Durack v West Australian Trustee Executor and Agency Company Limited [1944] HCA 21

Durack v West Australian Trustee Executor and Agency Company Limited [1944] HCA 21 - HCA 1944 case summary — Zoe

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Durack the defendant company would deliver up twenty-four promis- 1. ©. oF A. sory notes to the company. This was a promise by the plaintiff to ety deliver up promissory notes upon receiving a promissory note for pyrscK £11,800 indorsed as specified - not a promise by J. W. Durack and 2 P. B. Durack to indorse the note. Pe, iiae The agreement of 27th July 1933, upon which the plaintiff sued, _Trusree provides that the covenants and conditions contained in the agree- payee ment of 11th August 1930 shall apply to the agreement of 1933, save Co. Lrv. and except as they are modified by the later agreement. The agree- ment of 1933 contains no promises by J. W. Durack or the executrix of P. B. Durack except in relation to the payment of a sum of £200. Accordingly there is nowhere in any of the transactions between the parties any agreement by J. W. Durack and P. B. Durack or their representatives to pay the purchase money for the shares, or to jndorse the promissory note upon which the defendants have been sued, or to become sureties for the payment by the defendant com- pany of the promissory note. The liability of the defendants other than the company exists, if at all, only by reason of the fact that J. W. Durack and P. B. Durack wrote their names on the back of the promissory note. Unless it is the law that these indorsements create a liability to the plaintiff, the plaintiff must fail in the claim upon the note. The question is purely a technical question arising under the law relating to promissory notes. The promissory note is in the following terms : - " Promissory Note. Due 24th April 1933. £11,800. 11th August 1932. Fixed date - On the 24th day of April 1933 We promise to pay The West Australian Trustee Executor & Agency Co. Ltd. or order the sum of eleven thousand eight hundred pounds sterling value received. Payable at Bank of } For Connor Doherty & Durack New South Wales, | Limited St. George's Terrace, J. W. Durack, Director. Perth Branch. | E. S. Barker, Secretary.

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had been complete throughout." The question in McDonald's (1) was " whether the appellants, being in possession of these bi February 26, 1921, were, by the provisions of s. 20 of the Bil Exchange Act 1882," (s. 25 of the Commonwealth Act) " empow to make them complete and enforceable" (my italics) " against Nas Co. by indorsing them at that date, in the manner in which should have indorsed them - namely, in priority to the indorsemen of them by the respondents - thus making the instruments e to do what the parties to them desired and intended them to do performance of the agreement into which those parties had ente The whole point of the decision in McDonald's Case (2) is that enabled the holders of the bill to do that which was necessary { impose any liability upon the third parties by reason of their " indorse ment "' - namely, to place their signature above that of the di dants, and that they actually did so place their signature. In th National Sales Case (3), this fact was wanting - the fact which House of Lords most explicitly held to be the essential point whit enabled the plaintiff in McDonald's Case (2) to succeed. : In the National Sales Case (4), it is said that in Jenkins & Sons Coomber (5) and in M. T. Shaw & Co. Ltd. vy. Holland (6) "th judgments seem to turn mainly, if not entirely, on the questio whether s. 20 of the Bills of Exchange Act, 1882, can apply to instrument in which the only or principal omission was the abs of the drawer's indorsement." But the learned judge neverth goes on to say that in Jenkins & Sons v. Coomber (5) "s. 20 was no actually mentioned either in the arguments or the judgments" It is accordingly only with some difficulty that s. 20 can be re; as the main, or possibly the only, ground of the decision. It is stated that "the fact that the drawer's indorsement came bi that of the indorser" was not " actually mentioned " in th ments or in the judgments in that case (4). Reference to the of Jenkins & Sons v. Coomber (5) will show that counsel for appellant argued that "until this bill had been indorsed by th plaintiffs no property in it passed, as it was drawn to their o Counsel for the appellant contended that " the fact that the plaint here indorsed the bill after and not before the defendant ought not be allowed to defeat the admitted intention of the parties." Wills (with whom Kennedy J. concurred) bases his judgment on the fa that " when the defendant indorsed it the bill had not been indor: by the plaintiffs, to whose order it was payable " (7) and he re

