MEL uti v Gane

Held, that evidence that the trust estate or the beneficiaries was or were indebted to A. was irrelevant to an enquiry whether the payment by his wife was for his benefit and whether having received the benefit he continued to enjoy it.

Held, also, that A, had ratified the payment by his wife. H.C, oF A.

'The wife during the period of A.'s insanity pledged the title deeds of A.'s =

Jand with the Bank in order to raise money to pay certain of A.'s debts, and McLaveHiin paid them. After his recovery A. did nothing for a period of 44 years to v.

s set} Cry Bam stiggest to the creditors that he did not assent to the payment. onSunaae.

Hela by Grifith C.J. and Barton J, (Isaacs J. dissenting), that A. had yyy Baw thereby necessarily ratified the payment. Held, further, (Isaacs J. dissenting) or SYDNEY

• (1) that such ratification extended to the pledging of the deeds, and (2) that, v.

si : ' : pine erer aa McLaveuty. as the Court, if applied to during the period of A.'s insanity, might have authorized the pledging of the deeds, A. should not be allowed to compel the delivery up by the bank of the title deeds without repaying the money bor-

Before A. became insane he had begun an action against B. for a sum of £971, and B. had thereupon obtained an order that A., who for many years had been B.'s solicitor, should deliver a bill of costs for taxation. Subse- quently to A. becoming insane, on the application of B., and with the consent of counsel purporting to act on behalf of A., the order for the delivery of a bill of costs was set aside, judgment of non pros. was entered in the action and a sum of money was borrowed from the Bank by A.'s wife and paid by her to B. by way of compromise and full settlement of the claims of A. and B. against each other. After recovering his sanity A. informed B and the Bank that he repudiated what had been done by his wife but did not take any steps to set aside the order of the Court made during his insanity.

Held, by Grifith C.J. and Barton J. (Isaacs J. dissenting) - (1) that evi- dence tending to show that upon taxation it would have appeared that nothing was due from A. to B. wasirrelevant to the inquiry whether the payment to B. was for A.'s benefit ; (2) that under the circumstances the payment was for A.'s benefit ; (3) that whether the payment was or was not for A.'s benefit was material while the order of the Court, which was voidable and not void, stood ; and (4) that the Bank was entitled to recover the money from A.

When A. recovered his sanity his account at the Bank was to his knowledge overdrawn by reason of the operations on it of A.'s wife, and the Bank held A.'s title deeds as security for the overdraft. A. subsequently drew cheques on the account and thereby obtained further advances from the Bank.

Held, by Grifith C.J. and Barton J. (Isaacs J. dissenting), that on the evidence the Bank was entitled to hold the deeds as security for the further advances.

Decision of the Supreme Court of New South Wales (Street J.) in part affirmed and in part reversed.

PPEAL and Cross APPEAL from the Supreme Court of New South Wales. On the hearing by the High Court of an appeal

from a judgment of Street J. in an action brought by John - McLaughlin against the City Bank of Sydney a reference was made to the Master in Equity of the Supreme Court to make certain enquiries: City Bank of Sydney v. McLaughlin (1). The Master having held the enquiries made certain findings, and on summons to review these findings Street J. varied the Master's certificate in certain respects.

From portion of the decision of Street J. the plaintiff by leave now appealed to the High Court, and from another portion the defendants brought a cross appeal.

The facts are sufficiently set out in the judgments hereunder,

On the appeal of the plaintiff: The appellant in person, and afterwards Clive Teece (with him Rowland), for the appellant.

Langer Owen K.C. (with him Mann), for the respondents. Clive Teece, in reply.

Reference was made to : - City Bunk of Sydney v. McLaugh- lin (1); Rogers v. Kelly (2); De Bussche v. Alt (3); Marsh v. Joseph (4); Foley v. Hill (5); Imperial Bank of Canada v. Bank of Hamilton (6); Hirachand Punamehand vy. Temple (7): Gandy v. Gundy (8); In re Lart; Wilkinson v. Blades (9): Kent v. Freehold Land and Brick-making Co. (10); Halsbury's Laws of England, vol xu, pp. 364,395; Edwards v. Carter (11): Carter v. Silber (12); Great North-West Central Railway Co. v. Charlebois (13); Baldwin v. Smith (14); Phillipson v. Hayter (15); Inve Wrexham, Mold and Connah's Quay Railway Co. (16); Ormerod's Case (17).

