Hutchens v Deauville Investments Pty Ltd [1986] HCA 85;

Hutchens v Deauville Investments Pty Ltd [1986] HCA 85; - HCA 1986 case summary — Zoe

[9]

4. By February 1982, Kenbrite was insolvent. On 5 March 1982, General Credits appointed Messrs. Hodgson and Judson as receivers and managers of the assets and business of Kenbrite under the first mortgage debenture. As at that date, according to a statement of affairs subsequently prepared on behalf of Kenbrite and verified by Hutchens as a director, Kenbrite had estimated realizable assets of approximately $1.5m., preferred creditors of approximately $0.43m. and secured liabilities of more than $3m. consisting of approximately $0.89m. owing to General Credits (under the first mortgage debenture) and approximately $2.14m. owing to Helvetic (under the second mortgage debenture). If the assets of Kenbrite were applied to discharge its liability to preferred and secured creditors in conformity with the priority of their claims to payment, the indebtedness of Kenbrite to General Credits would, on those figures, have been extinguished and Hutchens would have been under no liability under the guarantee and mortgage given by him in favour of General Credits. Alternatively, if General Credits had obtained payment of the debt owing by Kenbrite from Hutchens pursuant to the terms of his guarantee, Hutchens would, subject to an argument about the effect of cl.2 of the guarantee which we find it unnecessary to pursue, have been subrogated to General Credits' rights against Kenbrite under the first mortgage debenture and would, on those figures, have obtained full reimbursement of the amount which he had been required to pay as guarantor. In that regard, it is relevant to note that there would seem to be no suggestion that Hutchens was or is under any relevant liability otherwise than such as flows from his guarantee of moneys owed by Kenbrite to General Credits. On 12 March 1982, Helvetic appointed Mr. Dulhunty as receiver and manager of the assets and business of Kenbrite under the second mortgage debenture. By a demand dated 16 March 1982, General Credits demanded of Hutchens payment of "all sums of money which are in the definition of 'the principal sum' of the (real property) Mortgage". The demand did not specify the amount alleged to be owing by Hutchens.

[11]

6. While the material presently in evidence is somewhat confusing as to precise amounts, it would seem that between April 1982 and May 1983 the receiver paid to Helvetic (or General Credits and Helvetic) more than $1m. from the proceeds of realization of Kenbrite's assets including $997,000 received in the period between 6 April and 7 October 1982. That last-mentioned amount apparently exceeded the then total liability of Kenbrite under the first mortgage debenture even accepting that, as the statement of affairs indicated, an amount of approximately $.89m. was owing under that debenture as at 5 March 1982. On the other hand, in its amended statement of claim, Deauville alleges that, between 6 April 1982 and 7 October 1983, Helvetic received only the sum of $83,554.19 in reduction of the "credit accommodation" extended by General Credits to Kenbrite (alleged to have totalled $731,093.10) "leaving a balance of $674,538.91" (sic). The wide discrepancy between competing figures is partly, but not completely, to be explained by assertions that most of the moneys paid to Helvetic by the receiver were appropriated to payment of amounts owing under the second mortgage debenture instead of to payment of amounts owing under the first and prior mortgage debenture. In the meantime, in October 1982, Helvetic executed an instrument of "Transfer of Mortgage" whereby it purported to transfer to Deauville, a company with the same managing director (Mr. Messara) as itself, "all its estate and interest" as registered proprietor of the real property mortgage. The consideration for that transfer of mortgage, which was subsequently registered in the Office of Titles, is said (in both the amended statement of claim and the instrument of transfer itself) to have been $927,580.35, that is to say, substantially more than the amount which, according to the amended statement of claim (see above) and the notice of demand which Deauville was subsequently to serve upon Hutchens (see below), was secured by it. There is no suggestion, in either the amended statement of claim or in the present evidence, that Helvetic assigned to Deauville the benefit of the debt owing by Kenbrite to it under the first mortgage debenture or the benefit of that debenture. To the contrary, it was accepted in the judgments in the Supreme Court and was common ground in argument in this Court that the benefit of neither the guaranteed debt nor the first mortgage debenture given to secure it was ever assigned to Deauville. For that matter, the present evidence suggests that there was neither a separate transfer of the benefit of the guarantee nor an express transfer of Hutchens' indebtedness by Helvetic to Deauville. If that be so, questions arise about whether the transfer of the real property mortgage by Helvetic to Deauville could, of itself, suffice to effect a transfer of Hutchens' indebtedness as guarantor which was, as has been seen, the only actual liability which it secured and whether, if it could not, Deauville is entitled as mortgagee to enforce the security of the real property mortgage given to secure the payment of a debt owing to a company other than itself. For reasons which will become apparent, however, we find it unnecessary to pursue those questions in isolation for the purposes of the present application. It suffices, for present purposes, to assume in Deauville's favour that the transfer of the mortgage given by Hutchens to secure his liability under the guarantee purported to transfer to Deauville the benefit both of the security of the mortgage and of any indebtedness which it secured. On 17 October 1983, Deauville caused to be served upon Hutchens a notice of demand which recited, among other things, the transfer to it of the real property mortgage and went on to demand payment of $647,538.91 being the amount alleged to be owing by Kenbrite to General Credits at the time of the transfer of the mortgage to Helvetic ($731,093.10) less amounts received by Helvetic between 6 April 1982 and 7 October 1983 ($83,554.19). The notice of demand, like that previously served by General Credits, produced no payment by Hutchens.

