Sf ee CATCHWORDS BANKRUPTCY - Vesting of property in trustee - Purchase of motor vehicle - Purchase moneys provided by bankrupt's father - "Agreement of Ownership" entered into between bankrupt and his father - Whether motor vehicle the property of the bankrupt at the date of his bankruptcy. Bankruptcy Act 1966, s.58 Instruments Ordinance 1933 (A.C.T.), ss.8, 9 Re: ANTHONY GERARD BENSON, A Bankrupt Ex parte: THE OFFICIAL TRUSTEE IN BANKRUPTCY, Applicant KEVIN GORDON BENSON, Respondent No. N.S.W. 502 of 1983 CORAM: Neaves J. 1 February 1985 |. Canberra IN_THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISTON BANKRUPTCY DISTRICT OF THE STATE OF No. N.S.W. 502 of 1983 NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY Re: ANTHONY GERARD BENSON A Bankrupt Ex parte: THER OFFICIAL TRUSTEE IN BANKRUPTCY Applicant KEVIN GORDON BENSON Respondent ORDER JUDGE MAKING ORDER: Neaves J. DATE OF ORDER: 1 February 1985 WHERE MADE: Canberra THE COURT - l. Declares that Mazda E2000 motor lorry registered number MBZ-472 was the property of Anthony Gerard Benson at the date of his bankruptcy, namely 1 June 1983. Declares that the said motor lorry became vested in the Official Trustee in Bankruptcy on 1 June 1983. Orders that the respondent, Kevin Gordon Benson, pay the costs of the applicant, the Official Trustee in Bankruptcy, of the application. IN_THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF No. N.S.W. 502 of 1983 NEW SOUTH WALES AND THE were wvyvvyevrve AUSTRALIAN CAPITAL TERRITORY Re: ANTHONY GERARD BENSON A Bankrupt Ex parte: THE OFFICIAL TRUSTEE IN BANKRUPTCY Applicant KEVIN GORDON BENSON Respondent CORAM: Neaves J. DATE: 1 February 1985 REASONS FOR JUDGMENT This is an application by the Official Trustee in Bankruptcy as trustee of the estate of Anthony Gerard Benson who became bankrupt pursuant to section 55 of the Bankruptcy Act 1966 ("the Act") on 1 June 1983. The applicant seeks a declaration that a Mazda motor lorry registered number MBZ~-472 was onl June 1983 the property of the bankrupt and became vested in the Official Trustee in Bankruptcy on that date. The application 18 opposed by Kevin Gordon Benson. the bankrupt's father, who claims that at all relevant times he was the owner of the vehicle. I directed that Kevin Gordon Benson be joined as a respondent to the application. The vehicle was purchased on 24 April 1982 from Rumbles Rent-A~-Truck for $2,500. The purchase price was paid as to $1,000 in cash and as_ to the balance of $1,500 bya cheque for that amount in favour of L. Rumble drawn on the account of the Canberra Permanent Co-operative Building Society Limited with The Commercial Bank of Australia Limited. Both amounts had been withdrawn on 23 April 1982 from the savings account of Kevin Gordon Benson and Patricia Ellen Benson with the Canberra Permanent Co-operative Building Society Limited. The bankrupt did not give evidence before me and, so far as his version of events is concerned, TI have only the benefit of the transcript of the answers he gave at his public examination under secton 69 of the Act on 17 November 1983. The bankrupt then stated that prior to the purchase of the vehicle in question he had leased from Rumbles Rent-A-Truck vehicles which he used in carrying on, as a_ sole trader, the business of a furniture carrier under the style "C and T Carriers". He said that Mr L. Rumble had approached him and suggested that, as he had some vehicles for sale, he (the bankrupt) might like to purchase one rather than continue with the leasing arrangements. According to the bankrupt he borrowed $2,500 from his father to effect the purchase. In answer to the question what had he told his father when seeking the loan, the bankrupt said: "I told him - well, I was leasing from Larry Rumble. I could see that I could not afford to keep the business going and lease at the same time because at that time there was a drop in business and not sufficient funds to lease, and I approached my father for a loan for $2,500 to buy the vehicle on the understanding that the vehicle would remain his until such time as I had repaid the debt in full." He said his father was aware he was carrying on business at the time and that he intended to use the vehicle in that business. He said that his father handed him the cash and the cheque and he went to the premises of Rumbles Rent-A-Truck and made the payment for the vehicle. The following exchange then took place: "Q. What was the arrangement made with your father to repay the loan? A. Well, I was going to repay the loan at $50 a week. Q. Was that put in writing? A. No, the actual terms of the repayments were not put in writing. Q. But that was implied, I take it, that you were to repay $50 a week? A. Yes. Did you actually make any payments? A. No, none. Why was that? A. At that time in the business, the business was in a slump - that was at a quiet time; there was very little moving at that time, so there was just sufficient to keep the business Operating and that was it." On 23 April 