Gurfinkel v Bentley Pty Ltd

In 1960 the appellant was the registered proprietor of the Dangan Street land. It was about an acre and a half in area situate a mile from the City of Perth and upon it the appellant had partially completed the erection of a factory. There were at that time two mortgages over the property and the appellant appeared to be experiencing difficulty in meeting the interest payments due under these mortgages and also under other mortgages given by him over other land. In fact, the Dangan Street property was advertised by the mortgagees for auction on 11th August 1960. However, the sale was postponed until 8th September upon which date the appellant paid £500 to the mortgagees' solicitors in reduction of his indebtedness and the auction was further postponed until 15th September. Thereafter it was further postponed until the 11th and again until 18th October.

In 1960 the appellant was also the registered proprietor of land at Welshpool containing about twenty-five acres situate ten miles from the City of Perth and having upon it the foundations for two semi-detached cottages. A mortgage of this property was in default and the mortgagee advertised it for sale by auction on 23rd November 1960. But the sale was postponed to a date in December and then to 17th January when it was cancelled upon payment of the mortgage debt in the circumstances I shall later mention.

The respondent Panizza, a man of means but not a builder or a dealer in real estate, was friendly with the appellant Gurfinkel. He was aware of his financial embarrassment and expressed himself as willing to provide him with finance. But the evidence of these parties as to the means by which he did so was in sharp and irreconcilable conflict. Briefly, the appellant Gurfinkel said that the respondent Panizza indicated his willingness to lend him enough money at ten per cent interest to pay off the loans of the mortgagees of his several properties who were pressing him and to enable him to complete the unfinished factory on the Dangan Street land. He said in substance that that respondent wanted security for the money he advanced over the lands by a transfer of the title to them into his name or in the case of the Welshpool land, into that of a company within his control, but giving to the appellant Gurfinkel an option to repurchase the land, in the case of Dangan Street within twelve months, and in the case of Welshpool land at any time, though according to the appellant Gurfinkel the parties expected the repurchase in the latter case to take place in three months' time.

The respondent Panizza on the other hand asserted that there was no question on his part of lending money though the appellant Gurfinkel had pestered him to do so. He claimed that he was willing to invest in the lands by buying them outright and, by doing so, benefit the appellant Gurfinkel in his financially embarrassed condition. Unable to persuade him to lend, the appellant Gurfinkel had accepted his offer to purchase outright, he, Panizza, agreeing to give an option to repurchase.

On 18th October 1960 the appellant Gurfinkel and the respondent Panizza executed an agreement which recited that that respondent had on that day purchased the Dangan Street property from Gurfinkel free from all encumbrances for the sum of £3,760, that that respondent was to carry on with the construction of the partly erected building thereon and to expend to that end a sum of not less than £1,240 and that that respondent had agreed to a request by the appellant Gurfinkel for an option to repurchase the subject property upon the terms and conditions and at the price thereinafter set out. The agreement then provided that the respondent Panizza upon payment of the sum of ten pounds (£10) granted to the appellant Gurfinkel an option for a period of twelve months from the date thereof to purchase the subject property free of encumbrances together with all buildings then erected thereon for the sum of £5,500 upon the following terms and conditions:

Such option shall be exercised by the Vendor giving to the Purchaser at least one month's notice in writing signed by the Vendor of his intention to purchase the said land.

Such purchase shall be completed at the Titles Office upon the day upon which the notice mentioned shall expire upon which day the Transfer pursuant thereto and free of encumbrances shall be duly signed by the parties and shall be registered at the Titles Office.

The said purchase price of £5,500 shall be thereupon paid by the Vendor to the Purchaser.

It is expressly agreed that for all purposes concerning the said option hereby given time shall be deemed to be the essence of the Contract.

Any notice to the Vendor may be served personally or sent to him by post at his address as herein appearing or as last known to the Vendor. A notice sent by post shall be deemed to be served on the day following that on which it is posted.

Provided also that if the Vendor shall fail to complete the purchase of the said land in accordance with this Agreement

(b) the Vendor will not be entitled at any subsequent time to exercise such option of purchase of the said land

The sum of £3,760 expressed as the consideration for the transfer was the total sum required to pay out the mortgages on the Dangan Street land, the mortgagee's costs and expenses, the costs and expenses of transferring the land to the respondent Panizza and of the preparation of the option agreement and £10, the consideration for the grant of the option. No other money was paid by the respondent Panizza to or on account of the appellant Gurfinkel in respect of the Dangan Street land. That respondent did not spend any money in completing the construction of the partially erected factory building thereon. Although not mentioned in the written agreement, the parties according to the evidence of each of them had in fact agreed that the appellant Gurfinkel should provide materials for the completion of the building over and above any materials bought with the sum of £1,240 which the respondent Panizza was to pay the appellant Gurfinkel. But in the result, the respondent Panizza refused to disburse any part of the sum of £1,240 because, as he said, he disapproved of the materials which the appellant Gurfinkel brought upon the land to be incorporated in the building. The Dangan Street land was transferred into the name of the respondent Panizza in fee simple immediately after 18th October 1960. Although, as I shall mention later, an alternative claim by the appellant Gurfinkel that the respondent Panizza had taken advantage of the appellant Gurfinkel and his circumstances to buy at a gross undervalue was not pursued, the primary judge said that he felt that the Dangan Street property was probably worth somewhat more than £5,000.