[16]

11. The overall transaction involving the assignment of the principal debt and the securities, including Hutchens' guarantee and supporting mortgage, by General Credits to Helvetic raises no difficulty as a matter of general principle. The effect of it was that Helvetic was substituted for General Credits as creditor. Kenbrite remained liable as principal debtor; Hutchens remained liable as a guarantor upon whom a demand for payment had been made after default by the principal debtor (cf. Wheatley v. Bastow, at p 279 (p.109 of ER)). Where the difficulty in general principle arises is in the suggestion that the benefit of Hutchens' liability as guarantor and the real property mortgage to secure it were alone transferred to Deauville with the result that Kenbrite remained liable as principal debtor to Helvetic. As we followed the argument, it was suggested that, by such a transaction, Hutchens' liability as a guarantor could be transformed into an independent liability to a different creditor from the creditor to whom the guaranteed debt remained owing. That suggestion would seem to lie ill with the basic principle that the debt owed by a guarantor, upon default by the principal debtor, is and remains the same debt as that owing by the principal debtor. Put differently, it would seem to be simply impossible, as a matter of basic principle, to assign the benefit of a guarantee or the security for it (as distinct from the property secured) while retaining the benefit of the guaranteed debt and thereby to convert the one debt owing by both principal debtor and guarantor to the one creditor into two debts, one owing by the principal debtor to the creditor and the other owing by the guarantor to the assignee. If it were otherwise, the position would seem to be that, by assigning the benefit of a guarantee and the guarantor's security and retaining the benefit of a principal debtor's indebtedness and the principal debtor's security, a creditor could effectively divorce the guarantor's liability from that of the principal debtor and effectively deprive the guarantor of the rights which flowed from his position as such including (where available) his rights of subrogation. In that regard, the case of a purported assignment of the debt of a guarantor while retaining the benefit of the guaranteed debt is, subject to one qualification, analogous to that to which Jacobs J.A. referred in International Leasing Corp. Ltd. v. Aiken (1967) 2 NSWR 427, at p 439:

At a glance

Court

Decision date

Before

Source

Judgment (28 paragraphs)

Hutchens v Deauville Investments Pty Ltd [1986] HCA 85; (1986) 68 ALR 367; (1986) 61 ALJR 65 (16 December 1986)

Parties

Legislation Cited (1)

Cases Cited (5)