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and the National Sales Case (1). I am unable to agree. Jei & Sons vy. Coomber (2) was referred to by Lord Dunedin McDonald's Case (3) as representing one recognized category cases. The decision in the latter case was based upon the fact an indorsement had been made (as it was held duly) abo indorsement of the third party who was defendant. McDonald's Case (4) assumes as correct the principle of the decisi in Jenkins & Sons v. Coomber (2). The National Sales Case (1 decision of a single judge, could hardly " overrule " the decision Divisional Court in Jenkins & Sons v. Coomber (2). I am therefore of opinion that neither the National Sales Case nor McCall's Case (5) nor the other cases mentioned in those ¢ should be regarded as diminishing the authority of Jenkins & } vy. Coomber (2) or as qualifying (if that were possible) in any) the decisions of the House of Lords in R. E. Jones Ltd. v. Wa & Gillow Ltd. (6) or McDonald & Co. v. Nash & Co. (7). In both Ferrier v. Stewart (8) and Trimble v. Thorne (9), decisions were supported by reference to estoppel. In the pre case, there is no recital in any of the agreements between the which is not consistent with the clear terms of the agreements ¥ exclude personal liability of J. W. Durack and P. B. Durack the agreements. Minutes of meetings of the directors of the dant company (including the Messrs. Durack), not shown to h been communicated to the plaintiff or to have induced the pl to change its position, would not have supported any allega' estoppel. But it is unnecessary to consider what defences have been available to those defendants if the plaintiff had upon estoppel because no estoppel was pleaded, and the defendi were not called upon to meet any case based upon estoppel. The result, therefore, is that - (1) The agreements betwi parties do not create any personal liability of the testators of individual defendants or of those defendants ; they do not any promises by those testators or by the defendants to the by way of guarantee or otherwise. Thus the plaintiff succeed in the action upon the agreements. (2) The parties upon the basis that they were content to rely upon whatever effect in law of J. W. Durack and P. B. Durack indorsing the sory note. The plaintiff must succeed or fail merely upon ground that those persons indorsed the note. In my opinion,

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indorser": See Bills of Exchange Act, s. 36 (1); In re Gooch; Ex p. Judd (1); Gerald McDonald & Co. v. Nash & Co. (2). So it is concluded that "the persons whose names appeared upon the back 'of the document were not indorsers in the ordinary sense of the law merchant " who could be sued as such (Steele v. M'Kinlay (3); Jen- kins & Sons v. Coomber (4); M. T. Shaw & Co. Ltd. v. Holland (5) ). The note was delivered to the payee and was not inchoate and incomplete : the maker could have been sued upon it by the payee : See Bills of Exchange Act, s. 90; Gerald McDonald & Co. v. Nash & Co. (6). But it is true that the note was not a completely negotiable instrument until it received the indorsement of the payee. The authorities, however, make it clear that, if the persons whose names appear on the back of the note intended to make themselves liable to the payee, then the-payee had a prima-facie authority to fill up the omission of any material particular in any way it thought fit (Bills of Exchange Act, s. 25 (2); Gerald McDonald & Co. v. Nash & Co. (7) ; Glenie v. Smith (8); In re Gooch (9); Ferrier v. Stewart (10) ; Brikssen vy. Bunting (11) ). A note is wanting in a material particular if the payee has not indorsed the same above the signatures of the persons whose names appear on the back of the bill. Therefore the payee, if those persons intended to make themselves liable to him, might write his name above theirs and enforce the note against them as indorsers: See cases supra. The trial Judge has found in this ease that J. W. Durack and P. B. Durack intended to become liable to the payee as indorsers of the promissory note sued upon and that finding is supported by the evidence, but I shall refer to the evidence more at large in another aspect of this case. And Wilkinson & Co. v. Unwin (12) makes it clear that in such cases the persons whose names then appear below the name of the payee could not sue the payee as a prior indorser. Further still, the Victorian case Trimble v. Thorne (13) holds that the payee's indorsement may be made after action brought, a proposition that was advanced in argument in M. 7. Shaw & Co. Ltd. v. Holland (14). But the Act, s. 25 (3), requires that the instrument must be filled up within a reasonable time and strictly in accordance with the authority given. Steele v. M'Kinlay (3), which is relied upon for the appellants, rests upon its own special facts. The person sought to be made liable as an indorser had written his name across the back of a bill payable to drawer or order

