Hannon v Barnes

Were the default notices served? 10The plaintiff relies upon service of both default notices pursuant to s 57(2)(b) of the Real Property Act 1900 as grounding her entitlement to enforce the mortgage. 11In cross-examination the defendant said that her solicitors did not bring the first notice to her attention. She did however acknowledge receipt of the second notice. She agreed that she had made no formal complaint about the failure of her solicitors to bring the first notice to her attention and had not sought to obtain an affidavit from them to support her claim that she was not notified of the first notice. 12The plaintiff relied upon an affidavit from Mr Ian Foulsham, solicitor, with respect to service of both default notices. He annexed correspondence with the defendant's solicitors confirming their instructions to accept service of the notices on her behalf. That evidence was not challenged. I do not regard the evidence as to service of either of the notices as defective. 13By an amended defence filed on 27 May 2011 the defendant admits the mortgage (which, in the circumstances of registration, could hardly be denied) but denies that it secures any obligation to repay the plaintiff the monies advanced to the deceased in September 2003. This is said to be for two reasons. The first that the funds advanced to her husband (and through him to her) were a gift from her father-in-law from his company's bank account and not a loan from the plaintiff and, secondly, were I satisfied that the funds were advanced by way of a loan by the plaintiff (and that it mattered not that they were paid by the company), then the mortgage documents, properly construed, do not secure any obligation to repay under such a loan. No cross claim has been filed. 14A number of facts were either not ultimately in issue or were otherwise proved by evidence. They are as follows: (a)A registered mortgage was granted in favour of the plaintiff on or about 24 September 2003. The mortgage is signed by the deceased as mortgagor and the plaintiff as mortgagee. The signature of the deceased is witnessed by a person in the plaintiff's office. She gave evidence that it was signed by her brother and witnessed in her presence. Her signature as mortgagee is witnessed by her father. (b)On registration stamp duty was paid on the dutiable sum of $100,000. (c)On about 17 September 2003 $5267.49 was paid into an account at the Heritage Building Society in payment of arrears under a first mortgage over the property (which mortgage has since been discharged). (d)The source of these funds was a cheque drawn on the company account dated 16 September 2003. The cheque butt records " Heritage Building Society ... A R Andrew ... arrears on loan on Homebush " in the plaintiff's handwriting. (e)On 24 September 2003 $95,000 was deposited into a joint account in the name of the defendant and the deceased. (f)The source of these funds was also a cheque drawn on the company account. The cheque butt records " Anthony R Andrew loan from Co " in the plaintiff's handwriting. (g)The mortgage was prepared by Mr Levy, solicitor, at the request and direction of the plaintiff and in accordance with her instructions to him. It consisted of a mortgage (expressly incorporating the registered memorandum no Q 860000) and a schedule to the mortgage marked as "Annexure "A" containing eight separate covenants by which the mortgagor was to be bound. (h)It is not necessary to recite each of the covenants in full. Suffice to note that the first covenant obliges the mortgagor to repay the principal sum, or so much of it that shall remain unpaid, on or before 24 September 2013. The "principal sum" (as the sum secured by the mortgage) is not specified in the annexure and is not otherwise nominated on the mortgage. The fourth covenant provides that default in payment of principal or interest attracts interest at a higher rate. The seventh covenant provides that the mortgagor will pay interest on the principal sum at the rate of one dollar per cent per annum by equal payments on the first day of January in each year until the principal sum is fully paid. The first of such payments is to be computed from an unspecified day in September 2003 and to be paid on "the first day of January next". Importantly, the eighth covenant expressly provides for the mortgagor to be relieved of liability to repay either the principal or interest in the event of the death of the mortgagee "in accordance with the letter of the mortgagee dated 24 September 2003 annexed hereto and marked with the letter "B". (It would appear that the letter was not annexed to the schedule to the mortgage which was however signed by the deceased as mortgagor and Mr Levy on behalf of the mortgagee. (i)Mr Levy also prepared a letter dated 2 September 2003 for the deceased to sign authorising him to obtain details from the deceased's solicitors to facilitate the registration of the mortgage as a second mortgage over the property. (j)The letter dated 24 September 2003 referred to in (h) above was also prepared by Mr Levy on the plaintiff's instructions. It was addressed to the deceased with provision for it to be signed by the plaintiff. The copy of the letter produced by Mr Levy bears the plaintiff's signature and is countersigned by the deceased. The