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Postle v Sengstock

 

[1993] QCA 2

 

IN THE COURT OF APPEAL

 

SUPREME COURT OF QUEENSLAND

 

Appeal No. 151 of 1992

 

ROBERT CLIVE POSTLE and KAY LORAINE POSTLE

 

Respondent/Plaintiff

v.

 

MERVYN WILLIAM SENGSTOCK

 

Appellant/Defendant

 

The Chief Justice

Mr Justice McPherson

Mr Justice Thomas

Judgment of the Court delivered on the 3rd day of February, 1993

APPEAL DISMISSED WITH COSTS

 

 

IN THE COURT OF APPEAL

 

SUPREME COURT OF QUEENSLAND

 

Appeal No. 151 of 1992

 

ROBERT CLIVE POSTLE and KAY LORAINE POSTLE

 

Respondent/Plaintiff

v.

 

MERVYN WILLIAM SENGSTOCK

 

Appellant/Defendant

 

Before the Court of Appeal

 

The Chief Justice

Mr Justice McPherson

Mr Justice Derrington

 

JUDGMENT OF THE COURT

 

Delivered the 3rd day of February, 1993

MINUTE OF ORDER:

The appeal is dismissed with costs.

CATCHWORDS:

Contract. Sale of business. Contract providing for immediate loan by vendor of purchase price and retention of legal title to assets of business by way of security for repayment of loan. Failure by purchaser to repay loan on appointed date not entitle vendor to terminate contract. Need for foreclosure proceedings.

Mortgage. Requirement of assignment of mortgaged property. Position when legal title already in name of mortgagee.

Remedies. Equitable damages in lieu of retransfer of title to property by mortgagee.

Counsel:

P.A. Keane Q.C. and Mr Freeburn for appellant

R.N. Chesterman Q.C. and R.C. Morton for respondent

Solicitors:

Corrs Chambers Westgarth for the appellant

Carswell and Co (Town Agent: Bruce Dulley) for the respondent

Hearing Date:

16th November, 1992

 

IN THE COURT OF APPEAL

 

SUPREME COURT OF QUEENSLAND

 

Appeal No. 151 of 1992

 

ROBERT CLIVE POSTLE and KAY LORAINE POSTLE

 

Respondent/Plaintiff

v.

 

MERVYN WILLIAM SENGSTOCK

 

Appellant/Defendant

 

JUDGMENT OF THE COURT

 

Delivered the 3rd day of February, 1993

 

The appellant as defendant in this action was ordered to pay the respondents as plaintiffs the sum of $56,692.00 by way of damages in lieu of specific performance and the further sum of $12,540.00 as interest thereon in respect of his sale to them of four bus-run contracts on 3 May 1988.  Pursuant to the terms of the contract, he lent them the purchase price of $84,000.00 and by way of security he retained the property in the bus-run contracts which he was to transfer to them on 2 October 1990 upon the repayment on that date of the principal sum of the loan. In the meantime the respondents had the physical possession of the bus-runs and received from him the income which they produced while in turn they met the operating expenses and in addition made payments to him of prescribed sums of interest on dates fixed by the contract.

 

It is common ground that the respondents did not repay the principal sum of the loan on 2 October 1990 as provided in the contract but they claimed successfully before the trial judge that the appellant was estopped from relying upon the contractual provision as to the time for payment because of a representation or promise which he made to them and upon which they relied to their detriment.  It is not necessary to go into this.

 

Shortly after the date appointed by the contract for repayment of the loan, the appellant claimed to be entitled to physical possession of the bus-runs pursuant to his security and soon after that he purported to rescind the contract upon the basis of the alleged breach.  In the course of time because of his demands the respondents relinquished possession of the bus-runs to him.  However, they then brought these proceedings for specific performance or damages in lieu thereof, or in the alternative, for equitable relief from forfeiture of their interests under the contract.