(1) 9C.LR., 615. (10) L.R. 3 Ch, 493. (2) 2 Camp., 123. (11) (1893) A.C., 360, (8) 8 Ch. D., 286, at p. 314. (12) (1892) 2 Ch., 278, at p. 283.

(4) (1897) 1 Ch., 213, (13) (1899) A.C.," 114. (5) 8 Jur., 347; 2HLL.C., 28. (14) (1900) 1 Ch., 588. (6) (1903) A.C., 49, (15) L.R. 6 C.P., 38. (7) (1911) 2 K.B., 330. (16) (1899) 1 Ch., 440 (3) 30 Ch. D., 57, at p. 78. (17) (1894) 2 Ch., 474.

4 C.L.R.] OF AUSTRALIA. On the cross appeal of the defendants :

~ Clive Teece (with him Rowland), for the respondent.

Reference was made to: - Davidson vy. Wood (1); Grant on Banking, 6th ed., p. 301; Brandao vy. Barnett (2); Deare v. 'Soutten (3); In re Rhodes; Rhodes vy. Rhodes (4); Bluckburn Building Society v. Cunliffe, Brooks & Co. (5); In ve Wood's Estate (6); Bannatyne v. McIver (7); Knox vy. Bushell (8); Read v. Legard (9); Halsbury's Laws of England, vol. Xv1., p. 420; Morel Bros. & Co. Ltd. v. Earl of Westmorland (10); Drew -y. Nunn (11); Brinsmead v. Harrison (12); Valentini v. Canali (13); Haddow v. Morton (14); Wilson v. Ford (15); Wylde v. Radford (16) ; Hamilton v. Bank of New South Wales (17); Dale v. Bank of New South Wales (18); Chambers v. David- son (19); In re London and Globe Finance Corporation (20) ; Hamilton on Banking, 2nd ed., p. 134; Farhall v. Farhall (21); In ve General Provident Assurance Oo.; Ex parte National Bank (22); In ve Trethowan; Ex purte Tweedy (23); Lucas v. Dorrien (24).

Grirritx C.J, The facts of this case are to some extent set out in the judgment of this Court upon the defendant's appeal from a judgment of Street J. dismissing their counterclaim: City Bank of Sydney v. McLaughlin (25). I will briefly summarize

(1) 82 LJ. Ch., 400. (14) (1894) 1 (2) 12 Cl. & F., 787, at p. 806. (15) LR. 3 Ex. (3) L.R. 9 Eq., 151. (16) 33 L.J. Cl

(4) 44. Ch. D., 94, at p. 97. (17) J5.N, (5) 22 Ch. D., 61. (is) 2 V.

• (6) 1 DS. "5. 465. (19) L.R. 1 P. (7) (1906) 1 K.B., 103.

(8) 30.B.N.S,, 334. (9) 6 Bx., 636, at p. 641. 2) LR 14 Bq. (10) (1904) A.C., 11. (23) 5 Ch. D., 559.

(11) 4Q.B.D., 661. (24) 7 Taunt., 278. (12) LR. 6 CLP., 584, (25).9 C.L.R., 615. (13) 24.Q.B.D., 166.

them, with such additional statement as is necessary for the understanding of the points raised by the present appeals. About the latter end of August 1900 the plaintiff, who was then

_ a solicitor in Sydney, and had apparently a considerable practice,

• became of unsound mind, but a formal declaration of his insanity

was not made until 2nd August 1902, when a Mr. McCulloch was _

• appointed Committee of his estate. On 10th March 1903 an

order (spoken of as a swpersedeas) was made declaring that he a

had recovered his sanity. During the long interval between - August 1900 and August 1902 he was substantially under restraint, and was incapable of managing his affairs, but his wife, who appears to have been always hopeful, did her best to keep his practice together, and to maintain his home and family.

At the latter date the aid of the Court was invoked and obtained. The plaintiff's affairs and accounts appear to have been at this time in a very confused and involved condition. He was one of the trustees of an estate called the McQuade estate. In January 1898 he had engaged Mr. M. W. Hawkins, a public accountant, to make up the accounts of this estate from the beginning of the trust, and incidentally to go through all his own accounts. This work was not completed in August 1900, and Mr. Hawkins, under Mrs. McLaughlin's instructions, proceeded with the work and made up a complete set of books as far as possible, which came into plaintiff's possession on his recovery of sanity, and have ever since been in his possession. It does not appear that he ever disputed their accuracy before the commencement of this suit, which was brought in November 1907.

