DISTRICT COURT OF QUEENSLAND

Introduction:

1. [1]
   This proceeding had originally commenced by way of an originating application by Wayne Stanley Millard (“Millard”) seeking declaratory relief against Peter Verhagen and Willhelmina Verhagen (“Verhagens”) in the nature of a construction summons, but has been continued by the parties by way of a proceeding with an exchange of pleadings whereby the original respondents have become the plaintiffs and the original applicant the defendant.  The plaintiffs Verhagens now claim the sum of $16,382.60 from the defendant Millard, comprising interest outstanding under a mortgage between the parties and a further amount for “goods and services provided to the applicant/defendant”.^[1]

2. [2]
   The proceeding is defended by Millard who also counter-claims against Verhagens seeking declaratory relief under the mortgage.

Facts:

3. [3]
   On 21 October 2003, Verhagens as Vendor and Millard as Purchaser executed a Business Sale Contract for the sale to Millard of the “Burpengary Seafood Market” owned by Verhagens for the sum of “$90,000.00” excluding “stock in trade” which was estimated at “$30,000.00”.^[2]

4. [4]
   One of the “Special Conditions” to the contract is “Annexure B”, expressed in the following terms:

“Purchase Price

The purchase price of $90,000 shall be paid as to the sum of $60,000 upon settlement of this contract and the balance of $30,000 shall be paid in accordance with an agreement to be executed by the purchaser and to the satisfaction of the vendor prior to the settlement of this contract and that that agreement shall substantially provide for:

1. The balance of the purchase price to be paid at a rate of $200 per week for 150 consequtive [sic] weeks from 1^st December 2003.
2. The purchaser to execute a caveat at the purchasers cost in favour of the vendor over the purchasers property at 270 Victoria Avenue Redcliffe to give the vendor security over any outstanding balance.
3. A default interest rate of 12.5% per annum calculated monthly on any outstanding amount of the purchase price should the purchaser default on any payments.
4. The purchaser to pay all the vendors cost, in the event of default, the vendor incurrs [sic] recovering any outstanding balance of the purchase price.
5. The purchaser to pay, within 7 days of demand, all outstanding in the event of default in the payment of the outstanding balance of the purchase price.”^[3]

5. [5]
   In other words, Verhagens were to extend “Vendor finance” to Millard for the balance amount of $30,000.00 of the total purchase price of $90,000.00 excluding what was described as “perishable stock”.

6. [6]
   In addition to the above agreement, Verhagens say that pursuant to an oral agreement between them and Millard, Verhagens agreed to sell to Millard for the sum of $5,000 further “…stock, goods and services; the stock was consumables such as wrapping paper and cleaning supplies, as opposed to perishable stock.”^[4]

7. [7]
   The sale of the business was brokered by Graham James Long (“G.J. Long”), Business broker, whose affidavit sworn 2 June 2008 is Exhibit 3 in the proceeding who also gave oral evidence at trial.^[5]

8. [8]
   On the date of completion of the sale, Millard paid to Verhagens “…by way of bank cheque $60,000 for the purchase of the business, and $35,290 for the purchase of the perishable stock.”^[6]

9. [9]
   Pursuant to clause 2 of “Annexure B” aforesaid, by consent, on 14 November 2003 Verhagens registered a caveat^[7]on Millard’s property “to give the vendor security over any outstanding balance” of the purchase price of $30,000.00.

10. [10]
    A finance company, RAMS Mortgage Corporation Ltd (“RAMS”), had taken a mortgage from Millard over his property as security for a loan to Millard and found that it could not register the security with the Department of Natural Resources because of the registered caveat referred to in paragraph [9] above.

11. [11]
    As a consequence, RAMS required Verhagens and Millard “… to procure the withdrawal of the caveat so as to permit the registration of the RAMS mortgage or alternatively to provide to us a duly executed consent to the registration of the mortgage”.^[8]P. Verhagen’s evidence on point is as follows:

“After you’d received the letter from MPN Lawyers and had a discussion with someone at their office you had some discussions by telephone with Mr Burton?--  Yes.

That’s Mr Millard’s solicitor, and Mr Millard. Could you tell his Honour what the effect of those discussion were?--  The conversation with both Mr Millard and Mr Burton were to do with the removal. The only way I would remove the caveat was to have some form of security which was offered as a mortgage for security and then Mr Millard had expressed that to me. He was quite happy to have the – the mortgage document prepared. Mr Burton was preparing that document at their cost, not at mine.”^[9]

12. [12]
    Verhagens subsequently withdrew the caveat on or about 28 November 2003^[10]and Millard then gave to Verhagens a mortgage to be registered as a second mortgage on Millard’s property to secure the balance of the purchase price of $30,000.00 aforesaid.

13. [13]
    This document was prepared by Millard’s (the Mortgagor’s) solicitor, not by or anyone on behalf of Verhagens’ (the Mortgagee), who were acting on their own behalf in the transaction.

