Maria Freudenthaler and John Freudenthaler v David Maxwell Watson and Nong Luc Watson [1996] ACTSC 109 (1 November 1996)

SUPREME COURT OF THE ACT

MARIA FREUDENTHALER and JOHN FREUDENTHALER v. DAVID MAXWELL WATSON and
NONG LUC WATSON
No. SC701 of 1992
Number of pages - 6
Contracts

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY HOGAN AJ

CATCHWORDS

Contracts - Sale of land - conditional - promise to pay mortgage instalments -promise to pay net proceeds if land sold - breach - damages - declaration - no issue of principle.

HEARING

CANBERRA, 30 September 1996 1:11:1996

Counsel for the Plaintiffs: Mr B Meagher

Solicitors for the Plaintiffs: Vandenberg Reid

Counsel for the Defendant: Mr D Watson

ORDER

THE COURT ORDERS THAT:
1. Judgment be entered for the plaintiffs against the defendants in the sum of $22,906.10. 2. Declare that the plaintiffs are solely entitled to the whole of the money, including interest, in the account with the State Bank referred in the letter from Crossin Power Haslem to Vandenberg Reid Papas & Macdonald dated 19 June 1992, part of Exhibit K. 3. Order the first defendant to pay the plaintiffs' costs.

DECISION

HOGAN AJ
1. This action arises out of a unusual and somewhat complex chain of events, as a result of which the Plaintiffs claim that they are entitled to damages for non performance by the defendants of an agreement, and for a declaration that they are entitled to certain monies which are at present held in an interest bearing account in the joint names of all of them.

2. The Plaintiffs are husband and wife. At the relevant time, the defendants were husband and wife, although they have since separated. Although at one time the female defendant was represented, that representation ended, and she took no part in the defence of the action. The male defendant conducted his own defence.

3. In 1990, the Plaintiffs purchased a home at Theodore in their names, and took up residence there. Mr Freudenthaler met the defendants, who discussed with him a plan for going into business operating a restaurant. When the proposal was first suggested to Mrs Freudenthaler, she was not in favour of it, but later was persuaded to agree.

4. A company, Navean Pty Ltd, was incorporated on about 10 May 1991, with Mr Watson and Mr Freudenthaler initially the sole shareholders and directors. A further share was shortly thereafter issued to a Mr Edward Champion, who was also appointed a director. It was proposed that the company carry on the restaurant business in premises at Kambah, on the basis of a sublease from a company called Enima Pty Ltd.

5. The most pressing need was for sufficient capital. The Plaintiffs' home was worth about $125,000, against the security of which it was possible to borrow about $104,500.

6. The Plaintiffs and the defendants entered into an oral agreement, the main elements of which were that the defendants would buy the home from the Plaintiffs for $110,000, and the Plaintiffs would be entitled to live in it, rent free, for as long as they wished. After discharge of an existing bank mortgage, the plaintiffs would have a sum of $50,000, which they were then to lend to Navean Pty Ltd at 14% interest.

7. In order to raise the purchase price the defendants were to borrow money on a mortgage of the home. The defendants were to pay the instalments due under the mortgage, and the Plaintiffs to pay rates and other outgoings.

8. The parties all attended a solicitor, Mr Nelson, who drew up a contract for the sale of the house dated 17 May 1991. The contract contained no reference to the arrangement pursuant to which it was being executed.

9. Mrs Freudenthaler became concerned about the wisdom of what was happening and persuaded her husband to come with her to consult another solicitor, Mr Reid.

10. On 23 May 1991, he wrote to Mr Nelson, setting out a number of matters which he was instructed formed essential parts of the agreement between the parties, but which had not been incorporated in the written documentation. He also lodged a caveat on the title to protect the Plaintiffs.

11. On 24 May 1991, the caveat was withdrawn, the sale was settled and the parties executed a written agreement by which; 1. The defendants authorised the plaintiffs to live in the house, rent free for as long as they wished; 2. The mortgage repayments to St George Building Society would be met from the salaries of the defendants; 3. The Plaintiffs were given the right to buy the property back for $110,000 less mortgage payments made; 4. Should the Plaintiffs wish the property to be sold, the only moneys the defendants would be entitled to would be the amount needed to repay the mortgage; 5. The decision to sell would be solely that of the Plaintiffs, and, 6. The Plaintiffs would pay all rates and outgoings.

12. Enima Pty Ltd had agreed to offer a lease of the restaurant premises on terms set out in a letter dated 2 May 1991, one of which was the payment of a deposit of $6,500 for a month's rent.

13. The original contract of sale provided for payment of a deposit of $5,500. The Statement of Claim alleges that it was never paid. The Defence asserts that it was.

14. The Plaintiffs did not persist in that part of the claim.

15. The Settlement Statement provided by Mr Nelson set out the receipt and disbursement of the proceeds of sale as follows: Sale price $110,000 Less Deposit Paid $5,500 $104,500 No adjustment of rates Balance due on settlement $104,500 Cheques required on Settlement 1. Commonwealth Bank of Australia $57,842.26 2. Emma Pty Ltd $6,500.00 3. Allan R Nelson & Co $2,099.00 4. Registrar of Titles $100.00 5. Navean Pty Ltd $36493.74 6. St George Building Society $1565.00 $104,500.00 The sum of $1,565 paid to St George Building Society was for mortgage insurance on which the Plaintiffs had insisted.