On 24th October 1900 the plaintiff executed a power of attorney in favour of his wife, the validity of which was the subject of decision in the case of McLaughlin v. Daily Telegraph Newspaper Co. Ltd.(1). From that time onward she assumed to act as his agent in the management of his affairs, and it cannot be disputed that she did her best under very difficult circumstances. The appellant, indeed, who at first appeared in person, in his somewhat incoherent address to the Court, invited it to believe that he was never of unsound mind, and that while under restraint he was the victim of a conspiracy between his wife and

her medical advisers, but this contention is contrary to the plain H.C. or A. facts of the case. It is agreed that the facts as found in the Teles Daily Telegraph Case (1) shall be accepted as to plaintiff's yotavenuix insanity. The result of that decision is that the respondents Gunes cannot set up the power of attorney as a valid deed, but they are or Sypnry. not precluded from relying, as they do, upon any other authority Gy Baw which Mrs. McLaughlin may have possessed by implication of oF pees law, or which is established by any subsequent ratification by the MeLavouuis. plaintiff of her acts purporting to be done on his behalf, although done without his antecedent authority.

For the purpose of carrying on plaintiff's practice Mrs. McLaughlin, purporting to act on his behalf, made an agreement of partnership with Mr. C. A. Coghlan, who had been his managing clerk, and the practice was for some time carried on under the name of McLaughlin & Coghlan.

For the purpose of finding money to maintain the plaintiff's household and pay some of his pressing debts she proposed to operate upon a current banking account which he had with the defendant Bank. On 27th November 1900 McLaughlan & Cogh- Jan wrote a letter to the Bank in the following terms : -

"Dear Sir, - Referring to our several interviews on the subject of your granting an overdraft upon Mr, John McLaughlin's current account with your Bank and to the deposit of deeds made this day, we have to request that you will make advances upon this account to the extent of One thousand five hundred

Mrs. McLaughlin also executed a mortgage over the land com-

prised in the deeds deposited. The mortgage is dated 26th

• November 1900, but from the internal evidence of the letter of 27th November I assume that it was executed after that day and antedated. The defendants thereupon allowed her to operate upon the plaintiff's account and to overdraw it on the faith of this security. {[t is to be noted that the limit of the overdraft asked for was £1,500.

Among other things discovered by Mr. Hawkins was the fact that in October 1894 plaintiff had withdrawn a sum of £2,000

McLavenri Standing at fixed deposit in a Bank in the name of himself and

another as trustees of the McQuade Estate, together with £100 accrued interest, and had paid it to his own trust account with - his Bank. In the same month plaintiff had withdrawn the amount from his trust account and placed it to the eredit of his private Bank account, where it had since remained mixed with his own moneys.

When the plaintiff became of unsound mind his account with the Bank was in credit to the extent of a little more than £1,500. On 22nd September 1900 and Ist November 1900 small sums were placed to the credit of the account by the Colonial Treasurer, and on 28th November a further sum of £560 was paid in, appar- ently by Hawkins on behalf of Mrs. McLaughlin, making in all a credit balance of £2,122. On the same day Mrs. McLaughlin, purporting to act as plaintitt's attorney, drew a cheque for £2,100, which was at once repaid to the McQuade trust account.

The plaintiff claims that this payment was made without his authority, and that he is therefore entitled to have his account with the Bank taken on the assumption that his credit balance was not diminished by the withdrawal of the £2,100: This transaction was considered and dealt with by this Court on the former appeal in this case. After pointing out (1) that a con- tract made by a lunatic is not void although it is voidable, that is to say, that it is capable of ratification, I said, speaking for my brother Barton and myself : - " When he recovered his sanity and resumed operations upon the Bank account he must be taken to have become aware of these facts. From that day to this he has, so far as appears, done absolutely nothing to claim a refund of the money from McQuade's trustees, which he could have done if he had any claim to its restitution. . . . In our judgment, if no more appears, the Court is bound to hold that he has by his inaction adopted and ratified the transaction, that is to say, he has by ratification affirmed his wife's authority to apply the money standing to his credit with the appellants to the purpose of this payment. We do not think that for these purposes pro-

