Heid v Reliance Finance Corporation Pty Ltd - [1983] HCA 30 - HCA 1977 case summary — Zoe

CTHHCA

Heid v Reliance Finance Corporation Pty Ltd

[1983] HCA 30

High Court of Australia|1977-06-30|Before: Deane JJ, Kearney J

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Source facts

Court

High Court of Australia

Decision date

1977-06-30

Before

Deane JJ, Kearney J

Source

Original judgment source is linked above.

Judgment (56 paragraphs)

[1]

High Court of Australia Gibbs C.J. Mason, Murphy, Wilson and Deane JJ. Heid v Reliance Finance Corporation Pty Ltd [1983] HCA 30

[2]

The appellant, Mr. Heid, was, prior to 30 June 1977, registered under the Real Property Act 1900 N.S.W., as amended, as the registered proprietor of land at Glenhaven in New South Wales ("the land"). On 27 May 1977 he agreed orally to sell the land to Connell Investments Pty. Ltd. ("Connell Investments"), one of a group of companies controlled by Newman, McKay & Co., a firm of mortgage brokers, the principal of which was D. N. McKay. The price was to be $165,000. Of that sum $15,000 was to be paid in cash on completion - $10,000 to the appellant and $5,000 to a friend, Mr. Moll - $100,000 was to be deposited on call with Chancellor Finance Pty. Ltd. ("Chancellor Finance"), another of the companies controlled by Newman, McKay & Company, and $50,000 was to be secured by a mortgage over the land. The agreement was made in the offices of Newman, McKay & Co., and there McKay introduced the appellant to one Peter Gibby, whom he described as the "company solicitor", and who, he said, would be able to handle the transactions in connexion with the sale; he added that there would be a saving in cost if the company solicitor acted for both parties. The appellant, who trusted McKay, agreed that Gibby should so act. In fact, Gibby was not a solicitor; he was an unqualified employee of Newman, McKay & Co. The appellant signed an authority dated 27 May 1977 addressed to the bank of New South Wales authorizing the bank to hand to Gibby a certificate of title, but the authority was incomplete, and a further authority to the Bank to hand the certificate of title of the land to Gibby was signed on 2 June 1977. At some time between 27 May and 2 June 1977, the appellant signed, and left with Gibby, a contract of sale and a memorandum of transfer of the land. The contract of sale was not produced at the trial - it was said to have been lost - but the evidence shows that it was stamped on 2 June 1977. The memorandum of transfer bears the date 2 June 1977. It states that the appellant, therein referred to as "the transferor", in consideration of ONE HUNDRED AND SIXTY-FIVE THOUSAND DOLLARS ($165,000) (the receipt whereof is hereby acknowledged), paid to the transferor by the undermentioned Transferee hereby transfers to Connell Investments Pty. Ltd. of 25 O'Connell Street, Sydney hereinafter referred to as "the Transferee an estate in fee simple" in the land. During the same period, or perhaps a little later, a memorandum of mortgage was signed by the appellant as mortgagee and signed and sealed by Connell Investments as mortgagor; it records that the mortgagor mortgages the land to the mortgagee to secure payment of $50,000 and interest. This document is undated and was never registered.

[4]

Once Gibby had obtained the certificate of title and the memorandum of transfer, McKay commenced to use those documents for the purpose of raising money which his firm appears to have needed desperately. On 10 June 1977 a memorandum of mortgage was executed by Connell Investments in favour of the first respondent, Reliance Finance Corporation Pty. Ltd. ("Reliance Finance") to secure repayment of an advance of $80,000 then made by Reliance Finance and future advances and interests. At the time when the advance was made Mr. Raphael, the solicitor for Reliance Finance, was given the certificate of title to the land and the memorandum of transfer from the appellant to Connell Investments, as well as the memorandum of mortgage by Connell Investments to Reliance Finance, and it is no longer in dispute that he handed over the money advanced by Reliance Finance because he relied on the acknowledgement of the receipt of the purchase money set out in the memorandum of transfer, and on the fact that the transfer was regular on its face and accompanied by the certificate of title. On 22 June 1977 Mr. Raphael lodged the memorandum of transfer for registration and on the same day lodged a caveat to protect the interest of Reliance Finance as mortgagee. On 30 June 1977 the memorandum of transfer was registered and the caveat lodged by Reliance Finance was noted on the title. On 4 July 1977 a memorandum of mortgage was executed by Connell Investments in favour of the second respondent, Mr. Alexander, to secure repayment of an advance of $40,000 and interest. On 5 July 1977, Reliance Finance made a further advance of $20,000 to Connell Investments, and a deed was executed varying the mortgage by Connell Investments to Reliance Finance by increasing the principal sum secured to $100,000. On 6 July 1977 Mr. Alexander lodged a caveat to protect his mortgage. None of these mortgages was registered. It was not until 23 September 1977 that any caveat was lodged by the appellant, and neither Reliance Finance nor Mr. Alexander knew, at the times when their respective advances were made, that the appellant had or claimed any equitable interest in the land. Advances had in the meantime been made by other parties, who had also been granted mortgages by Connell Investments, but those parties have ceased to be involved in the litigation and it is not necessary to refer to the transactions concerning them.

