McLaughlin v Daily Telegraph Newspaper Co Ltd (No 2) [1904] HCA 51

McLaughlin v Daily Telegraph Newspaper Co Ltd (No 2) [1904] HCA 51 - HCA 1904 case summary — Zoe

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Jarman on Conveyancing, 8th. vol. ul eo eee {Grirerrn, C.J. - Lunatic may mean either a man wholly incap- Co. Liv. 'able or partially so. In that case it was held that the inquisition McLaventix 'of lacy was not conclusive as to the man's capacity, and from v1) or other circumstances the Court took the view that he was sane.]} Gea The case is referred to in Stokes on Powers of Attorney in con- Co. Lrv. "nection with Molton vy. Camroux. The authorities show that - (No. 2). 'the contract of a man apparently sane cannot be avoided. [O'Connor, J. - Is there not a difference between the presump- tion to be drawn by a person dealing directly with the lunatic and that to be drawn by a third person from the, power of attorney ?] Personal communication between the contracting parties makes no difference to the legal effect of the contract. (Sturkey v. Bank of England, 1903 A.C., 114). The knowledge of the person deal- g with the lunatic is the test. (Campbell v. Hooper, 3 Sm. & G., 153; 24 L.J., Ch., 644). If the transaction is bond fide, and in "the ordinary course of business, then the person dealing with the Tunatie without notice is protected. Ifa person dealt with the assumed agent of a person apparently sane at his peril, the whole utility of the doctrine of agency would be gone. The Court should give weight to considerations of expediency, and have gard to the effect of a decision upon business dealings (Sheffield orporation v. Barclay, 1903, 2 K.B., 593). [Know referred to Powell v. London and Provincial Bunk, 1893, 1 Ch., 610.) _ The purchase by a lunatic at exorbitant prices was held good Wiell v. Morley, 9 Ves., 478. The principle applicable in this se is an extension of the equitable doctrine that a bonu fide aser for value without notice is always protected. It does hot rest upon representation, because a lunatic cannot represent. t is well illustrated in Imperial Loan Co. v. Stone (supra). It is not estoppel by conduct, although it resembles it. The equitable ine I have stated is the only principle reconcilable with

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H.C. or A. Drew v. Nunn. 'Tf it is not adopted, there is no conceivable at principle upon which the deed executed by a lunatic can ever be - McLavemax held not to be void, since the doctrines of estoppel and represen- pay tation have no application. This power of attorney would have Tevecrarn to be treated as a forgery, absolutely void, and Drew v. Nunn eas would be wrongly decided. But if the efficacy of the contract McLaveurix depends upon the knowledge of the person dealing with the Varzor /unatie, we have a rational principle reconecilable with Drew vy. ate unn (supra), Imperial Loan Co. v. Stone (supra), and Molton" Co. Lav. . v. Cumroua (supra). All those cases regard the knowledge of - (No.2). the contractor as material, but if the contract was in itself void his knowledge or ignorance could not affect the question, and would be quite immaterial. The cases dealing with forgery, such _ as Lewis v. Olay, are therefore no guide here, because a forgery is always void, whereas the lunatie's contract is not necessarily so. Another way of stating the principle for which I contend is that a lunatic cannot deny his own signature where a contract hi been bond fide made and executed, by a third party, upon faith of it. [O'Connor, J - Do not the eases go to show that a lunatic is only prevented from denying his signature where there has bee something in his own conduct to mislead the other, just as may be the case in questions of forgery 7] Tf the circumstances are such as to justify a belief that contractor was sane, the contract is good. In this case it may be that the appointment was void as between the donor and donee, but as soon as it was acted upon by others ignorant of ed to be void ; Ward vy. Duncombe (1893), A! 369. The civeumstances here justified the defendants in belie that the power of attorney was properly executed. The document was properly signed and attested, a letter was written by tl clerk in plaintiff's office, giving the illness of the plaintiff as reason of its execution, and the defendants had no reason what- er to suspect that plaintiff was insane. It was therefore "fair and bond fide" transaction. Those are the words used i Molton vy. Camroux. They would be quite inappropriate i estoppel had been the basis of the decision. It is enough that # defendants were ignorant (Richardson vy. Dubois, L.RB.,5 QB.

