Bone v Commissioner of Stamp Duties

High Court of Australia|1974-07-01|Before: Mason JJ, McTiernan J, Menzies J, Mason J, Stephen J

High Court of Australia Barwick C.J. McTiernan, Menzies, Stephen and Mason JJ. Bone v Commissioner of Stamp Duties [1974] HCA 29

ORDER Appeal allowed with costs. Order of the Court of Appeal Division of the Supreme Court of New South Wales set aside and in lieu thereof the questions in the stated case answered as follows:

In this appeal I have had the advantage of reading the reasons for judgment to be delivered by my brothers Mason and Stephen. The relevant facts and statutory provisions are there to be found and I have no need to repeat them.

I agree with my brothers in the conclusion that, by reason of the provision in the will of the deceased expressly forgiving the indebtedness to her of her executors, the inclusion by the respondent Commissioner of the amount of that indebtedness in the dutiable estate of the deceased as property to which the executors became entitled under the will of the deceased, was erroneous and insupportable. I agree with the reasons which my brothers give for that conclusion. I would add for myself that even if, contrary to the opinions expressed by them, the appointment by the deceased of her debtors as her executors operated to release the debts (a matter which I do not find it necessary to decide in this case), there would yet have been no relevant property to which the executors became entitled under the will of the deceased.

I would allow the appeal and answer the questions asked in the stated case: (1) No. (2) Does not arise. (3) $477.23. (4) By the respondent.

I agree that the appeal should be allowed and that the questions asked in the stated case should be answered as follows: (1) No. (2) Does not arise. (3) $477.23. (4) By the respondent.

I have nothing to add to the reasons of the other members of the Court which are being published.

I have read the reasons for judgment of Mason J. I agree with them and have nothing to add.

This is an appeal from the unanimous decision of the Court of Appeal Division upon a case stated by the Commissioner of Stamp Duties at the instance of the plaintiffs, the executors of the will of Alice Bone, deceased.

The questions raised are whether three debts owed to the deceased by three of her children form part of the deceased's dutiable estate and, if they do, whether it is the total amount of indebtedness or a lesser sum, being the value of the debtors' promises to pay by instalments spread over a long term of years, which is to be so included.

The origin of these debts lies in three agreements in substantially identical form, one with each child. Each is dated 16th May 1969, which was also the date of the deceased's will, and recites an agreement to lend, a lending and an agreement to repay. The deceased lent $25,000 to two of her sons and $44,600 to her daughter and the agreements provide, by cll. 2, 3 and 4, as follows:

The loan debt shall be paid in full by the Borrower to the Lender upon the expiration of ninety (90) days written notice given by the Lender under her own hand to the Borrower requiring the Borrower to pay in full the amount of the said loan debt.

If the Lender by assignment made in accordance with Section 12 of the Conveyancing Act 1919-1954 of the State of New South Wales should assign the said loan debt to any person then the assignee shall be entitled to obtain payment in full of the said loan debt in the same manner as the Lender could have obtained payment thereof in pursuance of Clause 2 hereof.

Subject to Clauses 2 and 3 hereof the Borrower shall pay to the Lender or her assignee in reduction of the said debt annual instalments of not less than three hundred and seventy-five dollars ($375) the first of such annual payments to be paid on the first day of December 1969 and subject to Clauses 2 and 3 hereof each subsequent annual payment is to be paid at the end of each succeeding year ending on the first day of December.

The agreements elsewhere define Mrs. Bone as "the Lender", the child in question as "the Borrower" and the principal sum, or that part of it for the time being owing, as "the loan debt". The remaining terms of the agreement are described in more detail in the judgments in the Court of Appeal Division [1] . 1. [1972] 2 N.S.W.L.R. 651.

By her will Mrs. Bone appointed her two sons and her daughter her executors and trustees and by cll. 4, 5 and 6 forgave and released unto each of those three children "all sums whether for principal or interest" which they owed her.

Mrs. Bone died on 1st May 1970, almost a year later, without having given any written notice in accordance with clause 2 of the agreements but having received from each of her three children one instalment of $375, paid pursuant to clause 4 of the agreements.

The Commissioner claims to include in her dutiable estate the sum of $93,475, being the total indebtedness outstanding at her death, as property of the deceased "to which any person becomes entitled under the will" of the deceased - s. 102(1) of theStamp Duties Act, 1920 N.S.W. as amended, or alternatively as property "which the deceased had disposed of" by will - s. 102 (2) (a) of that Act.

