PICKFORD L.J. read the following judgment: - This case arises out of a guarantee given by two of the directors of Samuel Sutcliffe and Son, Limited, for moneys due to the plaintiffs on a loan and current account with that company. The arrangement was that there should be a loan of 3600l. and an overdraft of 2500l., and that as a security the company should deposit debentures to the extent of 6100l. and two directors, Frank Sutcliffe and Albert Sutcliffe, should give a personal guarantee for the amount due on the accounts to protect the plaintiffs from loss on the realization of the debentures.
Frank Sutcliffe, one of the guarantors, became insane in 1898, and Lawrence J., who tried the case found that the plaintiffs were informed of this fact in 1899. The learned judge held that Frank Sutcliffe’s guarantee ceased to operate as a continuing guarantee from the latter date, and against this decision there was no appeal. Both parties in the argument before us treated the case on the basis that the continuing guarantee ceased then, but that on that date Frank Sutcliffe’s estate remained liable for the debts then accrued due on the accounts. It was, however, argued that this liability had terminated for the reasons discussed later in this judgment.
At the date mentioned there was due to the plaintiffs 3400l. on the loan account and 269l. 5s. on the current account. The learned judge has held that the latter amount has been satisfied by subsequent payments to the credit of the current account, and the plaintiffs accept that position. The only question, therefore, is as to the liability for the 3400l. due on the loan account.
It was argued that this amount must also be held satisfied by subsequent payments into the current account exceeding the sum of 3400l., the ground of this argument being that the two accounts must be considered as one. I think there is no foundation for this argument. The facts clearly show that the accounts were to be kept distinct by arrangement between the plaintiffs and the company. If it were otherwise, the company would be extremely hampered in their business, for they could never safely draw on the current account so long as the credit balance did not exceed the amount due on the loan account. The effect of this arrangement is that payments to the credit of the current account are appropriated to that account and cannot be taken in reduction of the loan account.
The defendant also contended that the claim was barred by the Statute of Limitations. The learned judge held that this defence failed because the claim had been kept alive by payment of interest by the principal debtors, the company. I cannot agree with this reason, which seems to me to be contrary to the provisions of the Mercantile Law Amendment Act, 1856 (19& Vict. c. 97). But another answer was given by the plaintiffs, that is, that the cause of action did not accrue until demand by them, and that no demand had been made until after the realization of the debentures in 1912, less than six years before the commencement of the action. This seems to me to depend upon the construction of the document. A cause of action accrues when all the facts exist which it is necessary to prove as a part of the case: Reeves v. Butcher. (1) If, therefore, it were necessary for the plaintiffs to prove a demand, the cause of action did not accrue till after the demand. The document is as follows: [His Lordship read the provisions of the guarantee already set out, and continued:] It was argued on behalf of the defendant that the words “on demand” should be neglected because the money was due, and therefore a demand was unnecessary and added nothing to the liability. This proposition is true in the case of what has been called a direct liability – for example, for money lent. There the liability exists as soon as the loan is made, and a promise to pay on demand adds nothing to it, as in the case of a promissory note for the amount payable on demand, and the words “on demand” may be neglected. It has, however, been held long ago in cases more particularly mentioned by the other members of the Court that this doctrine does not apply to what has been called a collateral promise or collateral debt, and I think a promise by a surety to pay the original debt is such a collateral promise, or creates such a collateral debt. This has been so decided by Chitty J. in In re Brown’s Estate (2), a case which we were invited to overrule. I think, however, it was rightly decided and in accordance with the principle of the earlier cases. The only question, therefore, is whether, on the construction of the guarantee, the parties meant the words “on demand” to mean what they say. I cannot doubt that they did. Interest is to run from demand. Clause 6 makes a demand a condition precedent to the guarantor’s power to pay off the amount due, and clause 10 suggests that a demand would be necessary to inform the guarantor of the deficiency left on the realization of the debentures. It may be that the effect of clause 10 is to make the realization of the debentures and consequent loss a fact necessary to prove to establish a cause of action, but I do not think it necessary to decide this. In my opinion there was no cause of action till after demand, and the plea of the Statute of Limitations therefore fails.