tests, however emphatic, if not followed by active measures, are H. C. or A. of any avail. If this is so, the amount must be left out of con- os _ sideration on each side, or taken into consideration on both sides, mcLaveutxy in ascertaining the balance, if any, due to or by the plaintiff." After dealing with another item the Court directed an inquiry

whether "the moneys . . . withdrawn by Mrs. McLaughlin,

or any part of them, were applied for the benefit of the plaintiff ov Sypsry or in discharge of his obligations, legal or equitable," and an McLavenu.

inquiry whether "having received the benefit of any and which of such payments he afterwards, with knowledge of the pay- meuts, retained and continued to enjoy the benefit of them." The inquiries have now been made, and it appears that the plaintiff has never even communicated with the new trustees of McQuade's

estate on the subject. The only argument which he has used is that in 1894 the trust estate was indebted to him for costs and advances, and that, if an account had been taken, the balance would have been in his favour, or, if against him, would have been less than £2,100. The Master refused to admit evidence on this point, being of opinion that this Court had already decided it. It is clear, however, that evidence of such a kind was irrele- vant. A trustee is not entitled to lay hands on a trust fund on the pretext that the beneficiaries are his debtors. Moreover, the facts which the plaintiff told us that he wished to prove would have shown that the claims, if any, which he had against any one in 1894 when he took the money were claims for different sums against separate beneficiaries, and that they had all been satisfied before 1900.

When a man who, on his return from a long absence (whether physical or mental) finds that during his absence some friend, purporting to act on his bebalf, has discharged his pressing debts, I think that very slight evidence of ratification of the agent's acts is sufficient, and I certainly think that, if he fails for a long time to communicate with the creditors whose claims against him have been satisfied, the inference of ratification is irresistible. The lapse of time in the present case was from March 1903 to November 1907 - 44 years. In the face of such delay protests made by the plaintiff to the Bank, or to his wife, are unavailing. As between himself and the creditors he ratified his wife's agency,

and such ratification is equivalent to original authority. This sum must, therefore, be taken to have been drawn from the plaintiff's account by his authority.

The next operation upon the account was by a cheque for £454 10s. 1d., drawn on 4th December, to purchase a draft on London in payment of a debt due by plaintiff to one of the bene- ficiaries of the McQuade estate in respect of trust moneys received on his behalf. At this time the account had been replenished to the extent of £225, but the result of the cheque was to over- draw it to the extent of about £200. The only objection which the plaintift has ever offered to this payment is, we are told, that it should have been taken from an account which he had at another bank. After his recovery he did nothing to suggest to his creditor that he did not assent to the payment of the debt. This transaction and its results are, so far, on substantially the same footing as the payment of the £2,100. But in my judgment a further conse- quence follows, namely, that the plaintiff by ratifying his wife's action in making the payment also ratified the action on her part by which alone it became possible for her to make it, that is to say, the pledging of his title deeds to the Bank to secure the advance by which she was enabled to make the payment. There is a further ground on which I think the validity of the security may be maintained as to this item, but, as it is applicable to several other items, I will defer what I have to say upon it until I have dealt with them.

I will next refer to an item of £1,775, called the McSharry item, which also was to some extent dealt with by this Court on the former appeal. I said (1): - " Another large payment of £1,775 was made by Mrs. McLaughlin under these circumstances. McLaughlin had been for many years solicitor for one McSharry, for whom he had conducted a long and costly litigation extending over a period of years, and on whose account he had received large sums of money amounting to between £50,000 and £60,000. He had never delivered any bills of costs, but had sometimes rendered statements of account, showing moneys received with deductions for 'Costs to date.' In August 1900 McSharry obtained an order on McLaughlin for delivery of his bill of costs before 31st

December. Before that date McLaughlin, as already stated, was incapacitated from obeying the order. MeSharry claimed that a large balance was coming to him, and it is clear that he could have maintained an action for money had and received, to which the defence would have been a set-off for costs, which it would have been difficult to establish. Under these circumstances McLaughlin's managing clerk, Coghlan, appears to have gone into the matter of the costs, and the result was that on 27th February 1901 a cheque for £1,775 was drawn by Mrs. McLaughlin on McLaughlin's Bank account, and paid to MeSharry in settlement of all claims. On the same day a deed purporting to contain mutual releases was executed by McSharry and Mrs. McLaughlin as attorney for her husband."