 

By a further alternative plea, they claimed, in effect, that at the time of the alleged default the appellant held the title to the subject property by way of a mortgage charge or hypothecation so that upon their failure to repay the loan he was trustee for them of the property to the extent that its value exceeded the sum owing, and that he was obliged to accept payment from them even after the due date for payment.  As two of the runs had already been sold by the appellant they claimed that he was obliged to set off the moneys received from the sale against their indebtedness and to transfer the remaining two runs to them upon their payment of the balance of the sum owing.

 

The learned trial Judge found that the appellant was estopped from relying upon the essentiality of time for repayment of the loan and that he had wrongly repudiated the contract; but that specific performance of the contract was impossible and so damages should be ordered in lieu thereof.  The learned trial Judge also indicated that in the alternative he would have granted relief against forfeiture and he noted that there were other alternative claims which it was not necessary to explore.

 

The appeal was directed at the finding of estoppel and, should that have proved successful, the finding of the respondents' right to relief against forfeiture.  To the extent that on the hearing of the appeal the respondents also claimed that the appellant had waived the essentiality of time under the contract for the payment of the principal sum, the appellant opposed this also.

 

There is a preliminary matter which must be considered first, that is, whether by 2 October 1990 the sale of the runs had been fully executed and a mortgage fully granted for the loan of the purchase money, leaving only an obligation upon the respondents to repay the loan as secured by the mortgage.   If that be so, the further question then arises whether, even in the case of default as alleged, the vendor could have been entitled to rescind the contract for the sale of the bus-runs or whether he was left with no more than the right to recover the loan debt with, if necessary, the aid of the security which he held.

 

The relevant terms of the contract are as follows:-

 

"1.The Vendor agrees to sell to the Purchaser and the Purchaser agrees to purchase from the Vendor for the price of EIGHTY FOUR THOUSAND DOLLARS ($84000.00) all the right title and interest of the Vendor in and to a certain School Bus Run business set forth in the Schedule hereto carried on on premises and situated at 178 Ann Street, Maryborough (hereinafter referred to as 'the said business').

 

....

 

4.... the Purchaser shall pay the whole of purchase money namely EIGHTY FOUR THOUSAND DOLLARS ($84,000.00) in cash) to the Vendor as follows:  Refer Special Conditions

 

5.IF the Purchaser shall neglect or fail to pay the said purchase money or any other monies payable to the Vendor under these presents or any of them or any part thereof when due or to comply with any of the conditions of these presents herein contained the money (if any) paid by him on account of the purchase shall at the option of the Vendor be forfeited to the Vendor who shall thereupon have power without notice to cancel the same and resume possession of the premises (by force if necessary) and at his option to sue the Purchaser for breach of contract or without notice to resell the property by public auction or by private contract and the deficiency (if any) in price occasioned by such resale shall together with all expenses of such resale or upon any abortive attempt to sell or upon the Purchaser's default hereunder immediately be made good by the Present Purchaser as and for liquidated damages and not as a penalty.  Provided always that the Agent shall be entitled to retain from the said deposit the amount of his commission upon the said sale.

 

....

 

8.THE Vendor shall pay all rent, taxes, assessments telephone accounts, gas and water rates and other outgoings of whatsoever kind payable or in respect of the said premises up to the day of giving possession and the Purchaser shall pay for same as and from that date, and the same shall if necessary be apportioned between the Vendor and the Purchaser and be payable on the date of possession.

 

....

 

11.THE Vendor will remain in possession of the said business and premises and will manage the same as a going concern until the date of possession and shall sign and execute all documents and do all acts and things reasonably required for putting the Purchaser in full possession and enjoyment of the said business and the premises and for otherwise performing this agreement.  The Vendor further agrees that pending completion the stock-in-trade of the said business shall not be offered for sale at prices less than prevailing retail prices for such goods or otherwise than in the normal course of business without the prior written consent of the Purchaser.

 

....