[9]

If the owner of property clothes a third person with the apparent ownership and right of disposition thereof, not merely by transferring it to him, but also by acknowledging that the transferee has paid him the consideration for it, he is estopped from asserting his title as against a person to whom such third party has disposed of the property, and who took it in good faith and for value. There is no doubt as to the general correctness of that proposition: see also Capell v. Winter [4] , and Tsang Chuen v. Li Po Kwai [5] . It is illustrated by the decision in Rice v. Rice. In that case the vendors, who had not in fact received the purchase money, delivered to the purchaser the title deeds indorsed with a receipt acknowledging payment. The purchaser made a mortgage by deposit of the deeds. It was held that possession of the deeds and the fact of the indorsement of the receipt gave the mortgagee a better equity, so that his equitable interest prevailed over that of the unpaid vendor. Kindersley V.-C. said [6] : they [the vendors] voluntarily armed the purchaser with the means of dealing with the estate as the absolute legal and equitable owner, free from every shadow of incumbrance or adverse equity. In truth it cannot be said that the purchaser, in mortgaging the estate by the deposit of the deeds, has done the vendors any wrong, for he has only done that which the vendors authorized and enabled him to do. This passage was cited with approval in the judgment of the Judicial Committee in Abigail v. Lapin [7] . In that case the respondents (Mr. and Mrs. Lapin), one of whom was indebted to one Heavener, transferred certain land to Mrs. Heavener as her husband's nominee. The transfers were absolute in form but were in fact given as security for the debt. After the transfer was registered, Mrs. Heavener executed a registrable mortgage in favour of the appellant (Abigail) as security for advances made by him. It was held that the equitable mortgage of Abigail took priority over the Lapins' equitable right to redeem. Lord Wright, who delivered the judgment of the Judicial Committee, approved [8] the reasons of Gavan Duffy and Starke JJ. in this court which concluded as follows (see Lapin v. Abigail [9] ): In our opinion, the Lapins are bound by the natural consequences of their acts in arming Olivia Sophia Heavener with the power to go into the world as the absolute owner of the lands and thus execute transfers or mortgages of the lands to other persons, and they ought to be postponed to the equitable rights of Abigail to the extent allowed by the Supreme Court. Lord Wright went on to say [10] : Apart from priority in time, the test for ascertaining which encumbrancer has the better equity must be whether either has been guilty of some act or default which prejudices his claim; in the present case the respondents on the one hand enabled the Heaveners to represent themselves as legal owners in fee simple, while on the other hand it cannot be said that Abigail did or omitted to do anything which he should have done in lending the money on the security, though he might, by registering the mortgage, have secured the legal title Lord Wright pointed out [11] that it was only in an artificial sense that it could be said that the Lapins had made any representations to Abigail and continued [12] : It is true that in cases of conflicting equities the decision is often expressed to turn on representations made by the party postponed, as, for instance, in King v. King [13] . But it is seldom that the conduct of the person whose equity is postponed takes or can take the form of a direct representation to the person whose equity is preferred: the actual representation is, in general, as in the present case, by the third party, who has been placed by the conduct of the party postponed in a position to make the representation, most often as here because that party has vested in him a legal estate or has given him the indicia of a legal estate in excess of the interest which he was entitled in fact to have, so that he has in consequence been enabled to enter into the transaction with the third party on the faith of his possessing the larger estate. 1. [1902] 2 Ch. 163, at p. 173. 2. [1907] 2 Ch. 376, at p. 381. 3. [1932] A.C. 715, at pp. 728-729. 4. (1853) 2 Drew., at p. 83-84 [61 E.R., at p. 650]. 5. (1934) 51 C.L.R. 58, at p. 68. 6. (1934) 51 C.L.R., at p. 64. 7. (1930) 44 C.L.R. 166, at p. 198. 8. (1934) 51 C.L.R., at pp. 68-69. 9. (1934) 51 C.L.R., at p. 70. 10. (1934) 51 C.L.R., at p. 71. 11. [1931] 2 Ch. 294.