1982 the bankrupt gave his father a receipt acknowledging that he had received from his father $2,500 "being for loan to purchase Mazda E 2000 truck". On the same day the bankrupt and his father signed a document headed "Agreement of Ownership". The bankrupt's sister appended her signature as witnessing the agreement. The operative part of the document read as follows - "T Anthony Gerard BENSON of 61 Chewings Street Scullin ACT, hereafter referred to as the borrower, sincerely and solemnly agree to give full ownership of a MAZDA E2000 motor lorry registered number MBZ-472 to Kevin Gordon BENSON of 61 Chewings Street Scullin ACT, hereafter referred to as the owner, in return for the said owner providing the sum of two thousand five hundred ($2,500)dollars to purchase the said vehicle, that is to be used by the said borrower to conduct a carrying business in the ACT under the registered name of C and T Carriers. It is further agreed by the borrower and the owner that the borrower will be responsible to maintain the said vehicle in aqood mechanical order and condition and furthermore to pay all costs for registration and insurance of the said vehicle. The ownership of the said vehicle will remain wholly and soley Csic] with the said Kevin Gordon BENSON until the amount of two thousand five hundred ($2,500) dollars has been fully repaid by the borrower. The amount of two thousand five hundred ($2,500) dollars is made up of one thousand (1,000) dollars in cash and one thousand five hundred 5. ($1,500) dollars by cheque from the Canberra Permanent Building Society." bankrupt answered: "Well, he was paying out the money for the vehicle and I thought it only fair and only just that I repay the amount - I cannot expect my father to pay out that sum of money and not get anything in return." The transcript also records the following questions answers: "Q. Why did you consider that your father was entitled to security while your other creditors were not entitled to any? Do you not think that was not fair? I never gave it any thought. Well, what did you have in mind at the time then to repay your creditors? Well, the only thing in my mind was that I was using the business to repay my creditors. And you believed at the time you could repay your creditors? Yes. Did your father actually ask for security for the loan? No, he did not. So of your own free will you offered to sign that agreement? Yes, that was my suggestion. Asked why he made that agreement with his father the and Q. Did you get any advice from anybody before you signed this agreement? A. No. Q. Did your father have a solicitor acting for him then? A. No. Q. So that was a condition of the loan, I take it, that he gets security on it? A. That he has ownership of it, yes." The vehicle remained registered in the name of the vendor until 10 January 1983. It was on that date registered in the name of the bankrupt for the period of 3 months ending 10 April 1983. The registration was renewed, again in the name of the bankrupt, on 12 July 1983 effective until 10 October 1983. Although the relevant certificate of registration is not in evidence, there seems no doubt that the registration of the vehicle was renewed in the name of the bankrupt for the period 10 April to 10 July 1983. Asked whether there was any reason why the vehicle was registered in his name if in fact 1t was owned by his father the bankrupt answered: "Only for insurance purposes. I was the one driving the vehicle." The bankrupt's father gave evidence before me. Asked about his son's employment situation during the period prior to April 1982 he said: "He had been unemployed for about two years, or perhaps a bit longer, and he was getting very down in the dumps and he had been for several jobs and because he had been unemployed for so long people were reluctant to put them on and the workforce was not real good at that time, and he then got a job with a firm out at Mitchell carrying furniture. They offered him - they wanted too much for the truck and it was not worth it. He then started hiring vehicles from Rumble and then the suggestion was made to him to purchase one of the vehicles after an ad had been run in the papers ... And he spoke to me about that andtI said I would be prepared to buy the truck and he could pay 1t back to me whenever he could afford to pay it back, and 1t was to more or less re-establish himself in the workforce." His evidence continued: "Q. But you decided that you would assist him in purchasing - -? A. In purchasing the truck, that is right. Q. And was there some discussion as to how he would pay for the purchase of the truck? A. Well, initially I suggested to him that he start to establish himself first, getting clients etcetera, and then as he progressed and started to get a little bit of money in and get on his feet, that he could then start to pay me back. There was no specific amount arranged and it was at his suggestion that he said he would pay it back at $50 a week. I said, 'Well, whatever you can afford