 

14.IF default shall be made in payment of any instalment of purchase money or any interest thereon at the respective times herein appointed for payment thereof or in the performance or observance of any of the conditions herein contained then and in any such case and immediately thereupon all monies remaining unpaid under this Contract shall at the option of the Vendor no longer be payable at the times in manner herein appointed bus shall become and be payable forthwith.

 

....

 

17.THE Vendor and the Purchaser hereby agree that the aforesaid purchase price of EIGHTY FOUR THOUSAND DOLLARS ($84000.00) mentioned shall be apportioned as follows:

 

...

 

Goodwill .................... $84000.00

 

30.TIME shall be the essence of this Contract.

 

31.The Vendor agrees to advance to the Purchasers the whole of the purchase moneys namely EIGHTY FOUR THOUSAND DOLLARS ($84000.00) which amount shall be repaid on or before the 2nd October, 1990.  The Purchasers will pay to the Vendor interest at the rate of FOURTEEN DOLLARS per centum per annum calculated on yearly rests on the said sum of Eighty four thousand dollars ($84000.00) such interest being computed from the 2nd October, 1987.  The Purchasers shall pay to the Vendor the sum of FOURTEEN THOUSAND ONE HUNDRED AND FIFTYTWO DOLLARS ($14152.00) on the 2nd October, 1988 on account of interest for the first twelve months of the loan and thereafter agree to pay interest only at the rate of u>NINE HUNDRED AND EIGHTY DOLLARS ($980.00) per month until the loan is fully repaid on the 2nd October, 1990.  The Purchasers shall have the right to pay off all or any part of the said principal sum then remaining unpaid at any time or times before the due date for payment thereof shall have arrived and thereupon interest shall be payable up to the date of repayment and no longer.

 

32.As security for the abovementioned loan the parties agree that the Conveyance Committee Contracts referred to in the Schedule hereto shall remain the property of the vendor including Contract Numbers R1527 and S440 presently in the name of Wide Bay Tours.  The Vendor agrees to assign and transfer the said Contracts to the Purchasers immediately upon payment of the said sum of Eighty four thousand dollars ($84000.00) together with all interest accruing thereon.  During the term of the loan the Purchasers agree to fulfil all obligations pertaining to the said Contracts including payment of all expenses and the Vendor agrees to pay all income from such Contracts to the Purchasers provided that the Purchasers have performed all obligations in relation to the said Contracts and the said Loan  The Purchasers also agree with the Vendor that by way of additional security for the said loan the Purchasers' mother, namely Rose Joyce Postle, shall allow her dwelling situate at 39 Alderly Street, Toowoomba described as Lot 14 on Registered Plan Number 114337, situate in the County of Aubigny Parish of Drayton containing 34.6 perches being contained in Certificate of Title Volume 4616 Folio 40 to be secured by the Vendor by way of Second Mortgage during the first twelve (12) months of the loan period and then by way of First Mortgage for the remainder of the loan period as hereinbefore provided.  The Purchasers also agree to provide the Vendor with personal guarantees for the due performance of the within obligations."

 

It is clear from this that the technical scheme of the contract was in the form described above.  The purchase money notionally lent by the vendor was applied as the full consideration for the sale.  It was deemed to have been paid at once and  the loan was to be repaid at a later date.  In the meantime the future repayment was to be secured by the retention by the vendor of the legal title to the subject property, as well as other collateral security.  That this was to amount to a mortgage back, operating at the time of the notional loan is indicated, not only by the form of the transaction, which is coincident with that of a legal mortgage, but also by the various incidents of the relationship.  The purchasers were to make prescribed payments of interest which were expressly related to the loan and not to unpaid purchase money.  Further, although the legal title in the property was to be held by the vendor, he was not to have any beneficial interest in it except by way of security.  The purchasers were to have physical possession of the property in the sense of being responsible for the acts necessary for the performance of the bus-run contracts and having possession of the buses and other equipment used in such performance.  They were also required to meet all necessary expenditure and were to be repaid by the vendor all sums which he received by reason of their performance of those contracts.