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(Bills of Exchange Act 1909-1936, s. 60 (2), Australia) " the indorser of a bill by indorsing it is precluded from denying to a subsequent indorsee that the bill was at the time of his indorsement a valid and subsisting bill, and that he had then a good title thereto. Now the debtor" (Gooch) " intended to be an indorser, giving authority to his drawer to fill up the bill as a regular bill. I think the statute estops him from denying to his subsequent indorsee, Judd, who holds because of the debtor's indorsement in blank (not, it is to be noted, to 'a holder in due course' as in s. 56)" (s. 61, Australian Act), "that the bill when he indorsed it was a valid and subsisting bill " (1). Again that reasoning seems inconsistent with that in M. T. 'Shaw & Co. Ltd. v. Holland (2). Further, in National Sales Corpora- tion Ltd. v. Bernardi (3), bills of exchange drawn to the order of the drawer and accepted were indorsed by a third party, Bernardi, with the intention of making himself liable as an indorser. Subsequently the drawer indorsed the bills, but his indorsement was put below and not above that of the third party (Bernardi) who had indorsed the bills. Wright J., as he then was, therefore faced the same position as arises in this case and said : - "' In my judgment effect can here be given to the necessary inference that the corporation indorsed the bills to complete them by adding the necessary indorsement between themselves as drawers, and Bernardi as indorser, and on that basis the position of the signatures is immaterial, and the result is just as if the indorsement by Bernardi had been added to the indorsement of the corporation, after in time, and below in space" (4). This is in line with the judgment of Lawrence J. in Glenie v. Smith (5) and also _ seems inconsistent with the reasoning of M. T. Shaw & Oo. Ltd. v. Holland (2). In McCall Bros. Ltd. v. Hargreaves (6), Goddard J., as he then was, agreed with and acted upon the decision of Wright J. _ just mentioned. He said: - "The bills must be regarded as _ indorsed by the plaintiffs to the defendant and re-indorsed by him to them: See Glenie v. Smith (5) " (7). In this state of the authorities, this Court is bound, I think, to exercise its own judgment. And, to adapt the words of Lord Sumner _ inGerald McDonald & Co. v. Nash & Co. (8), " the assumption of an indispensable ritual of transmissibility in time as well as in form " in the negotiation and transfer of bills and notes without reference to _ any intention of the parties is not a principle of the law merchant. _ The intention of J. W. and P. B. Durack in the present case was,

the trial Judge found, to become liable as indorsers, and legal effect

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Prima facie every party whose signature appears on a bill or note is deemed to have become a party thereto for value (Bills of Exchange Act, s. 35). But this presumption is displaced, it is said, by the proved facts. The history of the promissory note goes back some twenty-eight years. The maker of the note, Connor Doherty & Durack Ltd., is an incorporated company in which Connor, Doherty and the Durack brothers were in 1915 the shareholders. '' Trouble arose," said the trial Judge, "' between Connor and his"? fellow shareholders "by reason of his large drawings of the company's moneys at Manila, and his establishing a partnership there which was trading with the company that he was representing. The other directors . . . became alarmed and decided that he must be got tid of." Negotiations were carried on to that end, and an agreement was made in 1915 which provided for the acquisition of Connor's shares (20,000) by Doherty and three of the Durack brothers for the sum of £19,000. The consideration was 38 promissory notes of £500 payable 10 years after date and interest at 6 per cent. The promis- sory notes were to be and were made by the company in favour of the purchasers and by them restrictively indorsed to pay the vendor " Francis Connor only " and without recourse against the purchasers asindorsers. The purchasers, the agreement itself provided, were in no event to be personally liable to pay the said £19,000 and interest or any part thereof. Connor signed transfers of his shares to the pur- chasers and the scrip certificates and the transfers were lodged with a bank to be delivered up when and as purchase money was paid. The purchasers indemnified Connor against all liability under any guarantee given by him to the Bank on account of the company. The company released Connor from various claims. And Connor covenanted with the company and separately with each of the pur- chasers that neither he nor any other person firm or corporation in the Philippine Islands with whom he had contracted obligations on behalf of the company would make any claim or demand against the company or the purchasers or any of them for debt compensation or

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wife. The promissory notes matured in 1925, but in February an agreement was made varying and modifying that of 1915. A of £7,000 was paid to Mrs. Connor by the company. The bank authorized to and did deliver to the company share certificates 7,000 shares with transfers indorsed, and the purchasers bee registered as shareholders in respect of those shares. The thirty-eig promissory notes were cancelled, and the company signed twenty-fou fresh promissory notes for £12,000 payable 25th April 1931 in fayou of Doherty and the Duracks, and these notes were indorsed Doherty and the Duracks restrictively, prohibiting further negotia- tion, and with a direction to pay Alicia Connor only, and withou recourse to them. Mrs. Connor died during the currency of tl notes, namely, in July 1929. In August 1930 another agreement made between the company, Mrs. Connor's personal representatiy