On 19th January 1961 the fee simple in the Welshpool land was transferred into the name of the respondent Bentley Proprietary Limited, which the respondent Panizza told the appellant Gurfinkel was a name in which he traded and of which company he was the managing director. No written agreement granting an option to repurchase the Welshpool property was executed by the parties. In this instance, the amount expressed as consideration for the transfer, namely, £3,400, was the amount necessary to discharge the appellant's existing indebtedness to a mortgagee of the land and was paid by the respondent Panizza to the mortgagee. No other money was paid to or on account of the appellant Gurfinkel in respect of the transfer of this land. Without going into detail, it was apparent from the evidence that the Welshpool land was worth considerably more than the sum paid by the respondent Bentley Proprietary Limited in respect of it.

The statements of claim at the outset claimed specific performance of agreements to purchase the respective lands, the agreement in each case said to consist of an option to purchase and its due exercise. By amendment before the hearing, relief against the transfers was sought on the basis that the respective respondent had over-reached the appellant Gurfinkel and taken advantage of his illiteracy and financial embarrassment to obtain the lands at a gross undervalue. But in the long run both these claims were abandoned. However, by an amendment made at the inception of the trial, it was claimed that the transactions between the parties established the relationship of mortgagor and mortgagee between them and were in equity mortgages of the respective lands. The amended pleading in this respect is not precisely accurate in its expression: but, in my opinion, it is quite clear that it was regarded by the parties and by the primary judge at the hearing as raising an issue as to whether the transfers of the land were intended by the parties as absolute sales or conveyances at a price or as securities for money lent. This was the issue which was fought out and decided at the trial. Upon it oral evidence was led by both sides without objection of any kind. The trial judge did not find either the plaintiff or the defendant a satisfactory witness, that is to say, so satisfactory that he could implicitly believe all that either said. But he made an express statement that he would not believe the defendant at all where he was not corroborated. In that situation the learned judge not unnaturally looked for incontestable material to see which of the two stories was the more credible. He found a series of matters which he felt, and as I think rightly felt, supported the appellant Gurfinkel.

In respect of both properties the sums stated to be the consideration for the transfer bore no relationship to the value of the properties but were exactly the amounts required to discharge the existing encumbrances and to pay certain expenses. The trial judge refused to accept the view that the appellant Gurfinkel feared that a sale by the mortgagee by auction would realize less than the amount secured, leaving him personally liable for the deficiency. In both instances, the appellant Gurfinkel remained in possession and continued to treat the land as his own; and even had to be restrained from doing so in respect of the Welshpool property. Further, the right to repurchase the Dangan Street property was for the total amount intended by the parties to be paid to or on behalf of the appellant Gurfinkel plus ten per cent; and that appellant had in each case to bear the legal costs of the transfers, a circumstance not without weight.

Having gone through these matters and indicated their significance, the primary judge concluded as follows: "The truth is, I believe, that the plaintiff asked the defendant to advance him money on the security of these properties to enable him to pay out his existing mortgagees: that the defendant was agreeable to do this but only on condition that he obtained a better security, or at least what he thought would be a better security, namely a transfer to him of the land itself: that it was understood that the plaintiff would pay ten per cent interest on all money advanced by the defendant; and that the plaintiff could have his property returned to him on repayment of what he owed. I believe also that the defendant deliberately postponed the finalization of each deal until just before the threatened sale of the land so as to give the plaintiff little or no chance of objecting to the form of the transaction." I am unable to read this as anything but a distinct finding of fact that the title to the two properties was put into the name of the respondents with the mutual intention that the lands would provide security to the respondents for money lent to the appellant Gurfinkel. The finding, in my opinion, depended to a substantial degree upon acceptance of some of the evidence of the plaintiff and rejection in toto of that of the defendant Panizza. It was not a mere matter of inference from documents or circumstances unassisted by oral testimony.

The case, therefore, in its essentials is simple and the principles currently valid to be applied in its resolution are well documented in the law. The lands having been found to have been conveyed so as to form a security for money lent, the transfers, though absolute in form and though expressed to be executed for a price paid as distinct from money lent, will be regarded in equity as but mortgages of the land. Thus, though there be no contractual right to redeem at all, the borrower will have in equity a right of redemption. If in such a case there be a contractual right of repurchase, equity will none the less decree redemption, though the borrower has not met the contractual terms for repurchase. On the other hand, if no more is known than that land is conveyed with a right of repurchase, the conveyance will not be regarded as a mortgage nor the party with the right of repurchase accorded redemption. He will be confined to the exercise of his option to repurchase according to its precise terms. Here, as I have said, there was, in my opinion, in substance, an express finding, not derived merely from the circumstance that the conveyance was accompanied by an option to repurchase, that the conveyances were intended by both parties to be by way of security only. The existence of the option to repurchase does not militate against that conclusion nor is it inconsistent with it. Indeed, it may quite consistently be regarded as the contractual right of redemption mutually agreed by the parties.

The trial judge, conformably to his finding, made orders in respect of the Dangan Street property and of the Welshpool property appropriate to a suit for redemption.

