FINKELSTEIN J:
25 This appeal principally concerns the proper construction of a mortgage granted by the bankrupt, John Peter Piccolo, and his wife, Sharon Denise Piccolo, over their family home. The mortgage was given to secure their obligations under a guarantee in favour of the respondent, National Australia Bank Limited ("NAB"). The meaning and effect of the guarantee is also the subject of this appeal.
26 The guarantee was given to answer certain liabilities of Poole, Levy & Appel Pty Ltd to NAB. Those liabilities were described in cl 6.1 as "all the amounts which the customer owes [NAB] at any time." By cl 6.2 those amounts were to include "all amounts which have [been] advanced … to or on behalf of the customer" and "all amounts for which … the customer is or may become actually or contingently liable to [NAB] for any reason". The maximum amount for which Mr and Mrs Piccolo were liable under the guarantee was $1,050,000. The mortgage charged the family home with the payment of "the Secured Amounts" which expression meant "the moneys hereby secured." That phrase was defined in a memorandum of common provisions. The memorandum was not annexed to the mortgage. It was lodged with the Registrar of Titles pursuant to s 91A of the Transfer of Land Act 1958 (Vic) and was incorporated in the mortgage by s 91B. The memorandum defines "the moneys hereby secured" to include:
"(a) moneys owing or remaining unpaid to [NAB] in any manner or on any account whatsoever by the mortgagor whether alone or jointly with any other person and whether as principal or surety; (b) moneys which [NAB] … has advanced or paid … to or for or on account of or on behalf of the mortgagor; (c) the amount of any orders, drafts, cheques, promissory notes, bills of exchange and other instruments in respect of which the mortgagor is or may become liable in any manner whatsoever and which (i) have been accepted, endorsed, discounted or paid [NAB] for or on behalf of or at the express or implied request of the mortgagor or (ii) are held by [NAB] as a result of any other transaction entered into by [NAB] for or on behalf of or at the express or implied request of the mortgagor".
27 It is accepted by the parties to this appeal, the trustee of the bankrupt estate of Mr Piccolo and NAB, that unless the provisions of the guarantee and the mortgage to which reference has been made are read down the mortgage stands as valid security for a fully drawn advanced facility of $1,000,000 provided by NAB to the company.
28 This facility, however, was not granted when the security documents were executed. NAB had provided the company with a $50,000 overdraft facility and a $1,000,000 bill acceptance facility in September 1995 when the guarantee was given and the mortgage created. What is in issue is whether, having regard to the applicable principles for the construction of contracts, it is permissible to read down the provisions of the security documents so that the obligations thereby created are limited to the original facilities.
29 The starting point for the construction of any instrument is to look at the language used, not just to the particular words in question but at the whole of the instrument, to gather the intention of the parties: Leader v Duffey (1888) 13 App Cas 294. The words actually used must also be construed in light of the surrounding circumstances, such circumstances being proved by recitals (if any) or by extrinsic evidence: Inland Revenue Commissioners v Raphael [1935] AC 96; Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as H E Hansen-Tangen) [1976] 1 WLR 989.
30 In some cases it is also permissible to have regard to other instruments. Thus, where several instruments are made as part of one transaction they will be construed together and each will be construed with reference to the other. In Smith v Chadwick (1882) 20 Ch D 27, Jessel MR said (at 62-63):
"that when documents are actually contemporaneous, that is, two deeds executed at the same moment, a very common case, or within so short an interval that having regard to the nature of the transaction the Court comes to the conclusion that the series of deeds represents a single transaction between the same parties, it is then that they are all treated as one deed; and, of course, one deed between the same parties may be read to show the meaning of the sentence, and be equally read, although not contained in one deed, but in several parchments, if all the parchments together in the view of the Court make up one document for this purpose."
The rule applies whether the documents are executed contemporaneously or at different times: see Norton on Deeds 2nd ed (1928) at p 87-89 and the cases there cited. The reason for the rule is that when a series of documents is necessary to give effect to a single transaction each is executed on the faith of the others being executed and each is intended to operate only as part of that transaction and therefore, as a matter of substance, they should be regarded as one: Manks v Whiteley [1912] 1 Ch 735 at 754.