the respondent here - the Bank of New South Wales and J. W. P. B. Durack. The company agreed to pay the personal repre: tive of Mrs. Connor £200. The personal representative of Mr Connor agreed upon payment to it of the sum of £200 and delivery to it of a promissory note for £11,800 in its favour payable on April 1933 and duly indorsed by J. W. and P. B. Durack to del to the company the whole of the twenty-four promissory no' Interest on £11,800 was to be paid at the rate of 7 per cent pr annum, This agreement was carried out, and the promissory not sued upon was subsequently given to the respondent here pur to that agreement. The agreement itself provided that the should be indorsed by each of the parties of the fourth part, who J. W. and P. B. Durack. But, in addition, subsequent co dence is important. On 5th August of 1932 the respondent forwarded to the company a copy of the agreement " dated 1 August, 1930." It also enclosed a promissory note " for dating signature by your firm and for indorsement by Messrs. J. W. P. B. Durack, after which please return it to us when we shall for you the promissory notes totalling £12,000 now held by us." company replied the same day : - '' As soon as our Mr. P. B. D returns next week we will get his indorsement to the pr

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he company. The foundation of the decision was that the Com- ies Acts provide the only legal means (apart from forfeiture) of reducing the capital of the company, so that for a company to buy its own shares from its shareholders is to return the capital on those to those shareholders and thereby to reduce its paid-up and nominal capital in an unlawful manner. __ In the present case, the defendant company was not purchasing its own shares. It was only financing their purchase by advancing money to some of its shareholders to enable them to purchase its shares, so that the transaction was not one which resulted in any reduction of the nominal or paid-up capital of the company. Further, the memorandum of association of the defendant company contains a clause authorizing the company to advance money without security, and to advance money to the four purchasers to enable them to buy the shares would create a debt from them to the company, and would not lead to any reduction of its capital. But the learned trial 'Judge held that it followed from the decision in Trevor v. Whitworth (1) that it is beyond the power of the company to lend money to its shareholders for this purpose, because so to do is to traffick in its shares, and that is a business which is contrary to the policy of the Companies Acts and therefore ultra vires the powers of a company limited by shares incorporated under these Acts and void. | The agreement was entered into at a time when there was no statutory provision in force in Western Australia corresponding with s. 45 of the English Companies Act 1929 which prohibits a company, under a penalty of £100, from lending money to a person to assist him to purchase shares in the company. It is true that, in Lorang v. The King (2), the Court of Criminal Appeal said that it was unable to see any difference between a company buying its own shares and the company making a loan authorized by its memorandum of association toa person to enable him to buy its shares, and that the latter was ig independently of s. 45. It is difficult, however, to reconcile case with the decision of the Court of Appeal in In re V.G. M. 'tas s Ltd. (3), in which their Lordships appear to regard the = eam as making new law which is restricted in its scope to loans by a company for the purpose of acquiring its shares which are purchased n the strict sense of the term, and they held therefore that the section not prohibit loans for the purpose of enabling persons to subscribe for shares in a company. They refer specifically to the practice of a "prt lending money to its shareholders to buy its shares as a

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But, in view of the limited nature of the appeal, it is unnecessary, in my opinion, to discuss the position that existed prior to the indenture of 11th August 1930, because that agreement introduced a number of material alterations into the original agreement. 'The promissory note provided for by that agreement was not a note to be made in favour of the purchasers by the defendant company and by them indorsed without recourse to the plaintiff, but was to be and was in fact made by the defendant company in favour of the plaintiff, and was to be and was in fact indorsed by J. W. Durack and P. B. Durack with the intention that they should become personally liable to the plaintiff for the payment of the balance of purchase money and interest. Their indorsements upon the promissory note appear above that by which the plaintiff indorsed the note without recourse to the credit of its account at the bank. But, where the intention is clear that an indorsement is placed upon a promissory note in order that the indorser shall be personally liable to the payee for the pay- ment of the note by the maker, or in other words as a promise to the payee that the note will be met at maturity, this is immaterial, and the law would indeed be in a most unsatisfactory state if it were otherwise, so that the liability of an indorser under such circum- stances would depend upon whether the payee was wise enough to place his own indorsement above or foolish enough to place it below that of the indorser. On this point, I desire to adopt the reasons given by Wright J. (as he then was) in National Sales Corporation Ltd. y. Bernardi (1) and Goddard J. (as he then was) in McCall Bros. Ltd. vy. Hargreaves (2), which with respect appear to me to be unanswer- able, simply adding that s. 25 of our Bills of Exchange Act corresponds to s. 20 of the Imperial Act. See also Ferrier v. Stewart (3), a decision which was clearly right but is capable of being supported, in my opinion, on broader grounds than those which appear in the judgments, and Sydney and North Sydney Lime Burners Ltd. v. Phillips (4).

At a glance

Court

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Before

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Judgment (217 paragraphs)