To this statement of facts must now be added that McLaughlin had commenced an action against MeSharry for £971, and that the order for taxation, which was dated 21st August, had directed a stay of proceedings in the action. It appeared also on the evidence taken before the Master that consequent upon the com- promise the order of the Supreme Court for delivery of the bill of costs was discharged. The formal order is not in evidence, but we have obtained extracts from the Prothonotary's Book recording the proceedings in the Supreme Court, from which it appears that on Tuesday, 24th August 1900, three days after the order was made, and while plaintiff was apparently still of sound mind, counsel for him informed the Full Court (by which the order had been made, after elaborate argument in which the plaintiff was represented by three eminent counsel) that there was a dispute between the parties as to drawing up the order. The Prothonotary's formal entry is " Matter men- tioned and adjourned till first motion day of next term." The matter was again before the Full Court on Ist March 1901, two days after the date of the release of 27th February. The entry is as follows: - "On application of Mr. Delohery for Mr. MeSharry, Mr. Garland for Mr. McLaughlin consenting, order of 21st August 1900 set aside; further that in action McLaughlin y. MeSharry No. 1178 judgment of non pros. to be entered."

The plaintiff said in his evidence before the Master that he became aware of this order shortly after the order of swpersedeas.

He has never taken any steps to re-open the matter as between himself and McSharry or to get the order set aside, and it is still in force.

Upon the inquiry before the Master plaintiff sought to go into evidence to show that the compromise was not for his benefit, in the sense that if the costs had been taxed it would have been found that nothing was due by him, or, if anything, a less sum than £1,775, but the Master refused to admit the evidence.

For the purpose of determining the question of admissibility the Court is entitled to consider the evidence sought to be put in. From the voluminous affidavits recited in the order of 21st August it appeared that McSharry alleged, and McLaughlin did not deny, that the latter had often been asked for a bill of costs, but had always made excuses, the principal one being that the preparation of the bill would oceupy so much of his time and attention that he would be unable to attend to MeSharry's interests in the litigation still going on.

It also appeared that McLaughlin, in order to establish that anything was coming to him, would have had to prove that McSharry's costs of the litigation as between solicitor and client exceeded by very many thousands of pounds his costs as taxed between party and party. Anyone familiar with costs, as Coghlan, plaintiff's managing clerk, may be assumed to have been, would recognize the difficulty of such a task.

But in determining whether a compromise is for the benefit of the person who makes it, or for whom it is made if he is under incapacity, the question is not what would have been the result if the litigation compromised had been fought to its end, but whether, under the circumstances, it was for the benefit of the party to buy peace on reasonable terms.

Under the circumstances of the present case it was manifestly to the plaintiff's advantage to do so. McLaughlin was not in a condition to prepare the bill of costs, or to establish the correct- ness of it on taxation. McSharry could not be kept waiting indefinitely. If, therefore, nothing had been done an action might have been brought in which judgment must have gone against McLaughlin by default. If I were called upon to form an opinion on the question of fact I should say that the amount payable by

him would have been found to be much more than £1,775. More- H. ©. or A. ~ over, the expense and difficulty of preparing the bill of costs, if it oe could have been prepared at all under the circumstances, would yfcLsuouris have been enormous. Mr. Teece contended that the Master could (havi not answer the inquiry whether the compromise was beneficial or Sypyey. without taxing the bill, and this was in substance what the Guinn _ Master was asked todo. I think that he was right in refusing, ov Sypvry ~ although I do not think that the plaintiff was precluded by any- Moliinasioe thing said by this Court from offering evidence to show that the compromise was not beneficial for some other reason. In my judgment the compromise was beneficial as a matter of fact.

But I think that, as to this item, the question whether it was or was not beneficial has become immaterial. Under the order of 2st August 1900 the plaintiff became subjected to a very onerous obligation, which could only have been discharged by the expen- diture of much time, labour and money, with the probable, and, I think, almost certain, result of a large pecuniary liability. An application was then made to the Supreme Coutt to set aside thie order, the result of which would be to discharge him from this obligation. Although the application was in form made on behalf of MecSharry and consented to on behalf of plaintiff, its effect is, of course, the same as if he had himself asked for it.