The appellants contended, unsuccessfully before the Court of Appeal Division and now before us, that the loan transactions gave rise to no property of the deceased for duty purposes since their appointment as executors operated as from the moment of death to extinguish their indebtedness. In any event, even if for a moment of time the existence of the debts did give rise to some property of the deceased, it was not property to which there arose any entitlement "under the will" of the deceased within the meaning of s. 102(1). The benefit to the executors arising from the extinguishment of their indebtedness arose by operation of law when the children became her executors and not under the will of the deceased. Alternatively, the effect of cll. 4, 5 and 6 of the will was to destroy what had formerly been the deceased's choses in action against the executors and once again there existed neither any relevant property of the deceased nor, of course, any entitlement to it under her will.

The appellants also contended that if there was property to which s. 102(1) applied, its value was no more than $13,651, being the agreed present value of the children's promises to repay their respective loans by future instalments of $375. On the view I have taken of the earlier contentions advanced on the appellant's behalf it becomes unnecessary finally to determine this question, which involves a consideration of the decision of Owen J. in Bray v. Federal Commissioner of Taxation [2] , a decision upon which the appellants rely but which the Court of Appeal Division considered that it should not follow. What is involved is no more than a point of construction and were it necessary to decide it I would adopt the view of Owen J. and conclude that in cl. 2 of each of the present agreements the power to give notice requiring payment in full of the loan debt is confined to the deceased during her lifetime and is not exercisable by her personal representatives after her death.

The appellants' other submissions can best be dealt with in two parts, that relating to what is said to be the effect of the appointment of the deceased's children as her executors and, secondly, that relating to the effect of cll. 4, 5 and 6 of the will of the deceased.

I have concluded that their appointment as executors has no relevant effect upon the operation of s. 102 of the Stamp Duties Act but that the effect of cll. 4, 5 and 6 of the will is such as to entitle the appellants to succeed in this appeal. Notwithstanding these conclusions I should, I think, deal at some length with the quite detailed submissions of the appellant concerning the alleged effect of the children's appointment as executors, which does also incidentally involve one aspect of the effect of these three clauses of the will, and only then turn to the point upon which I consider that the appellants should succeed, which relies exclusively upon the effect of these three clauses.

It is well established by the English authorities that the fact of appointment as executor will effectively extinguish a chose in action for recovery of a debt owed to the deceased by the executor. This is, however, subject to the qualification that an executor will be treated as holding assets of the estate of a value equal to his indebtedness if due administration of the estate requires that the amount of the indebtedness should be available as an asset of the estate to meet the claims of creditors or of persons entitled under the will or upon a partial intestacy.

At common law the discharge of, or release from, indebtedness which was regarded as flowing from a creditor's appointment of his debtor as executor - Y.B. 21 Ed. 4, 81b [3] ; Sir John Nedham's Case [4] - nevertheless still left the amount of the debt as assets in the executor's hands and he "is answerable for it, and if he does not administer so much, it is a devastavit" - Wankford v. Wankford, per Holt C.J. [5] ; and see Freakley v. Fox per Lord Tenterden C.J. [6] .

[ 126 E.R. 1103 n.(a)2]. 2. (1611) 8 Co. Rep. 135a [77 E.R. 678, at p. 680]. 3. (1702) 1 Salk., at p. 306 [91 E.R., at p. 270]. 4. (1829) 9 B. & C. 130. at pp. 133-134; [ 109 E.R. 49, at p. 50].

As Sir William Holdsworth points out (History of English Law, vol. 3, p. 585), the concern of the common law with the administration of estates was a very narrow one and it was the Court of Chancery, as successor to the ecclesiastical courts, which came to have the principal concern with the administration of estates. By what was perhaps no more than an adoption of the principle of common law (In Re Bourne, per Cozens-Hardy L.J. [7] ), it early held an executor's indebtedness to his testator to be assets in the executor's hands to pay debts and perhaps also to pay legacies in general, Brown v. Selwin, per Lord Talbot L.C. [8] , affirmed on appeal to the House of Lords. Lord Hardwicke L.C. in Fox v. Fox [9] treated such a debt as assets in the executor's hands to be "applied, after payment of funeral expenses and legacies, to the exoneration of the real estate in favour of the heir" and in Carey v. Goodinge [10] , the testator having failed to dispose of residue, Lord Thurlow L.C. declared the executor to hold the amount of his indebtedness to the deceased in trust for the next of kin, it being "a settled point in this Court that the appointment of the debtor executor was no more than parting with the action" [11] . InBerry v. Usher [12] , Sir William Grant M.R. declared the position to be so "perfectly settled by the decisions" that defendant's counsel, who had pleaded that defendant's appointment as executor had released his indebtedness except against creditors of the estate, was constrained to give up the point without argument [13] . Thus by 1847 Roper, in his Law of Legacies, at p. 1070, could state the law to be that in equity the appointment of a debtor as executor resulted in his being a trustee of the debt for the residuary legatee or next of kin. Of modern cases to the same effect it suffices to refer to In Re Bourne [14] , Jenkins v. Jenkins [15] and Re Cahill; Ex parte Fielding [16] .