The last defence with which I have to deal is that the surety was discharged by a novation of the debt by which the liability of the company to the plaintiffs was discharged and another bank called the United Counties Bank became the creditors. This arises under the following circumstances. In 1907 the plaintiffs amalgamated with the Birmingham District and Counties Banking Company, limited, and the amalgamated banks were afterwards known by the name of the United Counties Bank, Limited. The new bank continued to use the books formerly used by the plaintiffs, but the current and loan accounts were transferred in those books to the name of the United Counties Bank, and the company paid interest on the loan account by cheques drawn on the current account in favour of the United Counties Bank. The securities still remains in the name of the plaintiffs, though on the amalgamation all debts and choses in action and the benefit of all securities and guarantees were sold to the new bank by the plaintiffs, who undertook to take such action as was requested by the new bank to enforce any remedies for them. These transactions, and especially the dealings with the two accounts, were said to prove a novation by which the plaintiffs released the company from their debt, which was transferred to the United Counties Bank as creditor, and so discharged the surety. I think it doubtful whether such a novation were effected, but I do not think it necessary to decide this, as I am of opinion that, even if there were such a novation, it does not discharge the surety. There can be no doubt that a novation by which the original debtor is released from his debt discharges the surety, but a transfer of an existing and ascertained debt to another creditor stands on a different footing. In order to discharge the surety it must effect a material alteration in his position. Here the debt was ascertained as long ago as 1899, and the alleged novation did not take place until 1907, the original decided in a case by which we are bound that an assignment of the debt does not discharge the surety: see Wheatley v. Bastow. (1) In that case no notice of the assignment was given to the surety, but the Court seems to assume that if notice had been given the argument in favour of his discharge would have had even less strength. It seems to me that for all purposes so far as the interests of the surety are concerned, a novation by which the original creditor releases the debtor has no greater effect than an assignment of the debt with notice to the surety. In either case the transferee of the debt, whether by novation or assignment, is the person with whom the surety has to deal, and, as the liability is already ascertained, it is a matter of no consequence to the surety to whom he has to pay it. The case would be different if it were sought to make the surety liable for a debt arising out of dealings between the new creditor and the debtor, but no such case arises here. I think such a novation, if it existed, does not make any material alteration in the surety’s position. It may be that, if it existed, the United Counties Bank, and not the plaintiffs, ought to sue, but this is a mere matter of form, as the two banks are, for this purpose, the same, and an amendment would have been made at the trial if necessary.
The result is that the appeal fails and must be dismissed with costs.
BANKES L.J. read the following judgment: - Both parties accept the view taken by the learned judge in the Court below that the guarantee given to the plaintiff bank by the defendant ceased to be a continuing guarantee as and from December, 1899, the date when formal notice of the defendant having been found a lunatic was given to the bank. At that time the amount due to the bank on the loan account of Samuel Sutcliffe and Son, Limited, was 3400l. and upon the current account 269l. 5c. The learned judge has found, and there is no appeal from that part of his judgment, that the amount due upon the current account was paid off by subsequent payments into that account. The only remaining question, therefore, is whether the defendant is liable for the amount which was still unpaid on the loan account at the time the action was brought. The learned judge held that he was. From this decision the defendant appeals. One point taken on his behalf was that the amounts paid into their current account by Sutcliffes after December, 1899, must be appropriated generally in relief of the defendant as surety for the company, in which case the loan account as well as the current account will be amend to have been paid off. In support of this contention the case of In re Sherry (1) was cited. In my opinion this contention cannot be supported. It is, I think, clear that by arrangement between the bank, the company, and the guarantors the two accounts were kept, and were intended to be kept, quite distinct, and that moneys paid itself, could only be applied by the bank in the manner in which surety cannot, in my opinion, contend that, as between himself and the bank, the latter ought to have applied moneys in discharge, or part discharge, of an account to which the bank had no right to apply such moneys.