From this judgment and these orders, the defendant appealed to the Full Court of the Supreme Court of Western Australia. There was but one ground of appeal, which is presently relevant; and that was that there was no evidence upon which the primary judge could find that the transaction between the appellant Gurfinkel and the respondent Panizza was one of loan.

The respondent expanded this ground in argument by submitting, first, that as the parties had reduced their agreement in relation to the Dangan Street land to writing, namely, in the option agreement, no parol evidence was admissible to determine the quality or character of the money which was paid by the respondent Panizza to or for the appellant Gurfinkel; and that the nature of that payment was determined by the writing as being purchase money and not money lent: second, that even if it was possible to admit oral evidence to see what was the intention of the parties in entering into the option agreement, the evidence in the case bore only one possible interpretation, namely, that the parties intended an outright sale as was recited in the option agreement.

It is beyond question that oral evidence will be admitted to determine with what intention the parties entered into a writing which is a sale or a conveyance of land. This is not an exception to the rule that oral evidence will not be admitted to contradict or vary a writing into which the parties have reduced their entire agreement for the very question at issue is whether the parties have made the writing the expression of their whole agreement or of their mutual intention. Also, a sale or conveyance is a common means of providing security. Thus, the intention with which parties enter into the sale or conveyance becomes an issue to be resolved by evidence, whether oral or documentary. It cannot be resolved merely by resort to the conveyance for the mutual intention to use the document as security, if it exists, by hypothesis lies dehors that instrument. In reality, the respondents' counsel did not seek to controvert these propositions. The substance of what he submitted was that, from the evidence of the appellant Gurfinkel, it must necessarily be concluded that the option agreement containing the recital of a sale of the land represented the whole agreement of the parties in respect of the Dangan Street land, and that therefore that writing could not be contradicted or varied by parol. Having reached that point, he claimed that the appellant Gurfinkel had admitted that the arrangements with respect to the Welshpool land were identical with those made in connexion with the Dangan Street land, that is to say, to the same effect as the option agreement. He sought to support these submissions principally by reference to the following question and answer to and by the appellant Gurfinkel - referring to the presentation of the option agreement by the respondent Panizza's solicitor to him, the appellant Gurfinkel, for execution: "Did it seem to you to be what you wanted? - Yes, what the agreement was between Panizza and me." And an answer by the appellant Gurfinkel to the effect that the only difference between the arrangements relating to Dangan Street and those relating to the Welshpool land was that the former were reduced to writing whilst the latter were not.

But examination of the transcript of evidence shows, in my opinion, that these pieces of evidence will not bear the construction sought to be placed upon them by the respondents' counsel. There can be no question that the parties intended to execute the option agreement. But on any view of the evidence it did not represent their whole agreement. For one thing, it is quite clear that the respondent Panizza was not to do any building upon the land but that the appellant Gurfinkel was to do so with materials provided by him in addition to any he might purchase by the use of money to be provided by the respondent Panizza for the purchase of materials and the payment of labour in connexion with the completion of the building by the appellant Gurfinkel. It is clear that the parties agreed that the respondent Panizza should place the additional sum of £1,240 at the disposal of the appellant Gurfinkel for these purposes. But, these considerations apart, the answer given by the appellant Gurfinkel must, in my opinion, be understood as saying no more than that the option agreement did express the parties' arrangement for security: and of course it did. It is evident that Panizza refused to accept a mortgage in the usual form for the money he made available and insisted upon the transfer of the title to the land into his name as the learned trial judge found "as a better security" conceding only the right of repurchase as contained in the option agreement. But such an admission and the fact that Panizza would only make the money available - "finance" Gurfinkel - upon the transfer of the title into his, Panizza's name, leave, in my opinion, untouched the question whether the mutual intention none the less was that the transfer of the title was by way of security for money lent. For, in any case, even if there had been a formal contract of sale preceding the transfer of the land into the name of the respondent Panizza, the question of what was the mutual intention of the parties in entering into that agreement would remain to be investigated. The fact of the agreement would no doubt be itself a weighty consideration in deciding that question but it would not, in my opinion, be conclusive of it. The signature of an agreement to sell may well be, by way of providing security, as much as may be the signature of a conveyance. Indeed, in Douglas v. Culverwell [1] , in which it was held that a conveyance absolute in form and not expressed to be in consideration of money lent was only a security because so intended by the parties, the conveyance was preceded by a contract of sale [1] .

1. (1862) 4 De G.F. & J. 20 [45 E.R. 1089]. 2. (1862) 4 De G.F. & J., at p. 21 [45 E.R., at p. 1090].

In my opinion, these submissions of the respondent Panizza cannot be accepted and the ascertainment of the intention of the parties confined to perusal of the option agreement.

The Full Court, in deciding the matter, did not exclude the oral evidence from its consideration. However, it held that it was impossible upon the evidence in the case to make an affirmative finding that prior to the signing of the option agreement the respondent Panizza and the appellant Gurfinkel agreed that the former would lend money to the latter on the security of a mortgage and that without such a finding the appellant Gurfinkel's case must fail. Their Honours were not satisfied that the primary judge had made any such finding: consequently the Full Court in substance held that there was no evidence upon which such a finding could be made.