16. Subsequently, My Nelson drew up a deed which all parties executed, and which is dated 18 July 1991. By that time, the total of monies advanced by the Plaintiffs to Navean Pty Ltd was $50,000. The terms of that deed were as follows: "This deed made the 18th day of July 1991 between John Peter Freudenthaler of 42 Freda-Gibson Circuit Theodore ACT and Maria Freudenthaler of the same address (hereinafter called the seller) AND David Maxwell Watson of 30 Byrne Street Wanniassa ACT and Nong Luk Watson of the same address his wife (hereinafter called the buyer) whereby the sellers have agreed to transfer to the buyer all their interest in Block 18 Section 616 Theodore for the consideration of $110,000.00 whereas in consideration of the sellers transferring the property at 42 Freda-Gibson Circuit Theodore to the buyers for the consideration of $110,000.00 the buyers have agreed to various conditions which I set out hereunder:- 1. The sellers shall have the right to reside with their family at the premises known as 42 Freda-Gibson Circuit Theodore rent-free for as long as they wish subject to the sellers being required to pay all rates, taxes and outgoing in respect of the property for as long as it is occupied by them or their nominees. 2. The buyers hereby give to the sellers or either of them the right and option to re-purchase Block 18 Section 616 Theodore from them at any time provided the sellers pay to the buyers the amount then owing at the time of completion of their purchase under the mortgage to St George Building Society. 3. The buyers hereby agree to transfer the title to any person nominated in writing by Maria Jesus Freudenthaler for the same consideration as the payout figure on the mortgage to St George Building Society as at the date of completion of such sale. 4. The buyers jointly and severally convenant to repay all instalments and payments required to be paid by them under the mortgage to the St George Society. 5. The buyers shall and do hereby charge in favour of Maria Jesus Freudenthaler all their right title and interest in the said property and do hereby appoint Maria Jesus Freudenthaler to be their lawful attorney limited to the purpose of executing a memorandum of mortgage in favour of herself in respect of the said property 42 Freda-Gibson Circuit Theodore in the ACT for the purpose of securing to her security for the loan of $50,000 made by her to Navean Pty Ltd. It is expressly agreed by the buyers that this clause shall operate as creating a caveatable interest in the said property in favour of Maria Jesus Freudenthaler.

17. The covenants entered into by the parties hereto are entered into for themselves, their respective heirs, executors, administrators and assigns."

18. Subsequently disagreements occurred about the operation of the company. The defendants defaulted in payments due under the mortgage to St George Building Society. The plaintiffs decided to sell the property. An agent arranged a sale at a price of $156,000. The defendants received advice that the Deed of 15 July 1992 was unenforceable. Nevertheless, after negotiations, the Plaintiffs and the defendants agreed that the property be sold, and that the net proceeds be paid into an interest bearing account of which the respective solicitors were to be signatories.

19. The plaintiffs and the defendants were in need of urgent finance. There was a further agreement negotiated whereby the plaintiffs received from the agent and the Plaintiffs' solicitor immediate payment of $2,000, with a further $3,000 to come from the proceeds of sale, and the defendants were to receive $5,000 from the proceeds of the sale. The balance of the proceeds were to be invested pending resolution of the dispute.

20. Following settlement of the sale, which appears to have taken place on or before 19 June 1992, solicitors for the defendants paid the sum of $25,839.66 into an account with the State Bank in the names of the Plaintiffs and the defendants, with no funds to be released without the signatures of solicitors for the defendants and the Plaintiffs.

21. The Plaintiffs seek a declaration that they are solely and beneficially entitled to the monies in that account, including all interest accrued.

22. The damages that are sought are in respect of the loss suffered because the defendants had defaulted in payments under the mortgage, which resulted in a lesser amount of net proceeds of sale.

23. The defendant did not dispute any essential allegation of fact in his evidence. He conceded that the plaintiffs were entitled to the money in the account, but felt that his liability beyond that should be limited, because the whole project had been a joint venture, and everyone had lost money, simply because the venture had been under capitalised and had therefore failed, despite much hard work. He therefore thought the losses should be shared equally.

24. One might have sympathy for that point of view, but also for the point of view of the plaintiffs, especially of Mrs Freudenthaler.

25. The decision must however be made on the basis of the legal relationships in the events that have happened, rather than a comparative weighing up of sympathies.

26. The amount required to discharge the mortgage to St George Building Society was $113,269.00.

27. Exhibit M is a calculation provided by the Building Society of the discharge figure that would have applied had repayments been made on time which is $102,870.

28. The Plaintiffs are entitled to the difference, namely $10,389.10.

29. The proceeds of sale were also reduced by the $5,000 which was released to the defendants before sale. The correspondence between the solicitors, Exhibit K, does not set out any basis on which the amount was released. There is no evidence that the Plaintiffs agreed that the defendants could keep it no matter what happened. I think that the Plaintiffs are entitled to judgment for that sum also.

30. There will therefore be judgment for the plaintiffs for $15,389.10. together with interest. The money should have become available to the plaintiffs on 19 June 1992, on which date the sale of the property was settled. Interest on that sum calculated in accordance with the practice direction to the date of this judgement is $7,517.

31. I direct the entry of judgment for the plaintiffs against the defendants for $22,906.10.

32. I declare that the plaintiffs are solely entitled to the whole of the money, including interest, in the account with the State Bank referred in the letter from Crossin Power Haslem to Vandenberg Reid Pappas & Macdonald dated 19 June 1992, part of Exhibit K.

33. I order the first defendant to pay the plaintiffs' costs.