Another point taken for the defendant was that the claim was accrued by the Statute of Limitations. There are, in my opinion, two answers to this contention. The first is that upon the true construction of the guarantee it is really governed by the provision of clause 10, and that it operates only as a guarantee to protect the deposited by the company with the bank as security for the same accounts as were covered by the guarantee given by the defendant. Until, therefore, the debentures were realized the bank had no cause of action against the defendant upon the guarantee. The debentures were only realized quite a short time before the action was commenced. This point is in my opinion sufficient to dispose of the plea of the statute. There is, however, a second and equally conclusive answer. The guarantee is in form a joint and several guarantee to pay on demand all sum or sums of money which shall become due and owing from the company to the bank, whether principal or interest. Interest is to be computed from the time of default of payment by the company, or from the time of the bank demanding payment from the guarantors or either of them, whichever shall first happen. If demand before action is an essential part of any cause of action by the bank against the guarantors, then the statute could not commence to run until the necessary demand was made: Miller v. Dell. (2) Demand was not made until after the debentures had been realized. If, therefore, a demand for payment before action brought was necessary, the action is not barred by the statute. Mr. Comptson contended that no demand was necessary, and that the bank could have brought an action at any time without any demand. I do not agree with this contention. In my opinion the document, both from its nature and from its language, indicates that the guarantors stipulated for a demand being made upon them before the bank could enforce the guarantee against them. The authorities from very early times are, I think, clear that in a case like the present an actual demand before action has always been considered necessary. The earliest cases arose on a pleading point upon the question of whether an allegation of a demand de facto was a necessary allegation in a declaration. The older cases are all referred to in the argument of counsel in the case of Birks v. Trippet (1), and in the notes to that case. I select three as illustrations:- Waters v. Bridge (2): Error of a judgment in the Common Pleas, in debt upon an arbitrament of 340l., the award being for that amount for all sums of money laid out by the plaintiff for Elizabeth dum sola fuit, cum inde requistus esset; the Court held, secondly, “the arbitrament is to pay 340l., cum inde requisites esse: so, request being part of the agreement, there ought to be an express request alleged; and licet saepius requisites will not serve: and it is not like to debt upon a bond or upon contrat; for there the debt being due by specialty or contract, neecs not a special demand, but licet saepius requisites will serve; but being due by arbitrament, cum requisites fuerit, it is not due, but according to the arbitrament upon special demand. And of that opinion was all the Court.” In Hill v. Wade (3), “Assumpsit in consideration that he would buy such land of the defendant, and pay unto him 40l. for it, the defendant promised to pay to the plaintiff 9l. which I.S. owed to the plaintiff, when he should be thereunto required....The Court resolved, that forasmuch as it is a stranger’s debt, and was no duty by the defendant before the promise, nor payable but upon request, and so no breach until request be made; therefore to enable the plaintiff to the action, an express request ought to have been alleged, and a saepius requisitus will not serve. Houghton J. took this difference where a request is upon a duty; as if I sell an house for 5l., to be paid upon request, there a licet saepius requisitus is sufficient: and where it is upon a collateral matter; for there he ought actually to allege a request, although issue be joined upon the assumpsit.” In Harrison v. Mitford (1): “In an action upon the case for a promise, upon non-assumpsit pleaded, a verdict was found for the plaintiff: it was moved in arrest of judgment, that the declaration was not good, the promise being for to save the plaintiff harmless, cum inde requisitus esset, and no special request laid in the declaration, as there ought to have been: the whole Court agreed clearly in this, that for this cause the declaration is not good; for as this case is, being a promise to save harmless; a special request ought to have been in the declaration, and a licet saepius requisitus will not here serve, and this verdict will no ways aid or avail the plaintiff; otherwise it would have been, if the promise had been to have paid a certain sum of money, cum inde requisitus esset, there a licet saepius requisitus: Non soluit will be good, without laying any special request, and so is the difference agreed by the whole Court; and that this declaration, for want of a special request laid, is not good, and so the rule of the Court was for the defendant.” I refer also to the much later case of Sicklemore v. Thistleton (2), because it not only carries down the same principle to a much later date, but it also has a bearing upon the construction of the guarantee in the present case. The lease in that case was executed by the defendant as surety for the tenant, and the defendant covenanted, not only that the tenant would pay the rent as and when it became due, but that he, the defendant, would, if the tenant neglected to pay the same for forty days, pay the same on demand. Lord Ellenbborough, in giving judgment, said: “I own that I cannot help thinking this is a qualified covenant, and that the stipulation, that “if the lessee shall neglect to pay for forty days, the surety shall pay on demand,” which must have been introduced in ease and for the protection of the surety, does, in reasonable construction, pervade and restrain the former covenant.” The other learned judges expressed themselves to the like effect. The decision of Chitty J. In In re Brown’s Estate (3) is, in my opinion, entirely in accordance with the authorities from the earliest times. Mr. Compston has endeavoured to distinguish the present case from In re Brown’s Estate (1) by fastening on the expression “collateral sum” as used by Chitty J. The same expression is found in some of the earliest case. sometimes the expression “collateral debt” is used. In my opinion these expressions merely mean a sum of money payable under some collateral agreement, or a debt created by such an agreement. In my opinion In re Brown’s Estate (1) is good law and covers the present case.