[10]

The decisions in such cases as Rimmer v. Webster and Abigail v. Lapin may be based, alternatively, on the principle that a person who hands over title deeds to an agent with authority to deal with the property in a restricted manner cannot rely on the restrictions as against the third party who had no notice of them, and on the doctrine of estoppel. The former principle is said to have its origins in equity, and has been distinguished from estoppel (see Capell v. Winter [14] ), but it seems to me that it may be regarded as a particular form of estoppel. However, either principle will determine the present case, and it is sufficient to deal with the question whether the ordinary rules of estoppel prevent the appellant from asserting his equitable interest against the respondents. The essential elements of an estoppel by representation, summarily stated, are that there must have been a representation (by words or conduct or, if there was a duty to speak or act, by silence or inaction) upon the faith of which the representee has acted to his detriment. No direct representation in the present case was made by the appellant to Reliance Finance but, as Lord Wright explained in Abigail v. Lapin, that is immaterial. The act of the appellant in allowing Gibby to have the certificate of title and the memorandum of transfer which acknowledged receipt of the purchase price armed Gibby's employer with the means of dealing with the land as absolute legal and equitable owner; in other words it armed Connell Investments "with the power of going into the world under false colours": Dixon v. Muckleston [15] . When in these circumstances Reliance Finance acted to its detriment on the assumption, to which the appellant's conduct had contributed, that no adverse equitable interest existed, the appellant is estopped from setting up his equitable interest. The result may be explained in point of principle by saying (as was said in Lapin v. Abigail [16] ) that the appellant is bound by the natural consequences of his acts, although I would prefer to say, in the words of Griffith C.J. in Barry v. Heider [17] , that "the transfer operated as a representation, addressed to any person into whose hands it might lawfully come without notice", that Connell Investments had an absolute interest.

[13]

If, in truth, it is in accordance with common usage for a vendor of land to entrust to his solicitor a completed and receipted memorandum of transfer before payment of the purchase price has been made, for the purpose of allowing the solicitor to complete the transaction when the payment is made, it might well be held that a vendor who gave the documents to his solicitor in those circumstances would not be guilty of any neglect of duty to those who might subsequently act on the faith of the documents, and that he would therefore not be estopped, by his failure to guard against the possible fraud of the solicitor, from asserting his equitable interest as unpaid vendor: cf. Rimmer v. Webster [18] . Although the broad principle stated in Lickbarrow v. Mason [19] that "wherever one of two innocent persons must suffer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it", is often repeated and relied on, "warnings have often been given of the danger of applying it literally as a rule of law, and more than once attention has been recalled to the need of a duty and some neglect of it before the occasioning of the loss can be correctly attributed to the party sought to be made responsible": Thompson v. Palmer [20] . However, it is unnecessary for the purposes of the present case to consider these questions further, or to discuss the cases in which it has been held that a person has not been deprived of an equitable interest by reason of the fraudulent acts of his solicitor. The fact is that Gibby was not a solicitor. But he was, as the appellant knew, an employee of Newman, McKay & Company, and therefore, in effect, of Connell Investments. The appellant gave the receipted memorandum of transfer and the certificate of title to an employee of the purchaser believing that he was a solicitor and trusting him to deal honestly and fairly with the documents entrusted to him. The appellant trusted Gibby because he trusted McKay. The case is indistinguishable from any other in which an unpaid vendor trustingly puts a purchaser in a position to represent himself as absolutely entitled to the land in law and in equity. It was imprudent of the appellant to have accepted, without further inquiry, the statements by McKay and Gibby that the latter was a solicitor. However, even if Gibby was a solicitor, there is no proof of any custom whereby a vendor delivers to a solicitor employed by the purchaser, but acting for the vendor as well, a receipted memorandum of transfer before payment of the purchase price has been received, and judicial notice cannot be taken of the existence of any such custom. If, contrary to my opinion, the appellant acted reasonably in accepting without inquiry that Gibby was a solicitor, his knowledge that Gibby was an employee of Newman, McKay & Company meant that in giving the documents of title to Gibby he failed in his duty to those persons into whose hands the documents might subsequently come to take care that they would not be misled by them. If it is necessary to find a breach of a duty of that kind before an estoppel comes into existence, the breach occurred when the vendor delivered the indicia of title to the purchaser or his servant or agent notwithstanding that he had not received the purchase price. The present case falls squarely within the principle of such decisions as Rice v. Rice [21] , Rimmer v. Webster [22] and Abigail v. Lapin [23] . It is unnecessary finally to decide whether that principle applies when the indicia of title are delivered to a solicitor in conformity with the ordinary course of conveyancing practice, for this is not such a case.