 

This had all the attributes of a mortgage of the property by way of security for the repayment of the loan: see Sykes on Securities 4 ed. 692; Fisher and Lightwood's Law of Mortgage 10 ed. 114.  Consequently, as at 2 October, 1990, not only had the sale of the property been completed but an effective mortgage had also been granted.  There was then no total failure of consideration, because the purchasers had paid the purchase price in full, the beneficial title in the property had passed to them in equity, they had provided a mortgage by way of security for the loan, and they had paid interest on the loan.  Because the transaction had advanced so far any default in repayment of the loan could not then have entitled the appellant to rescind the contract.  He was confined to his right to sue under the loan agreement and/or action permitted to him on his securities:  cf. Svanosis v. McNamara (1956) 96 C.L.R. 186

 

The latter would have required him to take foreclosure proceedings if he intended to retain the property: Sykes op cit 700, Fisher and Lightwood op cit 409; Francis and Thomas Mortgages and Securities 3 ed. 153.   Because he took no such proceedings, he was not entitled to retain the property as his own and the respondents were entitled to exercise their equity of redemption notwithstanding that the date for payment had passed, if that had been the case.  To the extent that the appellant took possession of some of the property and sold it, it is irrelevant to consider whether he acted in excess of his rights because the respondents are content to have the proceeds of those sales set off against their indebtedness.  However to the extent that he took possession of the remaining property with a claim to absolute title, he exceeded any power which would have been available to him on any default, if that had occurred.

 

An alternative view, which is equally valid, is that the contract provided for two transactions, a sale where the purchase money was paid in full with the loan moneys, and the granting of a mortgage to secure their repayment.  Because the latter did not secure the payment of the purchase money, the transactions were completely distinct, though they were contained in the same agreement because the loan moneys had been used as the purchase moneys and the subject property was to constitute the security.  But this identity of some of the composite parts and the need to conduct part of both transactions together does not mean that they were interdependent.  Because of their separate functions and because the first transaction had been fully executed, any default in respect of the second transaction could not have entitled the appellant to rescind the whole contract including the first transaction.  By way of caution it should be said that this does not imply that the opposite result would have obtained had the mortgage provided security over unpaid purchase money; but the position in the present case is clear because of the means which the parties chose to adopt in the contract.

 

In any case, the nature of the transaction is clearly that of a mortgage, and equity is assiduous in defeating any device or contrivance designed or calculated to prevent or impede redemption: Noakes and Co Ltd v. Rice (1902) A.C. 24, per Lord Macnaghten at 30.

 

The view that the security amounted to a mortgage was the position most favourable to the appellant.  Had it not been a mortgage but only a charge by way of security or less, the appellant would still not have been entitled to retain the title to the property against the respondents if they proffered the repayment of the debt for which the security was held.  The point is that whatever the form of security held as at 2 October, 1990, the contract had been substantially performed except for repayment of the loan.

 

In order to have the sale and the repayment of the loan regarded as related parts of a single transaction, it was argued for the appellant that the arrangement could not have amounted to a mortgage for that requires an assignment of the legal title in the property to the mortgagee; and in the present case there is no such assignment because the legal title was already and remained in the vendor.  It is true that mortgages are usually effected by the assignment of the legal title to the mortgagee, but there is no reason why such an assignment is necessary when the mortgagee already holds the legal title in trust for the mortgagor.  That would have been the case here upon the payment of the purchase money by means of the notional loan.

 

No authority was cited in support of this argument of the appellant.  In Quarrell v. Beckford (1816) 1 Madd 269 at 278; 56 E.R. 100 at 103; 1814-1923 All E.R. 618, Plumer V.C. said:  "What is a mortgage?  Everybody knows, it consists of two things; it is a personal contract for a debt, secured by an estate, and in equity, the estate is no more than a pledge or security for the debt; the debt is the principal - the estate is the accident ...".  The essential feature of the mortgage lies not in the conveyance or assignment of the legal title but the fact of its being vested in the mortgagee by way of security.  If that can be achieved by permitting the mortgagee to retain the legal title which is already vested in his name, then the necessary result is achieved in respect of this element without the need for an assignment.