plaintiff gave evidence that the letter was signed by her brother in her presence. (k)The letter is in the following terms: Dear Tony, RE: MORTGAGE TO JSG HANNON SECURITY PROPERTY: UNIT 6, 8 ROCHESTER STREET, HOMEBUSH I hereby confirm that I hold a Mortgage from you, over the above property, securing a loan of $100,000.00. I advise you that on my death, should the loan be unpaid, that I and my estate will forgive all of that debt to you and release and quit claim against you for all such monies. In that event, no claim or proceedings will be issued against you and this letter can be used as a bar or stop to any such claim. Yours sincerely, Julie Susan Greta Hannon There is no challenge to the authenticity of the letter. On any view it is the letter referred to in the eighth covenant in annexure A to the mortgage referred to in (h) above. A copy of the letter (without the signature of the deceased but bearing the plaintiff's signature) was also produced by the defendant. It was given to her by her husband in September 2003 and remained unopened and unread by her until after his death. She gave evidence that her late husband and his father did not have a good relationship and although she was reluctant to accept money from her father-in-law, her husband told her that the money was a gift (and not a loan). She said that in September 2003 her husband told her that he was going to see his sister "to sign some paperwork for tax purposes" and that when he returned he gave her an envelope which he told her would protect her if anything happened. She did not learn that he had executed a mortgage over the property until after their separation in 2008. As executor of the deceased's estate she confirmed in cross-examination that she found no other loan of $100,000 which may have been the subject of the mortgage or the loan to which the letter of 24 September 2003 makes reference. (l)On 24 October 2008 Mr Kissane, solicitor, was retained by the deceased to act on his behalf in Family Court proceedings. The deceased instructed Mr Kissane that he had an outstanding loan to his sister in the sum of $100,000 which was secured by a mortgage registered on the title to the property which Mr Kissane apparently confirmed after undertaking a title search.

The significance of the funds being drawn from the company account 15It is necessary that I deal first with the defendant's submission that the plaintiff's claim should fail because the funds were advanced to the deceased by the company and not the plaintiff. 16The plaintiff gave evidence that the monies were drawn from the company account with her father's knowledge and approval and advanced to her brother by way of a loan, also with his knowledge and approval. She gave evidence that her brother approached her in August 2003 and said that he was having difficulty meeting his loan payments on the Homebush property. She offered to lend him some money and said that she would speak to her father. She said that initially the money was to be advanced by the company, with the company as mortgagor, but her father did not want to be involved and authorised her to enter into a loan arrangement in her name and to use company funds. 17That evidence is consistent with the oral evidence of the defendant that the deceased and his father were not on speaking terms. The plaintiff's father did not give evidence. As I have noted, his signature does however appear on the mortgage as witnessing her signature as mortgagee. That evidence is persuasive and supportive of the plaintiff's evidence. I accept her evidence. 18Counsel submitted that even were I satisfied that the plaintiff had utilised company funds to lend to her brother without her father's authority (which is not her case) she would nevertheless be entitled to the relief she seeks in the statement of claim. Counsel referred me to a line of authority in support of the principle that where a person receives a benefit from the fraud of another that person is not permitted to deny the agency. This has been recognised as the "Mair Principle", emerging as it does from Mair v Rio Grande Rubber Estates Ltd [1913] AC 853. The application of the principle was discussed at length by Young CJ in Eq in Davis v Williams [2003] NSWCA 371 at [128]-[135] where his Honour said there is no gainsaying the force of that principle in a long line of authority. In my view, it has clear application in this case. If the plaintiff acted without her father's authority and drew money from the company's account and lent it to her brother in her own name, neither the deceased who received the benefit of those monies, nor the defendant who claims through him, could avoid their obligations under the mortgage (assuming I am satisfied that the mortgage secures the obligation to repay those monies, a matter to which I will turn in a moment). 19In final submissions, the defendant's counsel sought to persuade me that, properly construed, the mortgage is unenforceable because it does not secure any obligation to repay the alleged loan. I will turn to the question of construction to which that submission gives rise in a moment it being, as counsel submitted, the defendant's ultimate position. Before I do that it is necessary to deal with the defendant's pleaded case that the monies were not a loan but a gift.

