Porter v Latec Finance

Porter v Latec Finance - [1964] HCA 49 - HCA 1964 case summary — Zoe

[37]

The respondent by its solicitors paid the appellant an amount of £1,592 2s. 10d. on 20th May 1960 and sues in this action to recover an equal amount as money payable by the appellant to the respondent for money received by the appellant for the respondent's use. It is, I think, a correct conclusion from the special case that from the respondent's point of view it was of the essence of the payment that it should free a certain house property and certain chattels from the burden of a mortgage and bill of sale in favour of the appellant to which the respondent believed they were subject, and that therefore two assumptions of fact were basic to the payment: (a) that the house property and chattels were in truth subject to the burden of the mortgage and bill of sale respectively, and (b) that the respondent had the authority of the owner to pay what was required to free the property from that burden. Behind this is another proposition which I take to be correct, namely that it was fundamental to the respondent's decision to part with its money that repayment by the person who was the registered proprietor of the house property and the owner of the chattels (I shall call him the owner of the property) should be secured by a first mortgage of the house property and a bill of sale of the chattels. The respondent was never asked to part with its money otherwise than upon that security, and obviously it never intended to do so. The obtaining of that security was therefore an essential condition of each of the payments it made, including the payment to the appellant. But the security could not be obtained while any existing encumbrance on the property remained. In short, the facts (a) that the appellant's mortgage and bill of sale were forgeries and void and (b) that the letter of authority which the respondent relied upon as giving it authority from the owner of the property to pay off those securities on his behalf was likewise a forgery and void, go to the very foundation of the payment which the respondent made to the appellant. They spell the complete frustration of the purpose which the payment was intended to effectuate.

[62]

Now in what circumstances were the moneys in question paid to the appellant? It appears from the special case that the same firm of solicitors acted for both the respondent and L. H. Gill in connexion with the making of a loan by the former. In the case of the latter it was said that they so acted "to the extent authorized by L. H. Gill" in the authority already referred to. The solicitors were provided by the respondent with sufficient moneys to complete the loan transaction and they disbursed these moneys by making, first of all, a payment to the appellant of the amount in question and then by payment of the balance of the loan sought, less a small amount said to be due to the respondent, to L. H. Gill. The former payment was said to have been made in accordance with an authority executed by L. H. Gill "by signature forged as the signature of the said H. H. Gill". It is, of course, clear that the payment made to the appellant was not made by or with the authority of H. H. Gill and for the moment the question may be left open whether as a result of the two payments L. H. Gill became indebted to the respondent in the sum of £3,000 for money lent to him or partly for money lent and partly for moneys paid at his request. Of course, if the transaction with the respondent had taken the form of paying to L. H. Gill the amount of £3,000 upon his undertaking to discharge the appellant's mortgage no part of the sum paid pursuant to that undertaking would have been recoverable by the respondent. But for its own protection the respondent did not do business in this manner; it took the authority in question and then, purporting to act upon it, and without any legal liability so to do, the solicitors paid the sum in question to the appellant and in no sense was it then intended as a payment on the respondent's behalf or on its account. In return the respondent received from the appellant in accordance with the arrangement made between them, "the duly registered and released" bill of mortgage to the appellant and the relevant certificate of title.

[67]

When a swindler pretends to be someone else a question can arise whether a transaction with him is void of legal effect or is a contract voidable because induced by fraud. The answer may be said to depend upon the facts in each case: but more often perhaps it depends upon the light in which those facts are regarded; for differing conclusions have been reached on facts not in dispute and when the basic legal principles were not in question. This was demonstrated in the famous case of Cundy v. Lindsay [5] . There a Divisional Court, consisting of Blackburn, Mellor and Lush JJ., had reached a conclusion different from that which was ultimately established by the judgments in the House of Lords. Mellor J., contrasting the case with Hardman v. Booth [6] , said: "It is very clear that there the plaintiffs never intended to contract with Edward Gandell; but here the plaintiffs did intend to contract with the individual who had his premises at 37 Wood Street, and the goods were sent there. They undoubtedly negligently allowed themselves to be led to suppose he was a person other than he was; but the contract was with him, and it was their intention to contract with that individual" [7] . In the House of Lords the opposite view was taken. Lord Hatherley and Lord Penzance thought the case was in principle the same as Hardman v. Booth [6] . Lord Cairns in a well-known passage said: " I ask the question, how is it possible to imagine that in that state of things any contract could have arisen between the respondents and Blenkarn, the dishonest man? Of him they knew nothing, and of him they never thought. With him they never intended to deal. Their minds never, even for an instant of time rested upon him, and as between him and them there was no consensus of mind which could lead to any agreement or any contract whatever" [1] . In the present case it is said that the mind of the respondent did rest upon Lionel Herbert Gill: that he was the only person present to the eyes of those who conducted the business for the respondent: he was the person whom they took to be Herbert Henry Gill. Thus it is said this case is to be governed by the, now somewhat shaky, authority of Phillips v. Brooks Ltd. [2] . In aid of this view reliance is placed upon some passages in the stated case which, read literally, mean that what occurred between the parties and Lionel Herbert Gill amounted to loans of money by them to him. But if those passages be thus understood they beg the very question that it was intended that the stated case should raise - the question that was argued before us. It seems unfortunate that in a case of this kind the parties adopted the medium of a special case and stated the facts not as primary facts but in language that describes their dealings with Lionel Herbert Gill in terms of legal relationships, whereas the respondent's case is that those dealings were so grounded in mistake as to be devoid of legal consequence. I think that the decision must depend upon what happened rather than upon any legal complexion in the language by which the happenings have been described.