to pay it back and when you can afford to pay it back'. There was no hard and fast rules as to any amount. Q. And in what circumstances was 1t that the document called the agreement of ownership was drawn up? First of all, how was it drawn up? Did you - was it done, the two of you, or did you write the terms or - -? A. Well, initially I drafted 1t out in handwriting and when we were talking about purchasing the truck and then I had it typed ... it was not to be meant as any overall - what you would call a contract in business type thing. It was only a safeguard and a guarantee between ourselves as a family situation." In cross-examination Mr Benson snr. said: "Well, you could probably term it as a loan if you want to, but it was just an agreement that I said I would buy the truck, give the money over to buy the truck, and I would maintain ownership of it until such time as he paid me back in full." He also said that he stipulated that his son was to register the truck in his name and to maintain it and pay for all repairs and that he, the witness, was not going to be responsible for those matters. He also said that the reason why he was to retain ownership was that "it was just a guarantee that I would get my money back". The witness disputed that it was his son's idea to draw up the document headed "Agreement of Ownership". He said it was "a joint agreement between the two of us". Asked whether his son had asked him for a loan he answered: "No, he did not ask me for a loan at all. He just discussed it with me and said that it would be good if he could have his own truck to conduct the business and that would make i1t alot easier for him rather than pay out hiring fees all the time. And I thought about 1t and I had the money in the building society and I suggested to him that if he could get a suitable truck, if he could pick out a suitable truck, we would have a look at it and then I would give him the money to buy it - or lend him the money to buy it." Evidence was also given that on 30 August 1983 the bankrupt's father commenced proceedings in the Court of Petty Sessions, Canberra against Larry Rumble as defendant alleging that the defendant wrongfully detained the vehicle in question and claiming the return of the vehicle or its value and damages. The basis of the claim was said to be that on a date late in August 1983 persons acting on behalf of Mr Rumble forcibly removed the vehicle from the premises at which the bankrupt and his father were residing. Notice of grounds of defence was filed on 27 February 1984 but the proceedings have not been brought on for hearing pending the outcome of this application. Counsel for the Official Trustee in Bankruptcy submitted that upon the purchase of the vehicle the property in it passed to the bankrupt, he having purchased the vehicle in his own right with moneys provided by his father for that purpose. Any other conclusion was said to be inconsistent with the intention of the parties as disclosed by the evidence and, in particular, with the terms of the "Agreement of Ownership" which had been signed by the parties in anticipation of the purchase being made. 10. Counsel further submitted that the intention of the parties in signing the agreement was to create a security in favour of the bankrupt's father - some guarantee in respect of the moneys which he had expended to enable the purchase to be made. This was said to reflect the true nature of the transaction whether those moneys are properly to be regarded as having been loaned to the bankrupt or as having been paid to the vendor of the vehicle on the bankrupt's behalf without any legal obligation upon him to repay the amount to his father. Construlng the agreement according to its terms and the intention of the parties the agreement was said to be a bill of sale within section 8 of the Instruments Ordinance 1933 of the Australian Capital Territory. It is common ground that the document was not registered as a bill of sale pursuant to the provisions of that Ordinance with the consequence that, if it is properly to be reqarded as a bill of sale, it is void as against the Official Trustee in Bankruptcy (ibid., section 9). Counsel for the respondent, on the other hand, submitted that title to or ownership of the vehicle never resided in the bankrupt. In so submitting he conceded that the "Agreement of Ownership" was incorrect 1n referring to the bankrupt as ""qiving" full ownership in the vehicle to his father. He submitted that the true character of the transaction was a purchase of the vehicle by the father, using his son as his agent for the purpose of making the purchase, so that the title to the vehicle vested in the father and remained il. with him at all times; and that the "Agreement of Ownership" was in truth an instalment contract for the purchase of the vehicle by the bankrupt from his father on terms which were not more precise than that the sum of $2,500 was to be paid in such amounts as the bankrupt was able to afford from time to time