The critical question in the case was "with what mutual intention did the parties execute the transfer" bearing in mind in deciding that question that the transferee will not be allowed to hold the transfer as absolute, if at the time of taking it he knows that the transferor intends it to be by way of security only and he allows him to execute with that understanding on his part: see, for example, Douglas v. Culverwell [2] . Of course, proof of an antecedent agreement of loan upon security followed by execution of the transfers without any change in circumstances meantime would be enough to establish the mutual intention. But absence of such an agreement does not mean that at the time of execution the parties did not have the mutual intention that the execution of the transfer was by way of security or that at that time the transferor to the knowledge of the transferee intended the execution by way of security only and was allowed to sign it with that intention.

1. (1862) 4 De G.F. & J., at p. 23 [45 E.R., at p. 1091].

The Full Court spoke of an "agreement to lend money on the security of a mortgage". If by this the Full Court meant that it was necessary that an agreement binding the respondent Panizza to lend money should be proved to exist before the execution of the transfer, I would respectfully disagree that such an agreement was necessary. It would be sufficient that the parties at the time of execution mutually contemplated a lending transaction, though there be no antecedent enforceable obligation to lend. Also, if the reference by the Full Court to "the security of a mortgage" means on the security of an instrument containing expressly or by statute a right of redemption, I could not agree that that would be necessary in order that the appellant Gurfinkel should succeed. The parties could, as the primary judge thought they did, agree that the security should be "a better security namely, a transfer to" the respondent Panizza "of the land itself".

The Full Court also expressed the view that there was no debt due by the appellant Gurfinkel and therefore that the transfers of the lands could not be held to be by way of security. For this conclusion the Full Court relied on answers given by the appellant Gurfinkel as to his understanding of the position. But if, as the learned primary judge found, it was understood by the parties that the appellant Gurfinkel "would pay ten per cent interest on all money advanced by the respondent Panizza" and that "the appellant Gurfinkel could have his property returned to him on repayment of what he owed", the amount made available by the respondent Panizza was plainly not a price but a loan which, whatever one of the parties might have thought, created a debt.

The question therefore on which the fate of this appeal turns is whether there was evidence to support the finding of the learned trial judge. As I have indicated, the respondent's counsel expanded his single ground of appeal to the Full Court in the manner I have earlier described. But this did not really involve a submission that if there was evidence to support a conclusion in favour of the appellant's contention as to the intention wherewith the transfers of the land were executed, the primary judge was wrong to draw that conclusion. But though I do not think that a general attack was really made upon the primary judge's finding, assuming that there was evidence to support it, and though I have much doubt as to whether such an attack would be open to the respondent having regard to the ground of appeal, I propose to express my opinion as to whether or not the finding of the primary judge was shown to be wrong. In Whiteley Muir & Zwanenberg Ltd. v. Kerr [1] , I expressed my opinion as to the way an appellate court should approach this latter question and have no need to repeat what I then said.

In my opinion, there was ample evidence to support the finding of the learned trial judge with the effect of which I have already dealt. Indeed, I did not understand the respondents' counsel to seriously contend to the contrary, once the evidence of the intention with which the transfers were executed was not confined to the contents of the option agreement and his construction of the particular pieces of evidence to which I have referred was not accepted. Further, as I read the learned trial judge's reasons, he accepted significant portions of the appellant Gurfinkel's evidence, encouraged to do so, no doubt, by the corroborating circumstances which he detailed. Also, he not only disbelieved the respondent Panizza's account of an outright purchase but acted upon a significant admission by that respondent which the learned trial judge set out in his judgment as corroborative of the appellant Gurfinkel's account.

In my opinion, the critical finding was not only supported by evidence but was based to a substantial degree upon the credit given or refused to the respective accounts of the parties. This is a circumstance which ought to lead an appellate court at least to great caution in considering whether or not the finding was wrong. But in this case, having read the transcript fully and carefully, I could not conclude that it was. Indeed, the impression, which the recorded answers of the parties and the circumstances and documents make upon my mind, is that the learned primary judge was right in deciding as he did, in substance, that the documents were executed with the mutual intention that they should operate by way of security only.

I am of the same opinion as the Chief Justice. I would add two references - Phipson on Evidence, 10th ed. (1963) par. 1793, p. 727; The Law of Mortgages, Hanbury and Waldock, pp. 84-86.

I agree with Owen J., whose judgment I have had the advantage of reading, that the judgments of the Full Court should stand because there was no evidence to support the learned trial judge's findings that, notwithstanding the transfers by Gurfinkel to Panizza and Bentley Proprietary Limited respectively of certain properties, ostensibly to fulfil contracts of sale, the true arrangements between the parties were that Gurfinkel was lent moneys by the transferees and the transfers were made as security for the loans.

In reaching this conclusion I have, of course, had regard to the oral evidence which, as I understand the matter, was admitted - and, despite the argument to the contrary, was correctly admitted - at the trial to determine the true nature of the transactions between the parties.

In my opinion these appeals should be dismissed. The facts which I consider lead to that conclusion are set out in the judgment to be delivered by my brother Owen. I shall not repeat them. I appreciate that certain incidents of the transaction between Gurfinkel and Panizza are incidents which ordinarily are more likely to be accompaniments of a conveyance by way of mortgage than of a conveyance on a sale. But none of them precludes the present transaction being in fact and in law what the document the parties executed states it to be, a sale with a right of repurchase. They do not, it seems to me, in the circumstances of this case of themselves shew that both parties intended the transaction to be not what they expressed it to be but something different.