[72]

When the story begins, Herbert Henry Gill was indebted to the National Bank of Australasia Limited in an amount which is not stated in the papers before us but which I shall call £x. That sum was secured by a registered mortgage that Herbert Henry Gill had given of his land. That this was a valid legal mortgage is not in question. As a result of the mistake produced by the fraud of Lionel Herbert Gill, the appellant provided moneys which were paid to the bank to discharge Herbert Henry Gill's liability under the mortgage. It has been assumed throughout the argument that Herbert Henry Gill was not at any stage a participant in this or the later fraud of Lionel Herbert Gill and that he was ignorant of them. There is nothing in the case to suggest the contrary. The bank having been paid out, it handed the appellant the duplicate of its bill of mortgage from Herbert Henry Gill with a release endorsed thereon and the certificate of title of the land. Stopping there, the position was that Herbert Henry Gill's mortgage had been paid off. And, whatever were the conveyancing details, it was paid off with money provided by the appellant with a view to his taking a fresh mortgage from Herbert Henry Gill whom he mistakenly supposed Lionel Herbert Gill to be. Now if a person pays off a mortgage, not intending to make a gift to the mortgagor, he keeps the charge alive for his own benefit and thus has a corresponding equitable lien. This result does not depend upon the concurrence of the mortgagor: that is not required: Butler v. Rice [1] . What had happened was therefore that the appellant, instead of the bank, had become the creditor of Herbert Henry Gill in the sum of £x secured by a charge on the debtor's land. Had the purported bill of mortgage forged by Lionel Herbert Gill been a valid instrument, this equitable charge would have merged in the higher security. But it was a forgery; and a good charge does not merge in an ineffectual security: Chetwynd v. Allen [2] ; Re Emery; Ex parte Harvey [3] .

[75]

Passing now to the next phase: In it we are not directly concerned with the rights of the appellant and the respondent as between themselves and Lionel Herbert Gill. The question is as to their rights as against one another. It arises in an action brought by the respondent against the appellant for money had and received. This form of action lies between a payer and payee. Its foundation in this case is the assumption that the moneys, £1,592 2s. 10d., that the appellant received were paid to him by the respondent. And I agree with Lucas J. that this was what occurred. Lionel Herbert Gill, by representing himself to be Herbert Henry Gill, had induced the respondent to promise to lend to Herbert Henry Gill £3,000 on a first mortgage of his land. This sum the respondent had paid to its solicitors to be disbursed by them on its behalf on the settlement of the supposed contract, which involved paying off the prior legal encumbrance for £1,500 and interest supposedly existing in favour of the appellant and paying the balance to Herbert Henry Gill or as he should direct. The solicitors are said to have been acting supposedly for both the respondent and Herbert Henry Gill. But they never had any instructions from Herbert Henry Gill. He was never their client. They had only a forged document purporting to be his authority. I cannot accept the proposition advanced for the appellant that the payment to the respondent was a payment by Lionel Herbert Gill. What had happened, shortly stated, was that the appellant had said in a letter to the solicitors: "The amount owing to me by Herbert Henry Gill is £1,592 2s. 10d., made up as follows - Mortgage debt and interest £1,576 15s. 0d." - then followed particulars of certain charges in relation to the supposed mortgage and the letter continued - "In consideration of the payment to me of the settlement figure, I undertake to hand over to you forthwith Certificate of Title No. 363810 Volume 1927 Folio 150 and Bill of Mortgage No. B 723233, should they be handed to me by the Titles Office". The last words refer, we were told, to the fact that the appellant had lodged the forged bill of mortgage for £1,500 at the Titles Office. It had been numbered there; but, if it had not actually been registered on the title, the person lodging it would be permitted to lift it for the purpose of endorsing a release on it. In fact that happened: the appellant received the money, £1,592 2s. 10d., and in exchange the respondent received the appellant's supposed bill of mortgage for £1,500 endorsed as discharged and also the certificate of title to the land.