Were the funds advanced a loan or a gift? 20The only evidence that the funds advanced in September 2003 were a gift came from the defendant. In cross-examination she said that she believed the deceased when he told her the money was a gift from his father because he was her husband and she trusted him. She conceded that she had no way of knowing whether he was telling the truth or not and, in light of the mortgage documents, and in particular the letter dated 24 September 2003, "he probably wasn't". She also sought to rely upon a conversation she had with her mother-in-law in 2005 where her mother-in-law said, "We can't do other things for you but at least we gave you that money so you will be okay financially". The defendant agreed in cross-examination that that was the entire conversation relevant to the question as to whether the funds advanced in September 2003 were a loan or a gift, and agreed that there was nothing further to identify the money that her mother-in-law was referring to. Her mother-in-law is since deceased. 21The defendant claimed in evidence that her father-in-law was also present during the conversation. She agreed that she had made no effort to obtain an affidavit from him. I am invited to draw an adverse inference from her failure to call him in accordance with the principle in Jones v Dunkel (1959) 101 CLR 298. Since I am satisfied that the overwhelming weight of the evidence is that the monies advanced were by way of a loan and not a gift it is unnecessary for me to determine whether the inference should be drawn in this case. I regard the letter of 24 September 2003, and the plaintiff's uncontradicted evidence about it including the circumstances in which she and her brother signed it, as of very significant weight in support of her contention that the monies were a loan to her brother to be repaid by him in full by September 2013 subject only to the debt being forgiven in the event of her death. 22The plaintiff advanced the further submission (which is irrefutable as a matter of law) that even were there no debt secured by the mortgage because, for example, no funds were advanced at all, thereby rendering the covenant to repay the principal sum before 24 September 2013 unenforceable under the general law, that would not displace her statutory rights as mortgagee under the Real Property Act. The defendant's only relief from the statutory rights afforded her under the registered mortgage in those circumstances would be in equity, a jurisdiction not invoked by her in these proceedings. 23It cannot sensibly be a matter of any controversy that in interpreting the form of a mortgage accepted principles of construction and interpretation apply including, where relevant, reference to documents which are identified, even imperfectly, in the mortgage. The defendant's counsel pointed to defects or deficiencies in the documents prepared by Mr Levy in that there is no attachment "B" (being the letter of 24 September 2003); the principal sum is not specified or defined and, accordingly, no means by which interest can be calculated; there was no written loan agreement and the mortgage does not include or refer to any such agreement. Although there are patent and largely unexplained deficiencies in drafting, I do not regard them either singularly or in combination as permitting the conclusion for which counsel contended. 24Counsel also submitted that the letter of 24 September 2003 does not constitute a loan agreement and should not be construed as an acceptance by the deceased that a loan existed, much less the terms by which he might have agreed to be bound. He also submitted that the letter, and Mr Levy's evidence concerning it, constitutes parol evidence and is therefore inadmissible. I reject that submission (see Nunn v Wily [2001] NSWSC 317 at [95]-[99]. 25In my view the letter, on its face, is eloquent of the fact that: (a)the mortgage is from the deceased; (b)the mortgage is to the plaintiff; (c)the security property is unit 6, 8 Rochester Street, Homebush; (d)the mortgage secures a loan of $100,000; and (e)the loan will be forgiven in the event of the plaintiff's death. 26While it is true that the mortgage makes no reference to a loan agreement it does make express reference to the letter as an incorporate part of the mortgage. When read together with the mortgage and the fact that the mortgage attracted stamp duty at the dutiable amount of $100,000 which is a compelling inference that mortgage secured a loan in that amount ( Vista Capital Pty Ltd v Hussain [2007] NSWSC 344 ), and when the evidence of Mr Levy and the plaintiff is taken into account, I am satisfied that the deceased and the plaintiff intended to create a mortgage over the Homebush property to secure the funds the plaintiff provided to the deceased in September 2003 for the benefit of himself and his wife. 27Accordingly the orders are as follows:

1. Judgment for the plaintiff for possession of land comprised in Folio Identifier 6/SP58130 being the property situated at and known as Unit 6, 8 Rochester Street, Homebush, in the State of New South Wales.
2. The plaintiff has leave to issue a writ of possession.
3. The execution of Order 2 is stayed for a period of 28 days from today.
4. Judgment for the plaintiff in the amount of $100,000 plus interest, fees and other charges referable to registered Mortgage AA42507.
5. The defendant is to pay the plaintiff's costs of the proceedings.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 December 2011