The last point for consideration is whether there has been any such alteration in the position of the parties as releases the surety. What is relied upon is that the present plaintiffs, the Bradford Old Bank, which subsequently became the United Counties Bank, to whom the plaintiffs early in the year 1908 assigned all their assets, including the debts due from Samuel Sutcliffe and Son. It was further contended that by the course of dealing between the two banks and Sutcliffes a novation had taken place, and that the United Counties Bank had been substituted for the Bradford Old Bank as creditors of Sutcliffes. It was said that this change of parties had discharged the surety. The case of Wheatley v. Bastow (2) is a clear authority of the Court of Appeal that a creditor may assign his debt or his securities. Turner L.J. (3) expressly holds that the position of the surety is in no respect altered by such an assignment. The assignee, he says, acquires by the assignment all the rights of the assignor, and it is difficult to see how the surety can be in a better position against the assignee than he was against the assignor. To the same effect is the decision in In re Hallett and Co. (4)
In Wheatley v. Bastow (2) the point was taken that the surety was placed in a different position because he had received no notice of the assignment, and it was on this ground, apparently, that the judgment in the Court below proceeded. It was assumed, I think, that the position of the surety would be improved, and not rendered worse, by the fact of his having received notice of the assignment. It certainly so appears to me. If, therefore, a surety is not discharged by the assignment of the security, and if it makes no difference to his position whether notice is or is not given to him of the assignment, I cannot see that he can be in a better position because the principal debtor has assented to the assignment, which in substance is the only difference, so far as the surety is concerned, between an assignment of the security with notice and a novation of the original debt. From this point of view it is immaterial to decide in the present case whether the evidence established a novation or not, though I am inclined to think that the evidence fails to establish any novation.
For the above reasons I am of opinion that the appeal fails on all points.
SCRUTTON L.J., read his judgment, which after stating the facts continued: The action came on for trial before Lawrence J., who caused as a continuing guarantee on the lunacy of the surety, though the liability for debts then accrued die continued; (2.) that the accrued liability for 269l. 5s. on the current account had been satisfied by payment. This left the accrued liability for 3400l. on the loan account to be considered. It was pleaded (1.) that this had been discharged by the payments into the current account; (2.) that the claim was barred by the Statute of Limitations; (3.) that the surety was discharged by a novation by which the principal debtor had accepted the new bank as his creditor being released by the old bank. The judge decided against all these contentions, and gave judgment for the Bradford Old Bank for 2954l. 3s. 9d. The bank did not appeal against any of the findings against them; but the committee of the lunatic appealed, urging the same three points against the claim as had been argued below.
The first point argued appears to involve a misunderstanding of the relation of loan and current accounts. The sums paid into the current account are appropriated by the customer to that account, and cannot be used by the bank in discharge of the loan account without the consent of the customer. No customer could otherwise have any security in drawing a cheque on his current account if he had a loan account greater than his credit balance or current account. The 3400l. debit balance on loan account cannot be treated as discharged by subsequent payments into the current account.