from the receipts of his business, the property in the vehicle to pass to the bankrupt only when the amount of $2,500 had been paid in full. So understood there was no bill of sale which required registration in order to be effective against the Official Trustee in Bankruptcy. It is abundantly clear that the arrangement made between the bankrupt and his father, whatever be its true nature, cannot be viewed as a commercial transaction. It could, as counsel for the respondent said, only have taken place within the family circle and it must be viewed as such. I am satisfied that at the relevant time Mr Benson snr. was concerned at his son's employment situation. He had been unemployed for a period and the business venture in which he had been engaged, first in partnership and then as a sole trader, was not thriving. The son was, as his father said in evidence, "getting very down in the dumps" and his employment prospects were not good. I accept that his sole motivation was to assist his son to "re-establish himself in the workforce" and to give him every encouragement to make a success of his business venture. Mr Benson was not directly involved in the 12. running of the business and it would, so it seems to me, have been inconsistent with his expressed motivation if he had purchased the vehicle in his own name and exercised rights of ownership in respect of it while allowing his son the use of it. All that was done was, as I think, consistent witha father, concerned for his son's welfare and future, giving him financial assistance for the purchase by him of a vehicle for use in his business without any conditions attached as to the reimbursement of the moneys expended for that purpose except an understanding that, if the venture became sufficiently profitable, the son would reimburse the father to such extent as was possible. I find that the vehicle was purchased by the bankrupt in his own right and that, upon purchase, the property in the vehicle vested in him. The factors which lead me to that conclusion include - The vehicle was to be used, and was in fact used, in the bankrupt's business and the bankrupt was intended to have, and didin fact have, sole possession and use of the vehicle. . The bankrupt was to maintain and repair the vehicle and to pay for its registration. 13. The vehicle was registered in the bankrupt's and not in his father's name. The negotiations for the purchase of the vehicle were conducted between Rumbles Rent-A-Truck and the bankrupt. The bankrupt's father was not involved though he did inspect the vehicle when his son brought i1t home some days before the purchase. The description by the bankrupt in his evidence of the arrangement as one of loan. The evidence of the bankrupt's father that he was prepared to buy the truck for his son. The language used in the "Agreement of Ownership". In relation to the "Agreement of Ownership" I recognise that it was a layman's document prepared without the benefit of legal or other advice. However, its language is not apt to record a transaction based on the premise that the property in the vehicle had become vested inthe father by reason of the purchase having been made by him. On the other hand the language is consistent with the vehicle being the son's property and with an intention on the part of the parties 14. that the father should have some form of security for the moneys which he had provided to enable the purchase to be made. It is clear that at the time the business was not profitable and the bankrupt had a number of debts outstanding, as the father knew. In such circumstances it is understandable that the father, while willingly making the funds available to his son, should seek to have some security for the moneys' so provided. However, in my view, the agreement did not, and was not intended to, transfer the property in the vehicle to the bankrupt's father. It follows that, in my opinion, the property in the motor vehicle was at the date of the bankruptcy vested in the bankrupt. It 18s unnecessary to determine whether the transaction resulted in the bankrupt being under a legal obligation to repay the sum of $2,500 to his father and at what date such an obligation may be said to have crystallised. For if there were a loan and the "Agreement of Ownership" was entered into for the purpose of securing the repayment of that loan by giving the father rights in respect of the vehicle, the document was not registered as required by section 9 of the Instruments Ordinance 1933 and 1s vold as against the Official Trustee in Bankruptcy. I declare that the motor vehicle was the property of the bankrupt at the date of his bankruptcy, 1 June 1983, and 15. became vested in the Official Trustee in Bankruptcy on that date. The respondent must pay the costs of the Official Trustee in Bankruptcy of the application. I certify that this and the preceding 14 pages are a true copy of the Reasons for Judgment herein of the Honourable Mr Justice Neaves. Z hogon Asso¥iate Dated: 1 February 1985