[1906] 1 Ch. 697, at p. 711. 2. (1734) Cases t. Talbot 240 [ 25 E.R. 756]. 3. (1737) 1 Atk. 463 [26 E.R. 294]. 4. (1790) 3 Bro. C.C. 110 [29 E.R. 439]. 5. (1790) 3 Bro. C.C., at p. 111 [29 E.R., at p. 440]. 6. (1805) 11 Ves. Jun. 87 [32 E.R. 1021]. 7. (1805) 11 Ves. Jun., at p. 90 [32 E.R., at p. 1022]. 8. [1906] 1 Ch., at pp. 703, 708, 710-711. 9. [1928] 2 K.B. 501. 10. [1931] St. R. Qd. 329.

In the case of the present estate no question of insolvency arises even if the indebtedness be excluded from the estate assets; accordingly no interest of creditors requires the executors to hold in trust the amount of their indebtedness to the deceased; neither do the interests of those entitled under any provision of the will other than cl. 7, but by cl. 7 residue is given, in the events which occurred, to the executors in equal shares as tenants in common. If the operation of cll. 4, 5 and 6 of the will be for the moment left out of account this disposition can only take proper effect if each of the executors accounts to the estate for his or her respective indebtedness, the indebtedness of the executrix being almost twice that of each of the two executors. Accordingly the equitable doctrine would require to be invoked so that the executors might hold the total amount of indebtedness, $93,475, in trust to satisfy the equal division of residue contemplated by the residuary bequest.

However, when regard is had to cll. 4, 5 and 6 of the will, it becomes apparent that no room exists for the application of the equitable doctrine. Its function is only to ensure that the application of the assets of the deceased's estate in satisfaction of the testamentary dispositions of the deceased should not be prejudiced by any extinguishment of assets resulting from the appointment as executor of one who is also a debtor. In the present case the will makes it clear that the executors were to be forgiven their indebtedness and no occasion thus arises for Equity to treat them as trustees of the amounts of their indebtedness.

Were this appeal concerned with a deceased to whom English succession law or that of other States of Australia, such as Victoria, applied this would, in my view, be an end of the matter; the causes of action for recovery of the executors' indebtedness would be extinguished once death of the deceased made their appointment effective. The executors would thereupon become "both the person to receive and the person to pay", there would be "no one to sue or be sued": In Re Bourne [17] , per Collins M.R. [18] and per Romer L.J. [19] ; as Salter J. puts it in Jenkins v. Jenkins [20] , "a debt is a right to sue and the executor cannot sue himself"; moreover there would, at the same time, be no occasion to invoke the equitable doctrine discussed above. However, under the succession law of New South Wales the testator's choses in action do not vest in his executor upon death; the executor does not, at the moment of death, become the person entitled to sue for debts due to the deceased; instead, by s. 61 of the Wills, Probate and Administration Act N.S.W., the real and personal estate of a deceased, whether testate or intestate, is, until grant of probate or administration, deemed to be vested not in the executor named in the will but in the Public Trustee.

[1906] 1 Ch. 697. 2. [1906] 1 Ch., at p. 707. 3. [1906] 1 Ch., at p. 708. 4. [1928] 2 K.B., at p. 506.

It is because a debtor-executor "cannot sue himself" that his indebtedness is extinguished upon the death of his testator, the concept that he has paid himself the debt being unrelated to extinguishment and being invoked only so that the amount of the extinguished debt may, in proper cases, be treated as assets of the estate in his hands. Accordingly when, as in New South Wales, no vesting in the executor of a testator's choses in action occurs at the moment of death there is absent that coincidence between he who must pay and he who is to receive which alone brings about extinguishment of indebtedness. The relevant date for the purpose of death duties is the date of death and postponement of vesting until grant of probate must produce the result that debts are not extinguished at the date of death. The fact that upon grant vesting is retrospective to the date of death - s. 44 - does not, I think, affect, for the purposes of death duties, the continued existence of these choses in action after date of death and until grant of probate.

The deemed vesting of a deceased's estate in the Public Trustee may confer upon him only limited powers and these may not include any power to sue for debts owed to the deceased: Ex parte Public Trustee; Re Birch [21] ; Ex parte Newlands Bros.; Re Kenniff [22] ; Ex parte Callan; Re Smith [23] . However, for present purposes it is unnecessary to determine the extent of the power of the Public Trustee; it is the negative aspect of s. 61 that is of relevance, the fact that upon death the executor does not become the competent plaintiff to sue for the debts of the deceased, it being irrelevant that, if such be the case, there is for the time being no competent plaintiff at all. It is also irrelevant that in English cases it has been held that extinguishment of indebtedness occurs despite the executor's death before grant or his failure ever to take a grant of probate: In re Applebee [24] . This can only be so in jurisdiction where the title of the executor is independent of the grant of probate and it may, in any event, now no longer be applicable in England in the particular circumstances dealt with in s. 5 of the Administration of Estates Act 1925, with which compare s. 69 of the New South Wales Act and, for example, s. 16 of the Administration & Probate Act 1958 Vict..