In answer to the plea of the Statute of Limitations, the second point taken by the defendant, the learned judge held that as there were payments of interest by the principal debtor within three years of action brought the plea failed. He gave no reasons, and must have overlooked the provisions of the Mercantile Law Amendment Act, 1856 (19 and 20 Vict. c. 97) Sect. 14 of that Act expressly provides that payment by one of two co-debtors, whether bound jointly, or jointly and severally, should not deprive the other of the benefit of the statute. It seems curios that where A> is surety for repayment by B. of a loan with interest, and B. regularly pays the interest for six years so that the principal is not claimed from the surety. A. should be discharged; but the words of the statute are clear, and were so interpreted in Cockrill v. Sparkes. (1) This answer to the plea of the statute therefore fails.
But a second answer was made before the judge below to the plea, and was also argued before us. The learned judge does not refer to it, as he had decided that the first answer was good. It was that the surety as only liable on demand and that the statute therefore ran from the demand, which was within six years of action brought.
The numerous cases decided on particular facts are all reducible to one principle. When the statute of James provided that actins must be commenced within six years “next after the cause of such actions” it meant after the occurrence of all the facts which the plaintiff must prove as part of his case – that is, at the time when the plaintiff could first have brought his action and prove sufficient facts to sustain it: see per Lindley L.J. in Reeves v. Butcher (2), as explained by the Court of Appeal in Coburn v. Colledge. (3)
was it here necessary to the plaintiff to prove a demand? Generally, a request for the payment of a debt is quite immaterial, unless the parties to the contract have stipulated it should be made: per Parke B. in Walton v. Mascall. (4) Even if the word “demand” is used in the case of a present debt, it is meaningless, and express demand is not necessary, as in the case of a promissory note payable on demand: Norton v. Ellam. (5) But it is otherwise where the debt is not present but to accrue, as in the case of a note payable three months after demand: In re Rutherford (1); or where the debt is not a present debt, but a collateral promise: Birks v. Trippet (2) In re Brown’s Estate. (3) The promise of a surety to pay on demand if his principal does not appears to me to be a collateral promise within the authorities; and I entertain no doubt that in this guarantee the provisions about demand are a real stipulation, and not mere words. The surety is to pay “on demand”; interest is to run from “the time of demanding payment” (clause 1); and by clause 6 the surety agrees that he is not entitled to require the creditor to accept payment until the latter has “demanded payment of such amount”; while, as the guarantee is “against loss on the realization of debentures,” the surety would need to be informed by demand of the amount he was called upon to pay. I am of opinion that the creditor must proves a real demand, and therefore that the Statute of Limitations did not run till the demand had been made. The plea of the statute therefore fails.
The third defence alleged was that the facts gave rise to a novation by which the principal debtors, Sutcliffe and Son, released the original creditor, the Bradford Bank, and undertook a new creditor, the United Counties Bank, where the surety of the original obligation was released. Novation means this: “that there being a contract in existence, some new contract is substituted for it, either between the same parties (for that might be), or between different parties; the consideration mutually being the discharge of the old contract”; and, I may add, the undertaking of rights and duties by the new party: see per Lord Selborne in Scarf v. Jardine. (4) But where the suggested form of novation is that the obligation is transferred to a new creditor it is necessary to distinguish between a mere assignment and an assignment which amounts to a novation. Novation introduces a new contract and requires the assent of all parties; mere assignment transfer rights acquired under the old contract, and may be made without the assent of the debtor. Where a new debtor is accepted by the principal creditor and the old one discharged, as in the cases of changes of partnership, it is easy to see that surety has not guaranteed that the new debtor will perform obligations and is therefore released. As stated by the Privy Council in Commercial Bank of Tasmania v. Jones (1), the acceptance of A. as full debtor in room and stead of B., which constituted a complete noavtion of the debt, necessarily operated as an absolute release of B., and it was therefore in vain to contend that such novation merely amounted to a covenant not to sue the debtor, for whom the respondent was surety. The surety in that case