ANTONIO AND FILIPPA MODDERNO v AUSTRALIAN AND NEW ZEALAND BANKING GROUP LIMITED [1999] NSWCA 13

New South Wales Court of Appeal CITATION : ANTONIO AND FILIPPA MODDERNO v AUSTRALIAN AND NEW ZEALAND BANKING GROUP LIMITED [1999] NSWCA 13 revised - 15/02/99 FILE NUMBER(S) : CA 40327/96 HEARING DATE(S) : 4 August; 1998 JUDGMENT DATE : 15 February 1999

ANTONIO AND FILIPPA MODDERNO PARTIES : v AUSTRALIAN AND NEW ZEALAND BANKING GROUP LIMITED JUDGMENT OF : Handley JA at 1; Stein JA at 46; Fitzgerald AJA at 47

LOWER COURT JURISDICTION : Supreme Court - Common Law Division LOWER COURT FILE NUMBER(S) : SC 19231/86 LOWER COURT JUDICIAL OFFICER : McInerney J

COUNSEL : C T Barry QC / G F Cohen (Appellant) P J Dowdy (Respondent) SOLICITORS : Mercuri & Co (Appellant) Dowe Xenos (Respondent) CATCHWORDS : GUARANTEE - discharge by breach of contract by principal creditor; GUARANTEE - whether principal creditor owes duty of care to guarantors ACTS CITED : Trade Practices Act 1974 (Cth) DECISION : Appeal dismissed with costs

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THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40327/96 SC 19231/86

HANDLEY JA STEIN JA FITZGERALD AJA

Monday 15 February 1999

Antonio and Filippa MODDERNO v AUSTRALIAN AND NEW ZEALAND BANKING GROUP LIMITED

GUARANTEE - discharge by breach of contract by principal creditor GUARANTEE - whether principal creditor owes duty of care to guarantors The appellants mortgaged their home to the Bank to finance a home loan for their son and his wife to be used by them to construct a home on the mortgaged land. The money was not spent on the construction of the house, and the borrowers were unable to repay the loan. The property and another property of the appellants and their son, which was mortgaged to the Bank with an all moneys clause, were sold to repay the Bank. The appellants claimed that a letter approving the loan sent by the Bank to the son and his wife was incorporated in the guarantee, and that the failure of the Bank to verify the progress claims was a breach of contract by the Bank which discharged the guarantors. Alternatively they claimed that the failure of the Bank to verify the progress payments breached a duty of care and discharged their liability. HELD dismissing the appeal: (1) The letter never formed part of the principal contract; it merely set conditions upon the Bank's obligation to lend. Bank of India v Trans Continental Commodity Merchants Ltd [1983] 2 Lloyd's Rep 298 CA; Westpac Securities Ltd v Dickie (1991) 1 NZLR 657 CA considered. (2) The appellants' claim that the Bank owned them a duty of care failed. Black v The Ottoman Bank (1862) 15 Moore PC 472 (15 ER 573), Mayor of Durham v Fowler (1889) 22 QBD 394, Dawson v Lawes (1854) 23 LJ Ch 434 applied. (3) The Bank's carelessness in not verifying the progress payments did not discharge the appellants' liability. Bank of India v Trans Continental Commodity Merchants Ltd [1983] 2 Lloyd's Rep 298 CA, China and South Sea Bank Ltd v Tan Soon Gin (1990) 1 AC 536, Westpac Securities Ltd v Dickie (1991) 1 NZLR 657 CA applied. ORDER Appeal dismissed with costs. THE SUPREME COURT