(1951) 51 S.R. (N.S.W.) 345, at pp. 350, 357. 2. (1955) 56 S.R. (N.S.W.) 35. 3. (1968) 87 W.N. (Pt 1) (N.S.W.) 595. 4. [1891] 3 Ch. 422, at p. 429.

It follows that in my view the appointment of the three children of the testatrix as her executors has no significance in relation to the inclusion in her estate, for duty purposes, of the debts owed to her at her death by her children.

The appellants' alternative submission is that by cll. 4, 5 and 6 of the will the executors' debts were extinguished at the moment of death; thereafter they were incapable of constituting property of the deceased and no person could become entitled to them under the will. This submission has the merit of giving to these clauses an effect which accords precisely with their ordinary meaning; each expressly forgives and releases unto the particular child all sums, whether for principal or interest, which he or she owes to the testatrix. There is no question of any gift of the debt itself being made but only of its forgiveness; claims are relinquished, not transferred. Only if faced with compelling authority would I be disposed to regard these clauses in the light for which the respondent contends, as conferring legacies of the debts upon the three children. This would be a conceivable, although curious, mode of discharging indebtedness but the words of the testatrix do not suggest that this was the course which recommended itself to her; she adopted, instead, the straightforward course of forgiveness and release.

There are reported cases which treat a testamentary provision for forgiveness of indebtedness as a legacy of the debt rather than as its release in equity. The early cases are ones in which the debtor had predeceased the testator and the question was whether the testamentary extinguishment of the debt was nevertheless effective. The result depended upon the intent of the testator as discerned by the Court and if the testator's benefaction was regarded as confined to the debtor in person the provision was treated as a lapsed legacy. Thus in one of the last of these early cases, Izon v. Butler [25] , the Court of Exchequer treated a forgiveness of indebtedness as a lapsed personal legacy rather than as a provision operating by way of equitable release or extinguishment of the debt, and did so as a matter of construction, holding that the benefit conferred by the will was intended only to advantage the debtor himself. In contrast to this isSibthorp v. Moxom [26] . There counsel for the defendant expressed the point succinctly when he said that the true question was whether "this devise be of a legatory nature, or to operate by way of extinguishment" [27] . Lord Hardwicke L.C. adopted the second of these alternatives. He held that the provisions of the will, which forgave a debt due on a bond, operated as a release in equity which might be enforceable by injunction or original application in Chancery and this despite the death of the debtor; as reported in Vesey Senior his Lordship cited Lord King L.C. in Rider v. Wager [28] for this proposition and, looking to the expressed intent of the testator, discerned "a clear intention to release the debt" which was not expressed as personal to the debtor.

(1815) 2 Price 34 [146 E.R. 13]. 2. (1747) 3 Atk. 580 [26 E.R. 1134]; 1 Ves. Sen. 49 [27 E.R. 883]. 3. (1747) 3 Atk., at p. 580 [26 E.R. at p. 1134]. 4. (1725) 2 P. Wms. 328, at p. 332 [24 E.R. 751, at p. 753].

Izon v. Butler [29] provided the basis upon which the first revenue case on the point was decided. In this case, Attorney-General v. Holbrook [30] , the Court of Exchequer treated a forgiveness of a debt as a legacy subject to legacy duty, and the Court of Appeal Division has given effect to that decision in the present appeal. The reasons of the members of the Court of Exchequer, varying as they do in mode of expression, and sometimes in substance, from one report to the other, depend very much upon the view that in reality the result of forgiving the debt was to give the debtor money to the value of the debt. Thus Graham B. described the debt as so much money in the hands of the testator which the debtors were bound to pay him and described the testator as saying, by his will "I give you the amount of that debt, my money, in the hands of you the persons who have entered into that obligation to me" [31] . Garrow B. adopted a very similar approach, saying [32] , that the case was as if the debtor had been given exchequer bills for the amount of the debt; each tended to look at the ultimate practical effect of the provisions of the will and accordingly treated the forgiveness as a bequest of so much money; then, because of the very wide statutory meaning given to "legacy" by the revenue legislation in question [33] , they were able to conclude that there was here a dutiable legacy. Hullock B. took a similar view, going so far as to describe the decision of the three members of the Court of Exchequer in Izon v. Butler [34] as having "overruled" Lord Hardwicke's earlier decision in Sibthorp v. Moxom [35] - see [36] .