14. [14]
    The “repayment” obligations of Millard contained in clauses 1 and 2 of the mortgage document are as follows:

“1. The Mortgagor will repay the principal sum of Thirty Thousand Dollars ($30,000.00) to the Mortgagee by One Hundred and Fifty (150) consecutive weekly instalments of Two Hundred Dollars ($200.00) per week commencing on the 1st December 2003. If any such instalment(s) is / are unpaid then the Mortgagor will pay interest to the Mortgagee on such unpaid instalments/s until payment at the rate of 12.5% per annum.

2. The principal sum is not subject to interest at all.”

15. [15]
    These clauses do not reflect Millard’s repayment obligations contained in clauses 1 and 3 of “Annexure B” referred to in paragraph [4] above.

Evidence of signature of mortgage:

16. [16]
    P. Verhagen’s evidence in respect of the Verhagens’ signatures on the mortgage document is essentially in the following terms:

• He was contact by “…someone in Mr Burton’s office to say that the mortgage was ready” and he drove to that office and “… picked that up … from reception in an envelope”.^[11]

• He “… then went straight to where my wife works … (and) we both signed them on a school desk at the school.”^[12]

• Neither read the document “… at that point”.^[13]

• He “… rushed through or read through that document at home” that night “… noting a few anomalies of – with the interest calculation in the document.”^[14]

• He spoke to Mr Burton “The next morning” and “… expressed that the interest rate was calculated different to the business contract … and I was assured that the mortgage was prepared in the same way. There was no interest applicable on the mortgage because it was security to replace the caveat that we had for the business contract. So he said the calculation on the business contract was what we were calculating, not an interest rate on the mortgage.”^[15]

17. [17]
    Under cross‑examination on the preparation of the mortgage document Millard’s solicitor, Stephen Burton’s evidence is in the following terms:

• He took instructions to prepare the mortgage document only from Millard after an initial call from P. Verhagen and his telling P. Verhagen “If Wayne (Millard) wants a mortgage tell Wayne to contact me.”^[16]

• In a subsequent conversation he said to Millard “… because you’re now giving Peter (Verhagen) greater security than he would otherwise have let’s sort of water down the security a bit and you should only agree to pay interest on the unpaid instalments and not pay interest on the capital.”^[17]

• He did not “…discuss that with Mr Verhagen” at any time.^[18]

Evidence of “oral agreement”:

18. [18]
    Verhagens also gave further evidence in respect of the alleged “oral agreement” referred to in paragraph [6] above in the following terms:

“Could you tell his Honour of any discussions that were had at the time the contract was signed in relation to any additional amounts of money that would be paid by the purchaser?­­-- Discussions with the $30,000 because the purchaser was short in what he originally came, had to purchase, so that was negotiated as vendor finance, which was written in the contract and there was an additional 5,000 after the contract had been signed we’d agreed upon for consumables and services which was separate to – that was agreed upon after the contract.

…

So we had to run our stocks down but I still had additional chip boxes, packing boxes, chemicals for cleaning, things like that stored in the shed, that wasn’t part of the sale of the business.”^[19]

19. [19]
    This evidence was corroborated by the witness G.J. Long, both in his affidavit marked Exhibit 3, and in evidence when he was asked the following:

“Mr Long, the only topic I’d like you to tell his Honour about is the discussions that took place at the time the contract was signed in relation to any additional amount that the purchaser would pay?--  Yes, sir. Well, there was a – there was a – an amount brought up at the meeting to sign the contracts which was discussed between the parties. I remember saying to them:   ‘Well, this is outside what I’m dealing with so you need to make a private arrangement and an agreement about that.’ And they did so.

All right is that what you refer to in paragraph – the first paragraph 4 on the copy you’ve got and paragraph 8 of your-----?--  Yes.^[20]

20. [20]
    In cross‑examination on point, both P. Verhagen and G.J. Long adhered to their evidence-in-chief in respect of the alleged further “oral agreement” between the parties.

21. [21]
    Millard’s evidence in respect of the “oral agreement” and mortgage document respectively was in the following terms:

• There was in effect no “oral agreement” as alleged by the Verhagens.

• There was an agreement by him to purchase excess stock of cigarettes and he paid for that stock as part of the $35,290.00 paid on settlement and by the further cheque for $3,816.85 paid subsequent to settlement (a week later).^[21]

• He was aware that his mortgagee (RAMS) would not accept a caveat on his property so he “… organised to get a mortgage done by my solicitor” and he signed it.^[22]

• He was told “… not a real lot” about the mortgage “Only that it was slightly different but basically the same as the business contract.”^[23]

He was asked:  

“Did you – now, when this mortgage was coming into existence what conversations did you have with Mr Verhagen about this mortgage?-- Only – well, only the fact that it would be cheaper to get Mr Burton to do it than his solicitor and that’s about it and he agreed that if I paid for the mortgage he’d execute – whatever comes after that.

And after it was executed and you know there was some differences in the mortgage as told by Mr Burton, what did you tell Mr Verhagen about the mortgage?-- I didn’t tell him anything.”^[24]

22. [22]
    In cross examination the following exchange occurred:

“You’ve told his Honour that you executed a mortgage prepared by you solicitor in terms different to the vendor finance terms of the contract?--Yes.