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wife to act as his agent, became insane, and the question was _ whether the authority was revoked by the insanity. Brett, LJ. held that the insanity, assuming it to be such as to be apparent to anyone with whom he might attempt to enter into a contract, put an end to the agent's authority, and that, if there were no more - in the case, the defendant would not be liable on contracts made by his pretended agent, but that the agent would be liable for breach of the implied warranty of authority. Bramwell, LJ, expressed the opinion that in order to annul the authority of an_ agent, insanity must amount to dementia, but doubted whether - partial derangement would have that effect. Cotton, L.J., re- frained from expressing any opinion on this point. But all the Lords Justices held that plaintiff having, while of sound mind, - held out his wife as his agent, had entered into a contractual representation with persons who acted on the faith of the holding out, and that he was bound by this representation until the persons dealing with the agent had notice of revocation of the authority. These were the only English authorities cited to us directly bearing on this point. On the question of the capacity of a person of unsound mind to execute a power of attorney, the case of Dexter vy. Hall (15 Wall., 9), decided by the Supreme Court of the United States in 1872, was cited. In that case o1 Hall, alleged to have been at the time a lunatic, executed a pow of attorney authorizing his brother-in-law to sell land. The land was sold, and conveyed under the power to persons who after- wards conveyed to the defendant. After the death of Hall, his representatives brought an action of ejectment to recover pos sion of the land. The case was tried with a jury in a Cireuit Court of the United States, and evidence was offered on both sides on the question of the sanity of the alleged lunatic. The Cireuit Court directed the jury that, if at the time Hall execute the power of attorney he was insane, and his insanity was general the instrument was a nullity, and no title could be transferred under it, and that in that case the plaintiff was entitled to a verdict ; that it mattered not, if such were the case, what col sideration might have been paid by the attorney, or with v good faith the parties might have purchased; that the ins ment in such case was no more to be regarded as an

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: Newsrarrk clothes, or the value in payment for millinery, or repairs of Co. Lrv. articles of dress, so far bind himself to the person who pays for McLaveutiw the goods as to enable the latter to set off the money so paid for y4)t or

the Junatic against a claim in our Courts in pari materia." foray tae There is no doubt that a person of unsound mind may, in some Co. Lrp. cases, be held liable upon a quasi-contract, or obligation implied - (No. 2). _ by law, as for necessaries supplied to himself or his wife. (See
Baxter v. Earl of Portsmouth, 5 B. & C., 170.) But no case was cited to us in which a deed executed by a person of unsound mind, in the sense that he was incapable of understanding what he was doing when he executed it, has been held valid. On the other hand, the proposition that a power of attorney executed by a "person of unsound mind is void is still contained in the text books as one of the propositions as to which the law is settled. ' The doctrine mentioned by Lord Coke, which precluded a man, "under some cireumstances, from alleging his own insanity, appears -tohave been a mere rule of pleading. It has long been discredited, _ and, indeed, it seems never to have been applicable in cases in which the question could be raised by the plea of now est factum (Sugden on Powers, 179, cited in Dexter v. Hall, at p. 24). So far the authorities appear to favour the plaintiff's conten- tion. We now come to another class of cases relied upon by the defendants, as either over-ruling or materially qualifying the doctrines apparently established by the cases already referred to. It was contended that the invalidity of a deed could not be Set up in a Court of Equity as against a purchaser for value 'ithout notice, and some cases were mentioned in which that lefenee was held good when the deed was impeached on the ground of the insanity.of the person by whom it was executed. ut, on examination it will be found that in every instance the made by the plaintiff - indeed, the only case which would ve entitled him to invoke the aid of the Court of Chancery - sumed that the legal estate was in the defendant, i.c., that the

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H.C. or A. tiff's name from the share register by his authority, and that he aaa is entitled, as against them, to the specifie relief claimed. McLaveman Would, however, be an eminently unsatisfactory result of thi Dax litigation if he were able to recover the shares themselves, and TeLxcrarn also to retain the benefits which were conferred on him, altho ae without his consent or knowledge, by the application of the pr McLavennay ceeds of the shares. His counsel have expressly offered to give Vane or the defendants the benefit of these proceeds. And, on considera- Penns tion, we think that the Court may, notwithstanding the limite Co. Lrv. relief that can be given in this suit, owing to the absence of (No. 2). parties, make such a decree as will do, so far as it can now b done, complete justice. If any obstacle exists, it is, in our opinion, one of form and not of substance, and is, we think, removed by plaintift's offer, as we will proceed to show. It seems clear thal the defendants, being called upon to restore the plaintiff's name to the register, would be entitled to indemnity from the plaintit agent for any loss which they may sustain by reason of implied warranty of the validity of the power of atton (Starkey v. Bank of England, 1903 A.C., 114); and the amount of the indemnity would not, upon the facts now before us, be les than the amount realised by the sale of the shares. On the o' hand, it seems that, under the circumstances of this case, the agent, who acted throughout honestly, but under bad advier would be entitled, on the doctrine as to which the German Mining Co.'s Case (4 DeG., M. & G., 14), is the leading anthority, te stand in the place of the persons to whom the proceeds of the shares were paid, and who were either creditors in respect of ng debts contracted during the plaintiff's sanity, or creditor for debts contracted in respect of necessaries for which he liable under his implied authority. If they, or she in their sued him in respect of these debts, he could not, without ratifyin her action, plead payment. Sh

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Judgment (212 paragraphs)