(1815) 2 Price 34 [146 E.R. 13]. 2. (1823) 12 Price 407 [147 E.R. 761]; 3 Y. & J. 114 [148 E.R. 1115]. 3. (1823) 3 Y. & J., at p. 120 [148 E.R., at p. 1118]. 4. (1823) 12 Price, at pp. 434-435 [147 E.R., at p. 770]; 3 Y. & J., at p. 122 [148 E.R., at p. 1119]. 5. (1823) 12 Price, at p. 412 [147 E.R., at p. 763]. 6. (1815) 2 Price 34 [146 E.R. 13]. 7. (1747) 3 Atk. 580 [26 E.R. 1134]; 1 Ves. Sen. 49 [27 E.R. 883]. 8. (1823) 12 Price, at p. 436 [147 E.R., at p. 770].

Only two later cases need be noted. In In re Wedmore [37] Kekewich J., in determining whether or not the forgiveness of all unsecured indebtedness owed to a testator by his children was liable to abatement, held such a provision to be a specific legacy not subject to abatement and, like the members of the Court in Holbrook's Case [38] , was assisted to his conclusion by considering the substance or ultimate effect of the provision; he said that "in substance" there was no difference between giving a debt to the debtor or to a third party and forgiving the debtor his debt. In the last case, Colgan v. MacDonnell [39] , Kennedy C.J. had to determine whether a testator's bequest to his debtor of a charge over the debtor's property amounted to a simple bequest which lapsed on the prior death of the debtor. This case appears to turn exclusively upon a point of construction.

[1907] 2 Ch. 277. 2. (1823) 12 Price 407 [147 E.R. 761]; 3 Y. & J. 114 [148 E.R. 1115]. 3. [1927] I.R. 213.

None of these cases appear to me to require that cll. 4, 5 or 6 of the will should be treated otherwise than as effecting, at the date of death of the deceased, a release in equity of the debts owed to her. In these cases in which the debtor was found to have predeceased the testator the Courts had to determine what should then be the fate of the provisions for forgiveness of indebtedness; they looked to the intention of the testator and if it appeared that it was the debtor personally who was to be advantaged they applied, by analogy, the doctrine of lapse, familiar in the case of legacies, just as in In re Wedmore [40] Kekewich J. proceeded by way of analogy and treated a provision for forgiveness of debts as a specific legacy in determining whether the doctrine of abatement was applicable. These cases appear to me to have little relevance to the present question save to the extent to which the decision of Lord Hardwicke in Sibthorp v. Moxom [41] makes it clear that, although not operating as a release at common law, a testamentary forgiveness of indebtedness will be effective as a release in equity, subject only to the claims of creditors.

[1907] 2 Ch. 277. 2. (1747) 3 Atk. 580 [26 E.R. 1134]; 1 Ves. Sen. 49 [27 E.R. 883].

In Attorney-General v. Holbrook [42] it may perhaps have been appropriate, because of the statutory definition of "legacy", to assimilate the release of indebtedness there in question to a testamentary gift of money, just as in some of the other cases discussed above courts have declared their inability to distinguish between "giving" and "forgiving" (e.g. Kekewich J. in In re Wedmore [43] ). But where the critical question is whether there exists any property of the deceased to which any person becomes entitled under the will it is irrelevant to observe that the ultimate effect of a testamentary forgiveness is the same as would be a gift to the debtor of an amount equal to the debt or a gift to him of the creditor's chose in action itself; the question is not what is the practical effect of the benefaction but, rather, how is it bestowed, does it involve the acquisition of an entitlement to property of the deceased under his will? The issue is as to the precise means by which the benefit is conferred. In the present case I consider that it arises by the release of the indebtedness in equity once the will takes effect on the death of the testatrix and that, accordingly, there is no property to which any entitlement is conferred under the will.

(1823) 12 Price 407 [147 E.R. 761]; 3 Y. & J. 114 [148 E.R. 1115]. 2. [1907] 2 Ch. 277.

I would therefore allow this appeal and answer the questions asked: (1) No. (2) Does not arise. (3) $477.23. (4) By the respondent.

Alice Bone ("the deceased") died on 1st May 1970. By her will dated 16th May 1969 she appointed the appellants, who are her children, as executors. They are the sole beneficiaries and residuary legatees under the will. Probate was granted to them on 10th June 1970.

Shortly before her death the deceased on 16th May 1969 made a loan to each of the appellants. She lent $25,000 to Trevor Donald Bone, a similar amount to Daryl Leonard Bone and $44,600 to Lilla Kathleen Bone. On the same day three agreements for loan, one with each borrower, were executed. These agreements were identical in all respects save as to the identity of the borrower, the amount agreed to be advanced and the provisions for payment.