 

This does not however mean that there was no assignment of property at the time when the mortgage was given.  There was manifestly an assignment by the respondents of so much of their equitable interest as was necessary, in association with the legal title held by the appellant, to provide the latter with the full legal and equitable interests necessary to a mortgage; cf. Re The London and Lancashire Paper Mills Company Ltd. (1888) 4 T.L.R. 312; 58 L.T. 798: Herman v. Gill (1921) 24 W.A.R. 10.  See also G.E. Crane Sales Pty. Ltd. v. Commissioner of Taxation (1972) 46 A.L.J.R. 15 for an analogous procedure by which a debtor constituted itself a trustee of its own book debts for its creditors and this was held to be an assignment in equity of those debts.

 

Without that assignment of the supporting equitable interest, the appellant would have held the legal title only as trustee for the respondents without any equitable interest as mortgagee whatsoever, for, by reason of the payment of the purchase money, the respondents had become entitled to the full equitable estate in the property, and at that point the vendor was a bare trustee.  However, by reason of the agreement for a mortgage, there was in equity a reassignment to the appellant of the equitable interest of a mortgagee which coalesced with his legal title so that he no longer held as a bare trustee for the respondents.

 

For these reasons, it is immaterial that because of the circumstance that the mortgagee already held the legal title, it was unnecessary to have an assignment.  This is analogous to the position in respect of the delivery of goods by way of pledge when they are already in the possession of the mortgagee for other purposes; Blundell-Leigh v. Attenborough (1921) 1 K.B. 382, 389; Australia & New Zealand Banking Group Ltd. v. Curlett, Cannon and Galbell Pty. Ltd. (1992) 2 V.R. 647, 656.

 

It was argued in the alternative for the appellant that there was some significance in the provision of the contract that the legal title in the bus-run contracts was not to be transferred to the respondents until the principal sum was paid.  However this does not imply that the sale was in some way deferred, for it was expressed as a part of an arrangement for security for the debt and was consistent with a mortgage in the full sense, which was the obvious way to effect such security.  Moreover, this device may have been used as a means of avoiding any difficulties associated with a reassignment of the contracts for mortgage purposes.  This term then provides, as it should, that the mortgagee was entitled to hold the legal title until the principal sum was paid and it followed from such an arrangement that the mortgagor had the usual equity of redemption. 

 

Not only are these provisions totally consistent with an executed sale with a mortgage back to secure repayment of the purchase money lent, but such a scheme is also probably the most appropriate one to adopt in these circumstances.  The capital sum was not to be paid until after more than two years were to pass and interest was to be paid in the meantime.  In that period the purchasers were to be liable for all costs of the operation and were to receive all the profits as if owners of it.  Quite clearly a concluded sale with a mortgage back to secure repayment of the loan of the purchase money was a more attractive scheme to both parties and more in keeping with the reality of the situation than a sale deferred in excess of two years until the payment of the purchase money.  More importantly, that is clearly what they did.

 

Although it was not invoked by the appellant in argument on this issue, it is as well to refer to paragraph 5 of the contract which was part of the printed form.  This is set out above and it may be noted that it makes provision for certain consequences, including the right of the vendor to cancel "the purchase", if "the Purchaser shall neglect or fail to pay the said purchase money or any other monies payable to the vendor under these presents or any of them or any part thereof when due or to comply with any of the conditions of these presents herein contained ...".

 

The money that the appellant claims was not paid was not the purchase money, for that was paid with the moneys notionally advanced by him by way of loan; so the only issue is whether the repayment of the loan, which is provided for in the conditions of the contract is within the description, "other moneys payable to the vendor under these presents ... ".  These words are not appropriate in this context to refer to such payment, for the sale, having been completed, cannot be cancelled within the meaning of the word "cancel" in this term.  This is demonstrated by the further provision that all moneys already paid "on account of the purchase" may be forfeited by the Vendor.  It cannot have been intended that the purchaser, having paid the purchase money in full should forfeit it while still remaining liable to repay the loan.