was discharged. But, as Lord Selborne points cut in Scarf v. Jardine (2), a statement that A., who is carrying on the business formerly carried on by B., will receive and pay all debts owing to or by the old firm does not necessarily, if acted upon, amount to a novation releasing B. and making A. liable. A. may be acting simply as agent or assignee of B. As assignee with notice, he can claim and receive B.’s moneys from B.’s debtors without having made a new contract with them by which B. is released and A. substituted as contracting party. That the assignment with or without notice of a guaranteed debt does nto discharge the surety appears from the decision of the Court of Appeal in Wheatly v. Bastow (3) Knight Bruce L.J. said (4): “Nor can I suggest to myself any reason for holding that mere circumstance of assigning a debt, or a security for it, and omitting to give notice to a surety or to a person whose property is mortgaged by way of suretyship for the debt discharges the surety or the property.” Turner L.J., said (5): “But the creditor enters into no contract with the surety not to assign the debt or the securities. The law gives him the right to assign them; and if he does so assign them, the obligation which attached upon the creditor attaches upon the assignee. The position of the surety is in no respect altered. The assignee, on the other hand, acquires by the assignment all the rights of the assignor, and it is difficult, I think, to see how the surety can be in a better position against the assignee that he was in against the assignor.”
The facts from which it is said novation must be inferred in this case are as follows. In February, 1907, the loan account was in debit 3600l., and the current account 900l. On Lawrence J.’s judgment the debit on the current account is immaterial, as the debit in the year of the lunacy, 1898, which was 269l. 5s., had been discharged by payments in, and no further liability existed under the guarantee. The 3400l. debit on the loan account in 1898 had not been reduced, but had been increased to 3600l. The old accounts were stopped at the figures of 3400l. and 900l. A new current account was opened by Sutcliffe and Son with the new bank on the terms, at first, that it should not be overdrawn, and then that it might be overdrawn up to 1500l. on the security of 1500l. debentures and a new guarantee from Albert Sutcliffe. If the banks had followed their regular course the would have obtained a new guarantee from the sureties to be new bank and then brought forward the old balances to an account with the new bank. Owing to Frank Sutcliffe’s lunacy this course could not be followed, and matters appear to have drifted into a rather confused state. The old bank was not dissolved, but remained in existence, though as trustee for the new bank. The 6100l. debentures, security for the old account, were and remain in the name of the old bank, and were kept in a separate bundle of the old bank’s securities in the safe of the new bank. When a debenture-holder’s action to realize the securities was brought, it was brought by the old bank. The new bank continued to use the old bank’s current account ledgers, and in them entered a loan account, described as “United Counties Bank as from February 13th, 1907,” the date of amalgamation. There was a loan pass-book to a similar effect, but there was no evidence that Sutcliffe and Son ever saw this loan account and pass-book. They did, however, pay interest on the old loan account to the new bank by cheques on their current account and cash.
Novation requires that the old bank, the new bank, and Sutcliffe and Son should agree that all rights of the old bank as against Sutcliffe and Son should cease in consideration of Sutcliffe and Son acknowledging their indebtedness to the new bank. I can see no evidence here of an agreement that the rights of the old bank were to cease; they remained holders of the securities, though as trustees for the new bank, and successfully brought a debenture-holders’ action against Sutcliffe and Son. Novation requires animus novandi, and the substitution of some other thing for the original obligation or debt: per Bacon V.-C. in Wilson v. Lloyd. (1) I can see no evidence that Sutcliffe and Son agreed to leave the old bank out of the relation, and that the old bank agreed that their rights against Sutcliffe and Son should cease. All that takes place is quite consistent with an assignment of the debt by the old bank to the new bank with notice to the debtor, and it is immaterial that the old bank only retains the securities and any rights it remains as trustee for the new bank. This transaction does not, in my opinion, discharge the surety for the original debt which is assigned. This defence therefore fails, but I am at present satisfied, though I do not wish to express a final opinion on the point, that even a novation of a creditor for the original debt would necessarily have discharged the surety.
The appeal fails and should be dismissed with costs. (1)