The principal provisions of the agreement with Trevor Donald Bone may be taken as a sufficient example. Clauses 2, 3 and 5 of this agreement provide as follows:

The loan debt shall be paid in full by the Borrower to the Lender upon the expiration of ninety (90) days written notice given by the Lender under her own hand to the Borrower requiring the Borrower to pay in full the amount of the said loan debt.

If the Lender by assignment made in accordance with Section 12 of the Conveyancing Act 1919-1954 of the State of New South Wales should assign the said loan debt to any person then the assignee shall be entitled to obtain payment in full of the said loan debt in the same manner as the Lender could have obtained payment thereof in pursuance of Clause 2 hereof.

If default be made in payment of the first or any subsequent payment payable in pursuance of Clause 4 hereof for a period of more than sixty (60) days after the date hereinbefore fixed for the payment of any such annual payment then simple interest at the rate of five per centum (5%) per annum shall be payable on the loan debt in respect of the period during which such default continues.

The remaining provisions of the agreement give the borrower a right to repay the loan debt in full at any time or to anticipate the payment of any instalment and they oblige the borrower to execute a charge over his property for the amount of the loan debt if requested in writing so to do by the lender or by an assignee.

By her will the deceased, in addition to appointing the borrowers her executors, forgave and released the debts owing by each of the appellants. Clause 4 of the will was in the following terms:

I forgive and release unto the said Lilla Kathleen Bone free from any contribution whatsoever towards payment of my debts funeral and testamentary expenses death estate probate succession and other duties all sums whether for principal or interest which she owes me. Clauses 5 and 6 were in similar terms and related to the sums owing by Daryl Leonard Bone and Trevor Donald Bone respectively.

At the date of death of the deceased each appellant had paid the sum of $375 off the loan to which he or she was a party, leaving a total sum outstanding under the three agreements of $93,475. The Commissioner of Stamp Duties in assessing the death debt payable in respect of the deceased's estate claimed that the total sum outstanding under the three agreements was included in her dutiable estate and assessed death duty payable in respect of it at $16,732.96. The appellants claim that no amount is to be included in the dutiable estate of the deceased in respect of the debts or, alternatively, that the amount to be included is not the total sum outstanding under the agreements at the date of death but rather an amount of $13,651 which represents the then present value at the date of the death of the deceased of the promises to pay the amounts outstanding under the three agreements.

The Commissioner of Stamp Duties stated a case under the provisions of s. 124 of the Stamp Duties Act, 1920 N.S.W., as amended. The questions asked in the stated case are:

(1) Is any amount to be included in the dutiable estate of the abovenamed deceased in respect of the debts mentioned in paragraph 6 of this stated case?

(2) If the answer to (1) is "Yes", is that amount ninety-three thousand four hundred and seventy-five dollars ($93,475.00) or thirteen thousand six hundred and fifty-one dollars ($13,651.00)?

(3) Is the amount of duty properly assessable in respect of the dutiable estate of the abovenamed deceased:

(a) four hundred and seventy-seven dollars and twenty-three cents ($477.23); or

(b) one thousand five hundred and sixteen dollars ($1,516.00); or

(4) By whom are the costs of this case to be borne and paid?

These questions were answered by the Court of Appeal as follows: (1) Yes. (2) $93,475. (3) $16,732.96. (4) By the plaintiffs. From this decision the appellants have appealed to this Court.

The Commissioner's claim that the debts form part of the deceased's dutiable estate is based on s. 102(1) of the Stamp Duties Act, 1920, as amended. It includes in the dutiable estate of a deceased person:

(a) All property of the deceased which is situate in New South Wales at his death.

And in addition where the deceased was domiciled in New South Wales all personal property of the deceased situate outside New South Wales at his death; and

(b) all property of the deceased mentioned in section one hundred and three of this Act to which any person becomes entitled under the will or upon the intestacy of the deceased, except property held by the deceased as trustee for another person under a disposition not made by the deceased.

The appellants seek to answer this claim with the submission that their appointment as executors or, alternatively, the express releases of the debts, operated to release the debts as at the death of the deceased. Then they submit that the effect of the release of the debts was to destroy the choses in action to recover the debts, so that it cannot be said that the choses in action were property "to which any person becomes entitled under the will" within the meaning of those words as they appear in s. 102(1).

A debt owing to a deceased person is "property of the deceased at his death" within s. 102(1)(a). In my view the debt does not lose this character by reason of the deceased's appointment of the debtor as his executor or because the will contains an express release. Even if it be assumed that an appointment of the debtor as executor or an express release by will has the effect of exonerating the debt as from the date of death, a question to which I shall return later, the debt is one which was owing to the deceased person at the time of his death and therefore constituted his property at that time.