"As regards their legal incidents, there is all the difference in the world between a mortgage and a sale with a right of repurchase. But if the transaction is completed by redemption or repurchase as the case may require there is no difference in the actual result." Lord Macnaghten said that in Manchester, Sheffield and Lincolnshire Railway Company v. North Central Wagon Company [1] . He went on to say [2] : "In all these cases the question is what was the real intention of the parties? As Lord Cranworth observed in a case where the documents were of a more formal character, "The rule of law on this subject is one dictated by common sense; that prima facie an absolute conveyance, containing nothing to shew that the relation of debtor and creditor is to exist between the parties, does not cease to be an absolute conveyance and become a mortgage merely because the vendor stipulates that he shall have a right to repurchase" ": Alderson v. White [3] .

1. (1888) 13 App. Cas. 554, at pp. 567, 568. 2. (1888) 13 App. Cas., at p. 568. 3. (1858) 2 De G. & J. 97, at p. 105 [44 E.R. 924, at p. 928].

It is not enough that Gurfinkel approached Panizza for financial assistance to get him out of his difficulties and that Panizza came to his rescue. "A conditional sale is not a mortgage simply because both parties enter into the transaction in the confident expectation that the purchaser will take advantage of the condition, and that the final result will be the same as if they had agreed to reach that end by the road of mortgage": per Cave J. in Beckett v. Tower Assets Co. [4] . Gurfinkel did not exercise his option to repurchase in accordance with the condition stipulated in the agreement. Panizza has thus been able to obtain the property at much less than its true value, Gurfinkel (or his creditors, he being bankrupt) being the loser. But that does not mean that the transaction was not what the parties expressed it to be.

It has of course long been the law that parol evidence is admissible to shew that a conveyance, absolute in its terms, was intended by both parties to be by way of security only. That was perhaps more easily shewn in earlier times when, as Maitland has said, a mortgage deed was "one long suppressio veri and suggestio falsi" than it is today, especially in the case of land held under the Torrens system. In 1750 Lord Hardwicke could say: "There is indeed a distinction in the nature of the transaction, between a power of redeeming and of repurchasing, obtained by usage, which governs the sense of words. But it is well known that the court leans extremely against contracts of this kind, where the liberty of repurchasing is made at the same time, concomitant with the grant, as it must be considered in this case; being part of the same transaction; the court going very unwillingly into that distinction, and endeavouring if possible to bring them to be cases of redemption": Longuet v. Scawen [1] .

1. (1750) 1 Ves.Sen. 402, at pp. 405, 406 [27 E.R. 1106, at p. 1108].

But the law has moved on since then. The attitude of the Court of Chancery in the mid-eighteenth century does not I think justify a court in the mid-twentieth century endeavouring to find that a bargain is not as the parties expressed it. A court will now ordinarily take at their word persons who execute agreements for sale at a price with an option of repurchase within a stipulated time: Rowe v. Oades [2] .

Of course if it can be shewn by parol evidence that both parties to a document adopted the form they did as a disguise, then their true intent and not the form will prevail. Thus agreements that were in form sales have sometimes been held to be mortgages when the form of a sale had been adopted as a disguise: for example, in Douglas v. Culverwell [3] , the purported sale at a price which preceded the conveyance was - Turner L.J. said [4] - "contemplated merely as a device for securing to the defendant usurious interest" (that is, a rate of interest more than the law then allowed). Similarly in Williams v. Owen [5] , Lord Cottenham, holding that what had occurred was a sale with a proviso for repurchase and not a mortgage, distinguished the case of Baker v. Wind [6] , which had been relied upon because there, he said, "it was proved that the parties had throughout treated the transaction as a mortgage and had made it assume the appearance of a purchase to deceive the creditors of the mortgagor" [1] . In the present case the transaction between the parties was put into writing. The writing was approved by the legal advisers of each. After the action had been commenced on the basis that the writing meant what it said the plaintiff changed his ground and said that the parties always intended a different transaction. But the evidence does not, in my view, enable this to be said. They are, I consider, bound by the terms of their document. I do not think it necessary to discuss all the cases that were referred to in the course of the argument. I add to them Rees v. Guardian Trust & Executors Company of New Zealand Ltd. [2] . The conclusion of the Full Court was in my opinion correct. I would dismiss the appeals.

1. (1862) 4 De G.F. & J. 20 [45 E.R. 1089]. 2. (1862) 4 De G.F. & J., at p. 28 [45 E.R., at p. 1093]. 3. (1840) 5 Myl. & Cr. 303 [41 E.R. 386]. 4. (1748) 1 Ves.Sen. 160 [27 E.R. 956]. 5. (1840) 5 Myl. & Cr., at p. 308 [41 E.R., at p. 388]. 6. [1956] N.Z.L.R. 340, at pp. 344, 345. Owen J.