31 It seems that English law has only developed to the point where several instruments representing a single transaction may be read together if the documents are between the same parties: Smith v Chadwick, above, Chitty on Contracts 27th ed (1997) at par 12-057. This is also the position that has been taken in Australia: see Halsbury's Laws of Australia Vol 10, 'Deeds & Other Instruments' par 140-535(1) citing Smith v Chadwick.
32 This view is altogether too narrow. If accepted it would produce anomalous results. Take a common enough example not far removed from the present case. A lender is willing to make a loan if it is secured by a guarantee. The lender can implement the arrangement in one contract where the lender, the borrower and the guarantor are all parties. In this event it would be permissible to consider the whole instrument to ascertain the intention of all the parties. On the other hand, the lender may call for separate agreements to complete the transaction: a loan contract and a guarantee. The two instruments, when taken together, may contain precisely the same terms as the single agreement. But if the same parties rule is applied then neither contract could be construed by reference to the other to gather the parties' intentions. Such a result, arising from a mere drafting technique, has nothing to commend it.
33 In the United States the general rule is that, absent a contrary intention, instruments executed at the same time, by the same parties and for the same transaction should be considered and construed together: 17A American Jurisprudence 2nd par 388; 17A Corpus Juris Secondum par 298; Restatement, Contracts 2nd par 202(2). However, in that country it has been accepted that the several instruments need not be between the same parties if the contents were known to all: see eg Doheny v United States Fidelity & Guarantee Co 34 FSupp 888 (1940); Peterson v Miller Rubber Co of New York 24 F(2d) 59 (1928); Schlein v Gairoard 127 NJL 358 (1941); McCulloch v Canadian Pacific Railway Co 53 FSupp 534 (1943); Bowersock Mills & Power Co v Commissioner of Internal Revenue 172 F2d 904 (1949); Massachusetts Bonding & Insurance Co v Feutz 182 F2d 752 (1950); Mayfair Farms Holding Corp v Kruvant Enterprises Co 166 A2d 585 (1960) vacated on other grounds 173 A2d 905 (1961); Gordon v Vincent Youmans Inc 358 F2d 261 (1965); Von Lange v Morrison-Knudsen Co Inc 460 Fsupp 643 (1978); Black v Landis Inc 421 A2d 1105 (1980); LCI Communications Inc v Wilson 700 FSupp 1390 (1988); Hampton Roads Shipping Association v International Longshoremen's Association 597 FSupp 709 (1984); Hallmark Insurance Administrators Inc v Colonial Penn Life Insurance Company 697 FSupp 319 (1988); Western United Life Assurance Co v Hayden 64 F3d 833 (1995). In Kurz v United States 156 FSupp 99 (1957) Palmieri J explained (at 103-104):
"New York law, which is applicable here, requires that all writings which form parts of a single transaction and are designed to effectuate the same purpose be read together, even though they were executed on different dates and were not all between the same parties. This is in accord with the general rule that where several instruments, executed contemporaneously or at different times, pertain to the same transaction, they will be read together, even though they do not expressly refer to each other. This canon of construction applies with particular force in situations where, as here, one document requires the execution of the second to accomplish its purpose. The rationale of the rule is that by construing the instruments together, the intent of the parties can be perceived and enforced. Its application is generally recognised to extend to instruments relating to the same subject matter even though some of the documents are executed by parties who have no part in executing the others." (citations omitted)
A recent application of this principle can be found in Parcels of Land v Snavely Ohio App Lexis 2398 (1999), a decision of the Court of Appeals of Ohio handed down on 28 May 1999. There the rule was applied to read together a document containing generally accepted accounting principles and a guarantee.
34 There is no reason why this approach should not be followed in this country. It would avoid the anomalous results that I have described. It would more readily permit the court to ascertain the true intention of the contracting parties. It is consistent with the objectivist view of contract, namely that the intention of the parties should be gathered from what they say (write) and do and not what they think. It is not inconsistent with any ruling of the High Court.