It has been said that at common law the appointment by a testator of his debtor as his executor or as one of his executors operated to extinguish the debt. Equity applied a different rule, as Salter J. explained in Jenkins v. Jenkins [44] :

In equity the executor is held liable to pay the debt if the interests of the creditors require it and unless he can show a continuing intention on the part of the testator to make him a gift of the debt: Strong v. Bird [45] ; In re Applebee [46] . When the executor is thus held liable, equity enforces payment by treating the debt as assets in his hands. He can be declared accountable in an administration action and ordered to pay, and on default he may be liable to attachment. In equity, therefore, it is plain that his debt to the estate has been paid: See In re Bourne [47] . 1. [1928] 2 K.B., at p. 507. 2. (1874) L.R. 18 Eq. 315. 3. [1891] 3 Ch. 422. 4. [1906] 1 Ch., at p. 708.

Whether the approach of the common law was accurately and comprehensively expressed in the rule to which I have referred is open to serious question. The basis of the rule that the appointment of the debtor as executor operated to extinguish the debt rested on the proposition that a debt was no more than the right to sue for the money owing by the debtor and that a personal action was discharged when it was suspended by the voluntary act of the person entitled to bring it. An executor could not maintain an action against himself; the action to recover the debt was suspended by his appointment which came about by the voluntary act of the testator.

It was otherwise when a debtor was appointed the administrator of the creditor's estate; he could not be sued for recovery of the debt, yet it was agreed that his appointment did not bring about an extinguishment of the debt. In Hudson v. Hudson [48] , Lord Hardwicke L.C. said, "if a debtor be appointed administrator, that is no extinguishment of the debt, but a suspension of the action". See also Wankford v. Wankford [49] .

(1737) 1 Atk. 460, at p. 461; 26 E.R. 292, at p. 293. 2. (1702) 1 Salk. 299 [91 E.R. 265].

Although the common law principle was stated in terms which gave it the apparent character of a rule of law, its true basis lay in the significance attributed to a voluntary act on the part of the testator, the person entitled to bring the action. Once this is recognized, the true character of the rule is perceived. It reflected the presumed intention of the party having the right to bring the action and was not absolute in its operation.

Indeed, there is powerful authority for the proposition that at common law, as well as in equity, the executor's debt was treated as an asset in his hands, so long as he was able to pay it. In Wankford v. Wankford, Holt C.J. said [50] :

when the obligee makes the obligor his executor, though it is a discharge of the action, yet the debt is assets, and the making him executor does not amount to a legacy, but to payment and a release. If H. be bound to J. S. in a bond of £100, and then J. S. makes H. his executor, H. has actually received so much money, and is answerable for it, and if he does not administer so much, it is a devastavit. See also the report of the judgment of Holt C.J. in the same case in Salkeld [51] . 1. (1702) 1 Salk., at p. 306 [91 E.R., at p. 270]. 2. (1704) 3 Salk. 162 [91 E.R. 753].

And in Freakley v. Fox [52] , Lord Tenterden C.J. referred to the debt owing by the executor as being "discharged" by his appointment as executor and said of it, "it is considered to have been paid by the executor to himself, and becomes assets in his hands".

In equity the debt was regarded as an asset in the hands of the executor in favour of creditors, residuary legatees and even next-of-kin (Brown v. Selwin [53] ; Berry v. Usher [54] ; Carey v. Goodinge [55] ; Simmons v. Gutteridge [56] ). Whether the common law went as far as equity in this respect it is not now necessary to decide. What is important is that the principles applied at common law and in equity manifested a desire to protect the interests of creditors and reflected the presumed intention of the testator. Except as to the interests of creditors, the principles would accommodate themselves to the expressed intention of the testator as declared by his will.

(1734) Cases t. Talbot 240 [ 25 E.R. 756]. 2. (1805) 11 Ves. Jun., at p. 88 [32 E.R., at p. 1021]. 3. (1790) 3 Bro. C.C. 110 [29 E.R. 439]. 4. (1806) 13 Ves. Jun. 262 [33 E.R. 292].

In this case the will contains an express provision releasing the debts. In the circumstances the appointment of the debtors as executors must be read in the light of the intended operation of that provision and as conforming to the operation which it would have according to its terms.

In passing I would mention that in New South Wales the title of the executor is governed by the provisions of ss. 44 and 61 of the Wills, Probate and Administration Act, 1898, as amended. The effect of the two sections has been to place the title of the executor on a similar footing to that of the administrator at common law; the executor's title now flows from the grant of probate, in the meantime the estate is in the Public Trustee, although upon the making of the grant the doctrine of relation back will apply. I have assumed that this circumstance would not of itself operate to defeat the old common law rule as to extinguishment of the debt, without expressing any concluded opinion on the question.