These appeals, which were heard together, are brought against decisions of the Full Supreme Court (Wolff C.J., D'Arcy and Hale JJ.) upholding appeals against orders made by Jackson S.P.J. in two actions in each of which his Honour found in favour of the plaintiff Gurfinkel. Before the appeals to this Court came on for hearing, Gurfinkel became bankrupt and the appellant Benison, the trustee in bankruptcy of his estate, was joined as an appellant.

Gurfinkel's action against the defendant Panizza related to two blocks of land in Perth of which the plaintiff was in 1960 the registered proprietor and these were referred to throughout the case as the Dangan Street land and the Brown Street land. The appeal is only concerned, however, with the Dangan Street land. The action against Bentley Proprietary Limited related to a third block of land described as the Welshpool land and the plaintiff was its registered proprietor until January 1961 when the transaction with which the action is concerned took place. Panizza was at all relevant times a director of the defendant company and managed its affairs.

In each action the same kind of question arose, namely whether a transaction between the plaintiff and the defendant as a result of which the latter became the registered proprietor of land previously owned by the former was entered into for the purpose of securing the repayment of money lent by the defendant to the plaintiff. In other words, the issue was whether the transaction was in reality one in which the defendant lent money to the plaintiff and took a transfer of the land to secure the repayment of the loan with interest thereon in which case the plaintiff would have a right of redemption upon repayment or whether the transaction was not one of loan but one whereby the plaintiff sold and transferred the land to the defendant upon terms that he should have an option to repurchase it upon certain conditions.

It is convenient to deal first with the action against Panizza which was concerned with the Dangan Street land on which in 1960 there stood a partially erected factory building which the plaintiff was desirous of completing.

The evidence showed - and the fact was not disputed - that prior to 1960 the plaintiff had given a first and a second mortgage over the land, that in July 1960 he was in default under both mortgages and that the mortgagees were taking steps to sell the land by auction. The amounts owing under the mortgages and the estimated cost of completing the building totalled about £5,000. The auction was fixed for a date in August 1960 but at the request of the plaintiff it was postponed on a number of occasions, the final date being 18th October 1960. During this period the plaintiff was endeavouring to persuade the defendant to lend him money to meet his obligations under the mortgages and to complete the building but without success. On 18th October 1960, however, and only a few hours before the auction was to be held, an agreement in writing was entered into between the plaintiff and the defendant. It provided for the purchase by the defendant from the plaintiff of the land for £3,760 (that being the approximate amount required by the plaintiff to pay off the mortgages and meet other costs incurred in connexion with them and with the proposed sale). It provided also that the defendant would carry on with the construction of the building on the land and for that purpose would expend not less than £1,240. In fact, for reasons which it is unnecessary to state, none of this expenditure was made. The agreement contained a further provision by which the plaintiff in consideration of £10 paid by him to the defendant was given an option, exercisable within twelve months, to repurchase the land for £5,500 upon giving one month's notice in writing. This written agreement followed upon verbal discussions between the parties which had taken place on the previous day. It is not altogether easy to understand some of the evidence given by the plaintiff whose command of English was not good, but in the course of his evidence he said that during these discussions he had told the defendant that he needed £5,000 to pay off the mortgages and complete the building. "When I said I wanted £5,000 he said he will fix it. He said they were going to see solicitor . He said that this was a way to put it in his name; he would buy it like and in twelve months' time he would return it. He would give me the £5,000 and it would be £5,500 at the end of the year. He would pay out the mortgage - it's supposed to be £3,000 - and the balance he would give me to complete everything. The following day we went to see Kott, Wallace & Gunning. He did make appointment with Mr. Wallace to fix it up." Messrs. Kott, Wallace & Gunning were the defendant's solicitors. The plaintiff said that on the following morning he and the defendant went to see Mr. Wallace and the transcript of his evidence-in-chief goes on:

Mr. Hatfield: What conversation took place between Panizza and Wallace in your presence or with you? - I had to sign the property he would sell to me. I gave £10 for the option, for twelve months to rebuy the property.

That is the Dangan Street property? - Dangan Street.

• He was supposed to pay out my mortgage £3,000, and various little costs or interest, and the balance to give me to finish the building, up to £5,000.

Did Mr. Wallace prepare an agreement on those lines?

Did he tell you anything about seeing a solicitor? - I said to Mr. Wallace, "Why do I have to do this? Couldn't it be a straight-out mortgage?" He said, "You have no alternative, he want it like this".

Jackson S.P.J.: I didn't catch that. Would you say that again, please, as you were telling Mr. Hatfield? - Yes.

Mr. Hatfield: You asked "Why not a straight-out mortgage?"

• "Why not straight-out mortgage?" Mr. Panizza want it like this.

Mr. Hatfield: And did Wallace say anything about seeing a solicitor? - I said to Mr. Wallace to give me the agreement. Then Mr. Wallace tell me "I give you the agreement. You go and peruse it before you sign it".

And did he give you the agreement? - He give me agreement and I went to Mr. Hatfield.

And what did he do with it? - He was perusing the agreement - I said it was all right.

Listen, what happened to it? Did you take the agreement back to Wallace, or ? - Yes.

What happened when you took the agreement back to Mr. Wallace? - If I did give back the copy of the agreement to Mr. Wallace or not I can't place it in my mind, sir. Mr. Wallace did have another agreement.

Anyhow, did you eventually sign the agreement in ? - I signed the agreement there, such agreement of a nature.