35 What then are the relevant instruments which, when taken together, were executed to accomplish one agreed purpose? The first is the agreement to grant the banking facilities constituted by the letter of offer dated 29 August 1995 and the acceptance of that offer evidenced by the resolution of the directors of the company, the bankrupt and his wife, carried on 8 September 1995. The letter states that the facilities (the $50,000 overdraft and the $1,000,000 bill facility) were offered "subject to normal banking terms and conditions together with those specifically detailed in this letter". The letter specifies that the terms and conditions of the bill facility were described in the attached Bill Facility Letter of Offer. That attachment is also dated 29 August 1995 and is one of the transaction documents. The offer letter provides that one of the conditions that must be satisfied before a contract comes into existence or before any party's liable to perform obligations under the contract (the conditions are referred to as "conditions precedent") is the "[p]roper completion and execution of all documentation required for the facilities". Both the offer letter and the Bill Facility Letter of Offer stipulate that security is required for the facilities. In the offer letter the obligation is recorded in the following terms:
"SECURITY
Security for the above facilities will be as follows:
Registered Mortgage Debenture executed by Poole, Levy & Appel Pty Ltd As Trustee For Poole, Levy & Appel Unit Trust over the whole of the assets of the Company and the Trust, including goodwill and uncalled capital and called but unpaid capital. (Relative policy of fire insurance over stocks and stores is to form part of this security).
Guarantee and Indemnity for $1,050,000 given by John Piccolo and Sharon Piccolo supported by Registered Mortgage over property situate at 20 Kooyongkoot Road, Hawthorn."
36 The Bill Facility Letter of Offer provides, in cl 17, that NAB "shall not be obliged to accept any Bills presented for acceptance … unless the securities referred to in item 12 of the Schedule have been executed and have been delivered to [NAB] and remain in full force and effect in respect of all current Bills accepted by [NAB]". Item 12 of the schedule reads:
"Securities
1. First Registered Mortgage over Residential Deed situate at 20 Kooyongkoot Road, Hawthorn
2. Registered Mortgage Debenture executed by Poole, Levy & Appel Pty Ltd over the whole of the assets of the company including goodwill and uncalled capital and called but unpaid capital."
37 On the basis of these provisions it is clear enough, indeed it could not be disputed, that the guarantee and the mortgage pertain to the same transaction; namely the agreement to grant the banking facilities. The debenture was also designed to accomplish the agreed purpose, but that document is not in evidence. It is also sufficiently established that the bankrupt and his wife, although not parties to each of the several instruments, were aware of their contents. They executed the mortgage and guarantee and, in their capacity as directors of the company, accepted the letter of offer. So the conditions for the application of the rule that several instruments should be read together have been satisfied in the case of the letter of offer, the Bill Facility Letter of Offer, the guarantee and the mortgage.
38 The first question that arises is whether, having regard to the contents of all of the transaction documents, the intention of the parties was that the guarantee that was given by the bankrupt and his wife was truly in respect of "all amounts which the customer owes [NAB]" including "all amounts which [NAB has] advanced or paid … to or on behalf of the customer; and all amounts for which … the customer is or may become actually or contingently liable to [NAB] for any reason" or whether those provisions are to be restricted in some way.
39 In this connection two further canons of construction should be mentioned. The first is that an instrument is not to be interpreted solely by reference to the ordinary meaning of words used if they are in conflict with the intent of the parties. Thus it is permissible to reject words, and even whole provisions, if they are inconsistent with the parties' intention or for other reasons: Glynn v Margetson & Co [1893] AC 351; Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361; National Bank of New Zealand v West [1978] 2 NZLR 451.
40 The second canon of construction, which is of less importance in this case than the first but should nevertheless be borne in mind, is that where an agreement is in a standard form containing general conditions and the parties also write in provisions in respect of their particular transaction, and there is inconsistency between the two, the written conditions prevail: Addis v Burrows [1948] 1 KB 444; Gesellschaft Burgerlichen Rechts v Stockholms Rederiaktiebolag Svea (The Brabant) [1967] 1 QB 588.
41 Returning to the facts of the case, the following features of the transaction documents should be noted. Some of them have already been mentioned. The offer letter provides that the two facilities will be granted to the company for a total accommodation of $1,050,000. The liability of the sureties under the guarantee is limited to $1,050,000. The guarantee is to be "supported" by a mortgage over the family home of the guarantors. The Bill Facility Letter of Offer fails to mention the guarantee as part of the required security. It refers only to the mortgage over the family home and the debenture over the assets of the company. I treat this omission as an error. The Bill Facility Letter of Offer provides that the securities therein mentioned (the mortgage and the debenture) must "remain in full force and effect in respect of" bills of exchange drawn under the facility.