But that you hadn’t agreed that with either Mr or Mrs Verhagen, had you?-- I didn’t think that was up to me.”^[25]

Plaintiffs’ submissions:

23. [23]
    Verhagens submit that the evidence reveals that “…there has been significant part‑performance of the vendor finance terms of the Business Sale Contract” and that “… the creation of the mortgage arose out of a matter of convenience for the defendant (Millard) when his mortgagee required the removal of the consent caveat to enable registration of its mortgage. There was never any suggestion, discussion or agreement to the effect that the same was in substitution of the rights under the Business Sale Contract”.^[26]

24. [24]
    There is no evidence of consent by Verhagens that the terms of “Annexure B” to the business sale contract “… was novated by the mortgage” and there is no evidence pointing to any “… agreement/consent by Mr Verhagen to abandon or vary the vendor finance terms of the Business Sale Contact.”^[27]

25. [25]
    Verhagens are therefore entitled to the amount claimed plus interest.

Defendant’s submissions:

26. [26]
    Millard denies there was any oral agreement between the parties in addition to the Business Sale Contract and suggests that there is confusion in the minds of Verhagens and G.J. Long about this further alleged agreement which was in fact the agreement by Millard to pay the additional amount for cigarettes over and above the stocktake list.^[28]

27. [27]
    The mortgage document “… is the final agreement between the parties.”^[29]

28. [28]
    P Verhagen “understood and signed” the mortgage document and “… admits that he noticed that the default interest under the mortgage was different to that as envisaged by the sale contract.”^[30]

29. [29]
    That although it is conceded “… that the terms of annexure B were enforceable by specific performance up until the mortgage was executed by the plaintiffs … the parties agreed objectively after settlement to substitute a registrable mortgage for the loan agreement and caveat.”^[31]

30. [30]
    “The mortgage contains the entire agreement between the parties subsequent to the sale contract.”^[32]

31. [31]
    The terms of the sale contract were effectively altered by Millard entering into the mortgage on terms different from the sale contract, in that by entering into the mortgage Millard “… gave the plaintiff a secured interest for the principle rather than a caveat that only operated to prevent dealing with the property.”^[33]

32. [32]
    That as a result Verhagens’ case should be dismissed and that the repayment terms under the mortgage constitute the agreement between the parties so that the amount payable by Millard “… under the mortgage is the amount of $913.00”.^[34]

Findings:

33. [33]
    On a review of all evidence and the submissions made I make the following findings:

1. (i)
   that on 21 October 2003 Verhagens and Millard entered into a contract for the sale of the business known as “Burpengary Seafood Market” for the sum of $90,000.00 plus stock in trade then estimated at $30,000.00 subject to all other terms and conditions set out and referred to in the Business Contract of Sale including “Annexures A and B”^[35]thereto;

2. (ii)
   that in respect of the alleged further “oral agreement” between the parties referred to in paragraph [6] above, I accept the evidence of P. Verhagen and G.J. Long in preference to that of Millard where such evidence differs as I found their respective recollections of what occurred in respect of the negotiations and conversations at the time of signing the contract and thereafter, to be more reliable and convincing and more probably than not what the parties had agreed.

3. (iii)
   that there was an “oral agreement” between Verhagens and Millard separate and apart from the Business Contract of Sale, whereby Verhagens agreed to sell and Millard agreed to buy further “stock” and “goods and services” for the sum of $5,000.00 in addition to the “stock-in-trade” of the business referred to under item “M” of the contract estimated at $30,000.00;

4. (iv)
   that the mortgage document between the parties,^[36]arose out of a matter of convenience for Millard when Millard’s mortgagee, RAMS Mortgage Corporation Ltd, required the removal of the consent caveat,^[37]to enable registration of the RAMS mortgage on Millard’s property to secure its loan to Millard;

5. (v)
   that the mortgage between Millard and Verhagens replaced the caveat to provide an alternative security to Verhagens for the balance of the contract price but was not in substitution of the terms and conditions of the respective parties’ rights under “Annexure B” of the Business Sale Contract;

6. (vi)
   that the repayment conditions of the mortgage document did not reflect the terms and conditions of “Annexure B” to the Business Sale Contract and the document was altered unilaterally by its author (if not expressly then impliedly) ultimately on instructions from Millard, without the authority, consent or understanding of Verhagens.

34. [34]
    It follows from the above that Verhagens are entitled to recover the amount claimed in the proceeding, as set out in Exhibit 7, the quantum of which is agreed.

35. [35]
    I therefore give judgment to Verhagens against Millard in the sum of $16,382.60 plus interest outstanding to the date of judgment and I dismiss Millard’s counter-claim.

36. [36]
    My orders in this proceeding will be as follows:

1. Judgment for Peter and Willhelmina Verhagen against Wayne Stanley Millard in the sum of $16,382.00 plus interest outstanding to the date of judgment.

2. Millard’s counter-claim against Verhagens is dismissed.

37. [37]
    I shall hear the parties further in respect of costs.