Jackson S.P.J.: (to witness): The question was: Do you know how this figure of £5,500 was arrived at?

Mr. Hatfield: £5,500. You were to buy it back for five thousand - I had to buy it back for £5,500.

And how was the figure of £5,500 arrived at? - The £5,500 was supposed to be £5,000 only, produced by Mr. to invest other things; to invest by Mr. Panizza, and £500 is interest and profit for Mr. Panizza.

Later, in cross-examination, this appears: Mr. Burt: What I am putting to you is that he would pay out the mortgage; he would let you have some moneys to finish the building; that you would transfer the land to him; you would have an option to buy it back; the option would last for one year and the option price would be the amount of money that he had advanced to you, plus ten per cent. Was that as it was arranged in the hotel? - It was arranged up to £5,000.

Then I think, although it may have been on a succeeding day, you went with him, did you, to Kott, Wallace & Gunning? - Yes.

And saw Mr. Wallace? - Yes, or Mr. Kott he sent us in to Mr. Wallace.

He prepared the agreement which I think is Exhibit 5, but firstly he gave it to you in a draft, didn't he? - Yes.

He made a few alterations to it and it was brought back ? - Who make a few alterations?

Did you bring the agreement back after you had seen your solicitor with it? - Yes.

And you say that you can't remember whether alterations had been made or not, or do you say that no alterations were made? - No alterations at all.

In fact some alterations to the draft agreement were made by Mr. Hatfield and accepted by Mr. Wallace. In further cross-examination this appears: Mr. Burt: Were you and Mr. Panizza in Mr. Wallace's office together? - Yes.

Was the agreement, as he had prepared it, read to you while you were there? - Yes, Mr. Wallace did.

What did you say about it when it was read to you? - I signed it.

Did you say anything about it? Did it seem to you to be what you wanted? - Yes, what the agreement was between Panizza and me.

You might remember, when it was read to you, that it says you have got an option for one year, and you have to exercise that by giving a notice in writing? - I thought you will ask me

Well, can you recall that being a term of the agreement? - Yes, I can recall it, but I didn't realize I had to notice in writing.

The agreement was read to you? - Yes. The agreement was read.

Have you ever given a notice in writing? - No. I give ample notice I was chasing Mr. Panizza for six months. I couldn't locate him, and see whether he was going to (unintelligible). I went to Mr. Kott and Mr. Wallace, and he said he can please himself; he will fix it up for you if he's going to fix it up.

Mr. Burt: Incidentally, I suppose if you didn't want to buy the property back at the end of the year, or during the year, you didn't have to do it, did you? It was up to you as to whether you bought it back or not? - I would because I start working right away, and

Yes, but let's follow what your understanding of the agreement is. What do you understand by an "option" to buy? - Option to buy the option is that I have the right that's the option to buy back.

You don't have to buy it back, but you may buy it back if you want to is that your understanding of it? - Yes.

And if for some reason you decided that you didn't want to buy it back, well, that would simply be the end of it? - Why do I have to decide not to buy it back?

I said, if you didn't want to buy it back, that would be the end of it? - The answer is: Why did I make all the work of the building? Therefore, I say that I wouldn't fail on my option.

Jackson S.P.J.: You told us that you made an arrangement with Panizza that he would pay off the Dangan Street mortgage? - Yes.

And that you would transfer the land to his name but you could buy it back from him? - That's correct; he give me an option.

Following the making of the written agreement, the plaintiff signed a letter dated 18th October 1960 addressed to Messrs. Kott, Wallace & Gunning and no doubt prepared by Mr. Wallace, authorizing that firm "to receive on my behalf from Peter Panizza the sum of £3,765 arising out of the sale of my Dangan Street property and out of that amount to pay the following sums ". There followed a list of disbursements to be made, including the amounts required to discharge the mortgages. Pursuant to this authority the mortgages were discharged and the other disbursements made and a transfer of the land to the defendant was executed. Thereafter, according to the findings of the learned trial judge, the plaintiff on several occasions during 1961 told the defendant that he intended to exercise the option but at no time did he give the written notice for which the agreement provided.

In his statement of claim, as originally filed in October 1962, the plaintiff averred the making of the agreement of 18th October 1960 and that the defendant had become the registered proprietor of the land by a transfer executed in pursuance of it. He alleged further that in September or October 1961 he had verbally notified the defendant of his intention to exercise the option and had requested the defendant to transfer the land to him pursuant to the agreement; that the defendant had promised to retransfer the land to him but had thereafter refused to do so. By way of relief the plaintiff claimed a declaration that the defendant held the land in trust for him and asked for an order that the defendant transfer the land upon the terms of the agreement. In August 1963, when the hearing was about to begin, the statement of claim was amended to allege, alternatively to the claim in the original pleading, that at the time when the agreement of 18th October 1960 was made the plaintiff was to the knowledge of the defendant "a person who could not read, of little education, without independent legal advice, in financial distress and thereby not in a position to properly bargain with the defendant and the defendant thereby took unfair advantage of the plaintiff". He alleged further that the consideration for the transfer was grossly inadequate. Under this amendment he sought a declaration that the transfer had been procured by undue influence. Yet a further amendment was later sought and granted. By it the plaintiff alleged that "on a proper construction" of the agreement of 18th October 1960 "the relationship of mortgagor and mortgagee was created between the plaintiff and the defendant" and that the transaction was in equity a mortgage of the land from the plaintiff to the defendant. Under this amendment the plaintiff sought a declaration that he was entitled to redeem the mortgage.