In relation to the express provision for release of the debts, the point at issue is whether it exonerated or extinguished the debts or was a bequest of property operating as a legacy. The mode of operation of such a provision was the subject of speculation by the textwriters. It was acknowledged that at common law the forgiveness of a debt by will could not operate as a release which, for its efficacy, required a release under seal executed by the testator in his lifetime (Sibthorp v. Moxom [57] , per Lord Hardwicke L.C.; Elliott v. Davenport [58] ; Wankford v. Wankford [59] ). Wentworth in his Office of an Executor, 14th ed. (1829), pp. 71-73, and Toller inLaw of Executors and Administrators, 7th ed. (1838), p. 307, relying strongly on the fact that a debt is not discharged when the assets are insufficient to meet creditors, express the view that a release of a debt is in the nature of a legacy, the debt not being discharged until there is an assent by the executor. A similar view was taken in Attorney-General v. Holbrook [60] , where the Court of Exchequer held that the forgiveness of a debt owing to a testator under a bond was a legacy subject to legacy duty. Graham B. said [61] :

What was this debt? It was so much money in the hands of the testator which they were bound to pay him; it is as much as to say, I give you the amount of that debt, my money, in the hands of you the persons who have entered into that obligation to me; and therefore I can form no doubt at all that the remission of a debt that is due to the testator, is to all intents and purposes a bequest of so much money to the party. To the same effect are the observations of Garrow B. and Hullock B. See also In re Wedmore [62] . 1. (1747) 3 Atk., at p. 581 [26 E.R., at p. 1135]. 2. (1705) 1 P. Wms. 83, at p. 85 [24 E.R. 304, at p. 305]. 3. (1702) 1 Salk. 299 [91 E.R. 265]. 4. (1829) 3 Y. & J. 114 [148 E.R. 1115]. 5. (1829) 3 Y. & J., at p. 120 [148 E.R., at p. 1118]. 6. [1907] 2 Ch., at p. 283.

The decision in Attorney-General v. Holbrook [63] may be supported as a matter of construction of the statute but the observations to which I have referred disregard the true character of the debt as a chose in action and assimilate it to a sum of money. In my view this reasoning cannot be sustained unless it be correct to say that the provision in the will does not itself extinguish the debt, that it requires for its implementation the assent of the executor and that it is a disposition of the testator's property in favour of the debtor.

To my mind this conclusion is supported neither by the observations of Lord Hardwicke L.C. in Sibthorp v. Moxom [64] nor by the decided cases. Lord Hardwicke said [65] :

To be sure where a testator gives a debt, or forgives a debt, it is a testamentary act, and will not be good against creditors, but against an executor it may.

And though this cannot operate as a release at law, yet equity will carry it that length, and if an action had been brought on the bond, this court would have granted an injunction, or an original application might be made to this court.

In that case and in others the question whether the forgiveness of a debt was to operate as an equitable release or as a legacy was held to be one of construction - see Elliott v. Davenport [66] ; Toplis v. Baker [67] ; Maitland v. Adair [68] ; Izon v. Butler [69] . 1. (1747) 3 Atk. 580 [26 E.R. 1134]. 2. (1747) 3 Atk., at p. 581 [26 E.R., at p. 1135]. 3. (1705) 1 P. Wms. 83 [24 E.R. 304]. 4. (1789) 2 Cox 118 [30 E.R. 55]. 5. (1796) 3 Ves. Jun. 231 [30 E.R. 984]. 6. (1815) 2 Price 34 [146 E.R. 13].

In my opinion the approach taken in these cases was correct. Excepting the case when other assets are insufficient to satisfy creditors, the forgiveness or release of a debt by will may operate in equity to release or extinguish the debt. An assent by the executor, although apt as to a legacy, is inappropriate to a release. What is material is that the release in equity, when it takes effect on death, destroys or annihilates the chose in action or, if you like, the debt. It does not vest the chose in action in the executor or the debtor. It would be incongruous to regard a provision for the release of a debt as having the effect of vesting in the debtor a right to sue himself.

This conclusion disposes of the matter. If the provision in the will destroyed the chose in action in the sense explained above, the chose in action was not property to which any person became entitled by the deceased's will. On the contrary, it was property which was destroyed by her will.

This conclusion I reach with reluctance. It is a consequence of the manner in which s. 102(1) is expressed. Had the Legislature been well advised it would have had resort to a provision of the kind introduced in s. 45(2) of the Finance Act, 1940 U.K. to overcome the difficulty.

I have no occasion to examine the other questions which arise on the stated case, although I should express my firm preference for the view of Owen J. in Bray v. Federal Commissioner of Taxation [70] to that expressed by the majority in the Court of Appeal as to the construction of the right conferred by cl. 2 of the agreement to call up the loan.

I answer the questions asked - (1) No. (2) Does not arise. (3) $477.23. (4) By the respondent.

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