42 When regard is had to these features of the transaction documents, being documents that must be construed as one, it is clear to me that it was not the intention of the parties that the liability of the guarantors was to be in respect of "all amounts which the customer owes [NAB]" up to $1,050,000 including "all amounts which … have [been] advanced or paid … to or on behalf of the customer; and all amounts for which … the customer is … actually or contingently liable to [NAB] for any reason". For example, it could not be said that it was the parties common intention that NAB could call upon the guarantors to pay an amount equal to the damages NAB might have sustained in consequence of some deceit practiced by the company. Nor could NAB require the guarantors to make good the company's share of any partnership losses in the unlikely event that NAB and the company undertook a partnership venture. In the particular context, imposition of such liabilities does not accord with the common intention of the parties although those liabilities do fall within the general words of cl 6.
43 The issue then is how is the wide language of cl 6 of the guarantee to be restricted, for the meaning must be restricted in order to give effect the true intention of the parties. In my opinion, cl 6 is to be limited in its application to the facilities described in the letter of offer. None of the provisions of the offer letter or any other transaction document, when read as if contained in a single instrument, suggest that the parties had in mind as the proper subject matter of the guarantee any liability apart from a liability for $1,050,000 arising under the two specifically mentioned facilities.
44 The obligations secured by the mortgage are also cast in wide terms. If uncontrolled each mortgagor's interest in the family home is charged with the payment of the indebtedness of the other mortgagor "on any account whatsoever". It would secure any monetary obligation whether or not incurred in connection with the two facilities. The mortgage does not even specify a limit on liability as does the guarantee. Thus, dependent upon the value of the family home, the liability of each mortgagor could well exceed $1,050,000. This is plainly not what the parties had in mind. First, the mortgage was to do no more than "support" the guarantee. But if the definition of "the moneys hereby secured" is to be given full scope, the mortgage does much more than "support" the guarantee. Second, it was not the intention of the parties to burden the family home with a liability in excess of $1,050,000. Yet this is precisely what the mortgage does if it is unrestricted.
45 In my opinion the intention of the parties as revealed by the transaction documents was that the mortgage would "support" a guarantee of the two original banking facilities to the full extent of those facilities, namely $1,050,000. To give effect to that intention it is necessary to read down the description of the amounts secured by the mortgage.
46 In reaching these conclusions, I have not overlooked a provision in the offer letter a portion of which I have already quoted. The full text of the provision is:
"The banking facilities are offered subject to normal banking terms and conditions together with those specifically detailed in this letter which are in addition to, but not in substitution of any terms and conditions contained in supporting loan security documentation."
It might be suggested that the effect of this statement (it may not be promissory, but is nevertheless relevant to construction) is to render it impermissible to cut down the provisions of the guarantee and mortgage which define the subject matter of those securities by reference to the offer letter. It is possible the provision prohibits a process of construction which involves the replacement (substitution) of a term in the guarantee or mortgage by a term in the offer letter, although I doubt it could have that effect in a case of repugnancy. At all events, discerning the intention of the parties by reference to the terms of the facility agreements as well as the surrounding circumstances does not involve the "substitution" of one term for another. Nor, for that matter, does it involve the addition of a term. The ascertainment of the intention of the parties from the language employed in the transaction documents and giving effect to that intention by a process of construction is not a matter with which the provision is concerned.
47 The second question to be addressed is whether the current indebtedness of the company to NAB falls within the subject matter of the mortgage. To understand how this issue arises it is necessary to make further reference to the facts. None of them are controversial.
48 According to the letter of offer the two facilities granted in September 1995 were to remain in force until 31 August 1996. As regards the bill facility, the Bill Facility Letter of Offer provides that the period during which bills may be drawn (30 August 1995 to 31 August 1996) could be extended to "such later date as the parties shall agree upon in writing". It also provides, by cl 16, that:
"In the event that the Drawer should fail to pay to [NAB] the face value of any Bill … [NAB] may debit an account in the name of the Drawer … with the face value of each such Bill … . The overdrawn balance of such account shall bear interest at the rate calculated in accordance with item 11 of the Schedule from time to time."
49 Pursuant to the bill facility, bills were drawn between 19 October 1995 and 21 June 1996. Each bill had a maturity date of thirty days from the date it was drawn and was for $1,000,000.