When the hearing commenced, counsel for the plaintiff, as the learned trial judge said, virtually abandoned so much of the claim as was based upon the allegation that the plaintiff had exercised the option of purchase given by the agreement of 18th October 1960 and no attempt was made to make out a case based upon the allegations of unconscionable conduct. The issue fought was whether or not the transaction in question was in reality one of loan and the transfer of the land to the defendant made to secure the repayment of that loan or whether it was one of sale with an option of repurchase. Although the statement of claim had alleged that on the true construction of the agreement of 18th October 1960 the relationship of mortgagor and mortgagee was created, a construction which could not be supported, the case was fought on the wider basis which I have mentioned. After saying that neither the plaintiff nor the defendant was a reliable witness, the learned trial judge referred to a number of considerations which led him to conclude that the plaintiff was entitled to succeed. He referred to the fact that the sum of £3,760 which was stated in the agreement as the consideration for the sale was not a figure based upon the value of the land, which his Honour thought was probably worth more than £3,760, but represented the amount required to discharge the mortgages and meet certain costs and expenses in relation thereto. He thought too that the undertaking by the defendant to spend not less than £1,240 on the construction of the building on the land suggested that the transaction was one of loan rather than sale as did the fact that the amount which the agreement fixed as the price to be paid should the plaintiff exercise his option of purchase was £5,500 which, assuming the option was not exercised until it was about to come to an end, would represent £5,000 (the sum of £3,760 and £1,240) with interest at ten per cent. He referred also to the facts that the agreement provided for the plaintiff and not the defendant to pay the costs of the transaction and that, after the transfer, the plaintiff continued to make improvements on the land. But with all respect to his Honour, these considerations do not seem to me, in all the circumstances of the case, to justify the conclusion that the transaction was other than that which it was expressed to be in the written agreement between the parties, an agreement, be it remembered, which was settled by a well-known firm of solicitors acting for the defendant and approved, with minor alterations, by the plaintiff's legal adviser after consultation with his client. And to my mind it is not without significance that the cause of action as originally framed proceeded upon the basis that the document of 18th October 1960 correctly expressed the agreement made between the parties. It is of course evident that the plaintiff needed money and that a stage was reached when the defendant was prepared to make money available to him. One way of doing this would have been for the defendant to lend the money and take a mortgage to secure its repayment, in which event he would have taken the place of the existing first and second mortgagees. But the debt secured by such a mortgage would, in those circumstances, have been £5,000 and, since the plaintiff had been unable to meet his obligations for a much lesser sum under the existing mortgages, this might well have seemed to the defendant to have been an unattractive proposition, more particularly since he knew that the plaintiff was then in default under two other mortgages, one on the Brown Street land, the other on the Welshpool land. An alternative method of making funds available to the plaintiff would have been for the defendant to agree to buy the land at a figure sufficient to enable the plaintiff to discharge the existing mortgages giving the plaintiff an option to repurchase the property at a figure which would show the defendant a profit of ten per cent on his outlay. It was this second alternative which found expression in the agreement of 18th October, and it seems to me, with all respect, that there is nothing in the case to justify the conclusion that the parties intended that what, on its face, was a transaction of sale with an option to repurchase was to operate as a mortgage to secure the repayment of a loan.

For these reasons I am of opinion that the Full Court rightly upheld the appeal.

Turning then to the action against Bentley Proprietary Limited which concerned the Welshpool land. The arrangement between the plaintiff and Panizza, acting for the company, was entered into a few months after the Dangan Street transaction. The plaintiff had earlier given a mortgage over the land and was in default, the amount owing being about £3,400 and a mortgagee's sale had been advertised. He sought financial assistance from Panizza and, in the end, £3,400 was made available by the latter. In this case, however, the agreement between the parties was not reduced to writing.

In his evidence-in-chief the plaintiff, if I have correctly understood what he said, said that when the sale of the Welshpool land was advertised Panizza saw the advertisement and told the plaintiff that he would take over the existing mortgage and charge him ten per cent interest. In cross-examination, however, the plaintiff said that the arrangement with regard to the Welshpool land followed the same lines as in the case of the Dangan Street land. He was to sell the land to the defendant for £3,400 and to have an option to repurchase for £3,400 plus ten per cent. The money thus made available was to be used to pay off the existing mortgage. This was done and the land was transferred to the company. The statement of claim, as originally filed, was similar to that originally filed in the Dangan Street land and was later amended in the same way. For the reasons which had led him to find for the plaintiff in the action against Panizza the learned trial judge held that the transaction was one of loan and that the transfer of the land pursuant to the oral agreement was by way of security only. At the trial and on the appeal the cases were rightly conducted upon the basis that two transactions were in all relevant respects carried out on similar lines, except that in the one case there was an agreement in writing and in the other there was not. The two cases stood or fell together and I am of opinion, for the reasons I have given earlier, that the learned trial judge fell into error and that the Full Court rightly upheld the appeal.