The sum of £1,775 was, therefore, the price paid for this benefit.

• If all that the plaintiff contends could be established the Court would, perhaps, on his application, if made soon after his recovery, have rescinded the order of Ist March 1903 and restored that of 21st August 1900, though I much doubt it. But the order was, at most, voidable and not void. It was an order made in regular course, ina proceeding pending in the Court, in which plaintiff was represented by counsel. The contention that an order made in the course of a suit, in which one of the parties is, unknown to the other, of unsound mind, is absolutely void is too absurd to be discussed.

The order being voidable only, it lies on the party objecting to it, and not on the party who wishes to affirm it, to move in the matter. In such a case beati possidentes.

All that the plaintiff can say in answer to this is that he told

H.C. or A. 1912. ) Richardson y. Dw Bois (2). In Debenham v. Mellon (3), Bram- McLaveutry. well L.J. confines her power to pledging her husband's credit. In the House of Lords Debenham v. Mellon (4) Lord Selborne L.C. speaks of "a mandate by law, making the wife (who cannot her- self contract, unless so far as she may have separate estate) the agent in law of her husband, to bind him, and to pledge his credit, by what otherwise would have been her own contract, if she had been a feme sole." He says there is no such mandate

from marriage, except in the particular case of necessity, as from desertion, or misconduct. Now in that passage the learned Lord Chancellor touches the mainspring of the matter. When the law was fixed on this subject, a wife could not contract, but if she were deserted, or turned out, or her husband were lunatic, she not being able to contract and yet without authority in fact actual or presumed might starve. Therefore the law irrebuttably endowed her with a capacity to make a contract for necessaries, not on her own behalf, but as representing her husband and to the extent of his marital obligation to provide her with them (see Comyns's Digest, " Baron & Feme" (Q.) ).

But the common law went no further. In Know v. Bushell (5) it was decided that a husband is not liable for money lent to his wife though it be afterwards applied by her in procuring neces- saries for the supply of which he would have been liable.

This shows the limit of her legal authority. If she has at law _ no authority to borrow she has a fortiori no authority to pledge her husband's property for it.

But having the authority at law to procure necessaries, equity applied to that authority - a doctrine which may be conveniently called subrogation. It did not attempt to supplement it with an

(1) 6 Ex., 636. (4) 6 App. Cas., 24, at p. 31. Q) LR. 5 Q.B., 51. (5) 3C.B.N.S., 334. (3) 5 Q.B.D., 394, at p. 398.

H.C. or A. additional authority at law to pledge property to secure the debt

1912, __that was entirely outside the province of equity - but it did perma complement and effectuate the legal power of procuring necessaries, fe es by permitting the lender whose money was actually applied in or Sypyey. the purchase of the necessaries to stand in the place of the man Cine Baers DO. supplied them. It was so ruled in 1718 in Harris v. Lee (1) ow SLDAPY by Jekyll M.R. That case was adopted and made the basis of MoLavenn. the decision in Jenner v. Morris (2), which may be regarded as the highwater mark of the husband's liability. Campbell L.C. and Turner LJ. vested their judgments on the ground I have stated. The Lords Justices relied on the ancient jurisdiction of the Court of Chancery to go beyond the forms of law to look behind the advance, and enter into the application of the money.

But beyond this no Court has ever gone, and it appears to me, having regard to the reasons given, there is no warrant to go further. Merely calling the authority one of necessity does not enlarge it. The authority still remains what it is, namely, one to pledge credit only, and if it were extended it would be doing more than Lord Campbell L.C. said when he declared the lender should stand in the shoes of the tradespeople who furnish the necessaries and to have a remedy for the amount against the husband.

The fact that the legislature has thought fit to entrust the Court in Lunacy with power to deal with the lunatic's property is no reason, as far as I see, for attributing similar powers to the wife on her own discretion.

I am therefore of opinion that the cross appeal should be dismissed.

Appeal dismissed with costs. Cross appeal allowed. Master's certificate varied accordingly.

Solicitor, for the appellant McLaughlin, J. H. McLaughlin. Solicitors for the respondent Bank, Leibius & Black.