the respondent the nature and effect of the documents, except that described in Sheridan's notes of the business in his office on 3rd February 1932. Apart from the vagueness of Sheridan's account, there is the objection that the bank's own agent gave such explanation as was stated to have been imparted to the respondent. In Archer v. Hudson (5) the Master of the Rolls (Lord Langdale) said :

T do not mean to say, that if this young lady had her trustees, or some friend or relation of the family, or somebody interested in her welfare, to advise and consult with, in the absence of the uncle and the aunt, that the circumstance of her situation and the circum- stanee of the uncle's situation might not have been such, that this court would have said that, having entered into this liability, she should be held by it. It might have been so; but to say that Mr. Hauxwell, the agent of the bank, a person with whom the uncle was dealing, the person through whom he is carrying on his business as a customer of the bank, by explaining to an inexperienced young woman who had just attained her age of twenty-one years the meaning of this note, offered anything like such a protection as would secure to her that free and independent judgment which she had a right to exercise, seems to me to go far beyond anything which has been proved in this case " - See also Lancashire Loans Ltd. v. Black (6). Tt is clear that the respondent had no independent advice at all. Besides, her evidence proves that she did not under- stand the nature and effect of the documents which she executed in favour of the bank, and that she did not freely concur in any of

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induced someone with business experience to guarantee the necessary finance. The guarantee was required mainly to secure a heavy existing liability. The entry in the diary of 30th May refers to the shares as having been lent to Gardiner, showing that Sheridan Imew the person who was making them available thought the accommodation would be temporary. Then Gardiner in a short period of time told Sheridan he was thinking of using the shares in three different ways ; firstly, by pledging them to Hamilton, who ° would provide a thousand pounds for Gardiner to pay to the bank ; secondly, by depositing them with the bank and allowing it to sell them through his broker; and, thirdly, by charging them in favour of the bank. During this period Sheridan learned that they belonged to a Miss Rogers. The first share certificate for 570 shares deposited with the bank showed her address as being Semaphore, South Australia. The transfer in blank was witnessed by Gardiner. The five subsequent share certificates for the 417 shares referred to in the document of 25th August showed a similar address and the transfers in blank attached thereto signed by the respondent were all witnessed by Gardiner. The five transfers of these shares by Turner to the respondent which also came into the possession of the bank were all witnessed by Gardiner and her address was given as the Esplanade, Semaphore. The documents of 19th June and 25th August were handed to Gardiner to obtain the respon- dent's signature and return to the bank. When Sheridan desired to see the respondent he commissioned Gardiner to bring her to the bank. In fact the whole of the business in connection with the shares was done through Gardiner. At the critical interview of the 3rd February 1932, Sheridan was careful to note in his diary that the whole situation was explained to the respondent and this state- ment, coupled with all the surrounding circumstances, seems to me to show that Sheridan must have known she was Gardiner's niece and living with him, that she was not a woman of any real business experience, and that Gardiner was doing her business for her. That was why he wanted to see her, explain things fully to her, and satisfy himself that she fully understood the nature of the documents she was executing, the then amount of the overdraft she was guarantee- ing, and the property she was charging. T have no doubt he con- sidered that was all it was necessary for him to explain to her and that the question whether she would then execute the documents or not was one for her alone. Sheridan acted in a perfectly bona- fide manner throughout. He believed that she had freely intended to make her shares available to Gardiner for motives which were her and not his affair. But for the reasons already given, in view of the circumstances of which he had notice, such knowledge was

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not sufficient. The onus was on the appellant to establish that she acted spontaneously in the sense already mentioned and it has not discharged the same. She was never free from Gardiner's influence. He acted for her throughout. He was present on every occasion. A gift can be valid although the donor did not have independent legal advice, if the donee, or the person claiming under the donee with notice, can prove the gift was the result of the free exercise of the donor's independent will. Where the donor is making a gift of property it may be sufficient if he or she understands the terms of the instrument of gift, because this can be knowledge of all relevant circumstances, but where the transaction is complicated it would usually be impossible for a donee or the third party to establish such knowledge in the absence of independent legal advice. The giving of a guarantee is usually a complicated matter. The instru- ment itself is often involved. The guarantor has rights against the debtor in the event of the creditor calling upon him to pay the debt. A knowledge of the debtor's financial position is therefore material. In the circumstances of the present case it was essential that the respondent should have had the protection of some indepen- dent legal advisor who would have fully explained the whole position to her. To adapt the words of Sir John Romilly in Sercombe v. Sanders (1), would not a separate solicitor have said to her: " You must understand that you are losing your shares for ever. Are you quite sure you are relieving Mr. Gardiner from his difficulties or are you only putting off the evil day? For if he became bankrupt you had better give him these shares afterwards, unless your object is to benefit the bankers." In most of the cases the person entitled to the benefit of the inference has been a son or daughter or other younger relative who has shortly before attained the age of twenty-one years; but there are cases in which the transaction has been set aside against third parties where the donor was a mature age (Harvey v. Mount (2) ; Sharp v. Leach (3)). Apart from the different ages of the donees the facts in the present case are very similar to those in Archer v. Hudson (4). The appeal should be dismissed with costs.

At a glance

Court

Decision date

Before

Source

Judgment (172 paragraphs)

Cited By (2)