 

This paragraph of the contract is clearly intended to apply only until the completion of the purchase.  It is a printed term in a standard form of contract which contains other printed terms referring to moneys other than the purchase money which may be payable by a purchaser in an ordinary sale transaction.  Although these other printed terms were deleted in the present contract because they were not relevant, it is permissible to refer to them as an aid to the meaning of ambiguous words in a printed term which remains:  Lovis Dreyfus & Caa v. Parnaso Caa Naviera S.A. (1959) 1 Q.B. 498, 513; London & Overseas Freighters Ltd. v. Timber Shipping Co. S.A. (1972) A.C. 1, 15-16; Mottram Consultants Ltd. v. Bernard Sunley & Sons Ltd. (1975) 2 Ll. Rep. 197, 209; Punjab National Bank v. deBoinville (1992) 1 W.L.R. 1138, 1148.  This alternative explanation of a suitable application of the relevant words, together with their inaptness to the present issue, produces a construction against applying them to the repayment of the loan moneys.  Accordingly paragraph 5 has no application in this case, and the appellant was correct in not invoking it. 

 

Because the respondents should have been successful, but on a different ground, a difficulty arises as to the remedies available to them in this situation.  The learned trial judge awarded them damages in lieu of specific performance of the contract based upon the total agreed value of the runs and setting off the amount of the indebtedness.  He also allowed interest.  They could have had a declaration that the appellant was holding the property (including the purchase moneys from what had been sold) as mortgagee subject to their equity of redemption, and that he is liable to account to them both for the property (or, to the extent that it has been sold, its sale price) and the income from it, subject always to repayment of the principal sum. 

 

The suitable consequential remedy would then have been a direction to him, subject to such repayment, to transfer the remaining property and to account for the moneys received on the sales and all profits.  However, they did not seek this below and there has been no cross appeal.  Nor for that matter did the appellant seek to vary the judgment in the event of the failure of the appeal on this ground.  For these reasons it is acceptable to allow the judgment to stand upon the basis that it reasonably equates the value of the property and reasonable profits less the amount due in respect of the sum secured.  This is most permissible in these special circumstances despite the fact that the amount involved exceeds the measure of damages usually granted in lieu of a specific relief:  Shelfer v. City of London Electric Lighting Co. (1895) 1 Ch. 287; Kenaway v. Thompson (1981) Q.B. 88.  The method of calculation used by the learned trial judge in assessing damages in lieu of specific performance of the contract has similar application to the case, as here, of a trustee who is permitted to retain the trust property.

 

The appellant has further complained that in the award of interest the learned trial judge did not allow for interest due to him on the $84,000.00 which has not been paid by the respondents.  This is not correct; for, instead of allowing to the respondents interest upon the full value of the assets wrongly taken by the appellant, he deducted the principal sum from it before allowing interest on the balance for the relevant period.  In this way he set off the interest due to the appellant on the principal sum and awarded only the excess.

 

Because this determines the matter it is unnecessary to venture into the issues of estoppel, relief against forfeiture, etc. upon which the appeal was based, or upon any of the alternative matters that have flowed from the course taken by the learned trial judge.

 

The result is that the appeal is dismissed with costs.

Close

Editorial Notes

  • Published Case Name:

    Postle v Sengstock

  • Shortened Case Name:

    Postle v Sengstock

  • MNC:

    [1993] QCA 2

  • Court:

    QCA

  • Judge(s):

    Macrossan CJ, McPherson JA, Thomas J

  • Date:

    03 Feb 1993

Litigation History

Event Citation or File Date Notes
Appeal Determined (QCA) [1993] QCA 2 [1994] 2 Qd R 290 03 Feb 1993 Appeal dismissed: Macrossan CJ, McPherson JA, Derrington J

Appeal Status

{solid} Appeal Determined (QCA)