50 On 9 May 1996 Mr Piccolo became bankrupt. When this was discovered, NAB cancelled the company's overdraft. However, NAB was requested to reinstate the overdraft and also to grant the company further facilities. On 11 July 1996 NAB forwarded a letter to the company offering to reinstate the overdraft and to provide it with two further facilities. Each facility was to remain in place until 31 August 1996. The letter stated that the security for all facilities, that is the reinstated overdraft, the bill facility and the new facilities, would be the debenture. The guarantee and the mortgage would only secure the bill facility. The offer was accepted. The guarantors executed a document by which they acknowledged that the guarantee continued to secure the bill facility.
51 Further bills were drawn between 22 July 1996 and 20 September 1996. Each bill was for $1,000,000. The final bill matured on 21 October 1996. Although the September bill was drawn after the expiry of the bill facility it is reasonable to assume that there was at least a tacit extension of the period of the facility.
52 The evidence discloses that on the day the final bill matured "the facility of $1m was debited to a fully drawn advance account in the name of [the company]". I take this to mean that the bill was paid with money provided by NAB albeit by book entry: Gibson v Minet (1791) 126 ER 326. This method of discharging the drawer's liability under the bill was contemplated by cl 16 of the Bill Facility Letter of Offer.
53 On 29 October 1996 NAB forwarded a further offer of banking facilities to the company. One of the facilities mentioned was a fully drawn advance for $1,000,000. It is common ground that the offer of the fully drawn advance facility related to the $1,000,000 that had been debited to the company's account on the maturity of the September bill. The offer was that the facility would be available until 31 August 1997. The interest to be paid on the facility was specified. As to repayment, the letter stated: "Principal Repayments of $50,000 per annum are to be paid by 31 August 1997. The ongoing level of annual principal repayments is to increase at each annual review." The letter also stated that the security for the fully drawn advance facility was to be the guarantee and the mortgage. Precisely when the offer was accepted is not clear. I assume that it was accepted shortly after the date of the offer.
54 In my opinion the bill facility was discharged by agreement no later than the acceptance of the 29 October 1996 letter of offer. By then, each bill that had been drawn had been discharged by payment. The only outstanding liability of the company was in respect of the sum of $1,000,000 that had been debited to the account of the company. The company was liable to pay that amount on demand, but no demand was made. Instead, NAB and the company made an agreement that this amount could be paid at the end of twelve months or later if the fully drawn advance facility was extended. This arrangement put an end to any obligation of the company under the original bill facility. The rights and obligations under the new agreement were in substitution for the earlier contract: Scarf v Jardine (1882) 7 App Cas 345 at 351.
55 I should mention that the trial judge arrived at the same conclusion in respect of the agreement constituted by the acceptance of the offer contained in the letter dated 11 July 1996. He found this to be a new agreement that discharged the obligations under the original facility. I do not disagree with his Honour's finding in this respect, but I have concentrated attention on the later agreement, because the position there is beyond argument.
56 It is not necessary to determine whether the guarantors are liable for the fully drawn advance facility that was granted in October 1996 by reason of their conduct. The essential question which arises on this appeal is whether the mortgage stands as security in respect of the liability of the guarantors apart from liability in respect of the original facility agreements. Or, to put the matter another way, what must be determined is whether the family home stands as security for any liability that the guarantors may have in respect of the fully drawn advance facility granted in October 1996.
57 I have already found that the mortgage does not go that far. Initially the obligation of the mortgagors related only to the two facilities granted in September 1995. NAB released the sureties from any responsibility in respect of the overdraft. It is possible that the sureties assumed responsibility to indemnify NAB in respect of the fully drawn advance, but the bankrupt had not charged his interest in the family home in respect of that facility. The facility did not exist before his bankruptcy and after bankruptcy the bankrupt had no power to charge the home, his interest having passed to his trustee. Certainly the trustee did not charge any assets of the bankrupt estate in favour of NAB.
58 Accordingly, I would allow the appeal, set aside the orders made by the trial judge and in lieu thereof I would declare that:
1. The mortgage dated 18 September 1995 a memorandum of which has been entered in the Register Book maintained by the Registrar of Titles upon Certificate of Title Volume 6105 Folio 044 does not in respect of the bankrupt's interest secure any liability that Poole, Levy & Appel Pty Ltd may have in respect of the fully drawn advance facility of $1,000,000.
2. NAB is not a secured creditor of the bankrupt.
I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.