[76]

After the fraudulent activities of Lionel Herbert Gill had been discovered, the respondent brought this action against the appellant in the Supreme Court of Queensland. The claim as endorsed on the writ reads: "The Plaintiff's claim is for £1,592 2s. 10d., money had and received by the Defendant to the use of the Plaintiff, such sum having been paid by the Plaintiff to the Defendant on or about the Twentieth day of May, 1960 under a mistake of fact". The question that arises at this stage is, what is the mistake that is relied upon? As the argument was presented it seemed that it was the mistake as to the identity of Lionel Herbert Gill arising from his fraudulent representation of himself as Herbert Henry Gill. But to recover in an action for money had and received the plaintiff must establish a mistake operative as between himself, the payer, and the defendant, the payee: cf. Weld-Blundell v. Synott [1] . And the peculiarity of the present case, distinguishing it from some others that were referred to, is that, as between the parties, it is not a case of unilateral mistake as to the party to a supposed contract: it is a case of a common and fundamental mistake as to the existence of a subject-matter. The mistake arose because the appellant and the respondent had each earlier been mistaken as to the identity of Lionel Herbert Gill. But now the operative mistake as between them was their common belief that the appellant was a creditor of Herbert Henry Gill in an amount of £1,592 2s. 10d., secured by a valid legal mortgage. In reality the appellant was a creditor of Herbert Henry Gill for some lesser sum secured by an equitable charge. The respondent can succeed in its action for money had and received if, using words used by Dixon and Fullagar JJ. in McRae v. Commonwealth Disposals Commission [2] , it is "a case in which the parties can be seen to have proceeded on the basis of a common assumption of fact so as to justify the conclusion that the correctness of the assumption was intended by both parties to be a condition precedent to the creation of contractual obligations" [3] . In my view it is such a case. It is true that the respondent got something for its money, namely possession of the certificate of title to the land of Herbert Henry Gill, and that the appellant had been entitled to hold this in connexion with his equitable charge. But I do not think that what occurred gave the benefit of that charge to the respondent. And therefore, as the case arises in a jurisdiction where equity and law are administered together, I consider that the respondent is entitled to recover in an action for money had and received the amount claimed, conditionally on returning to the appellant the certificate of title.

[87]

In the Supreme Court the view was taken that the facts stated in the case showed that "the transaction consisted of a loan of £3,000 by the plaintiff to L. H. Gill; it was arranged that the money would be made available to L. H. Gill by the plaintiff depositing the amount with its solicitors, Leonard Power & Power". With that I agree. Lucas J., who delivered the judgment of the Court, went on to say: "That firm, in accordance with instructions given to it by the plaintiff, would disburse the amount first by paying out the mortgagee, the defendant, who would on receipt of payment deliver to them the released bill of mortgage and the Certificate of Title. To enable them to do this they would obtain an undertaking from the defendant and an authority from L. H. Gill. They of course thought that the authority was from H. H. Gill because he was the person with whom both the plaintiff and the defendant thought they were dealing. Then the solicitors would pay the balance of the loan to L. H. Gill on the execution by him of securities over the relevant land and chattels. Although it is not expressly stated, in my opinion it is necessarily to be inferred that the three parties concerned, the plaintiff, the defendant and L. H. Gill, knew beforehand that this was the way in which the transaction would be effected, and that this method of effecting the transaction was agreed beforehand between the plaintiff and the defendant. If the transaction is understood in this manner, it will be seen that it was only as a matter of form that it was L. H. Gill who authorized the payment to the defendant of his debt. The plaintiff was the party which had an interest in obtaining possession of the security documents and the Certificate of Title. The substance of the matter was that it was a transaction between the plaintiff and the defendant for the purpose of transferring to the plaintiff the securities held by the defendant; the payment was a payment in the course of that transaction; it was therefore a payment by the plaintiff, as is agreed between the parties."

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