Palenzuela v Palaje [2008] NSWSC 527

New South Wales Supreme Court

CITATION : Palenzuela v Palaje [2008] NSWSC 527

HEARING DATE(S) : 11/02/08, 12/02/08

JUDGMENT DATE : 30 May 2008

JURISDICTION : Equity DIvision

JUDGMENT OF : Barrett J

DECISION : Proceedings dismissed with costs

CATCHWORDS : CONTRACTS - whether oral contract formed - turns on own facts - no question of principle

LEGISLATION CITED : Contracts Review Act 1980

CATEGORY : Principal judgment

Nelia David Palenzuela - Plaintiff PARTIES : Maria Concepcion Palaje - First Defendant Emily Palaje - Second Defendant Antonio Mauceri - Third Defendant

FILE NUMBER(S) : SC 1226/07

COUNSEL : Mr M W Sneddon - Plaintiff Mr J M Atkin - First Defendant

SOLICITORS : McLaughlin & Riordan - Plaintiff S M Boyle & Co - First Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

BARRETT J

FRIDAY, 30 MAY 2008

1226/07 NELIA DAVID PALENZUELA v MARIA CONCEPCION PALAJE AND ORS JUDGMENT

PRELIMINARY 1 The principal claim advanced by the plaintiff (Nelia Palenzuela) in her amended statement of claim filed on 11 February 2008 is a claim for declarations that the first defendant (Maria Palaje) guaranteed the indebtedness of the second defendant (Emily Palaje) to the plaintiff and has an equitable interest in real property of the first defendant as security for discharge of the obligation of the first defendant. This claim is a contract claim. There is, in the alternative, an estoppel claim. 2 The first defendant, by her cross-claim, claims relief under the Contracts Review Act 1980 in the event that she is found to be contractually liable as the plaintiff alleges. 3 The parties are related to one another. All are of Filipino origin. Without intending any disrespect, I shall refer to them by their first names. It is convenient to mention some matters of background. 4 Nelia immigrated to Australia in 1987 with her husband and six children. Maria immigrated in 1959 with her husband. They have five children of whom the eldest is Emily, the second defendant. Emily's de facto partner and business partner Antonio Mauceri ("Tony") is the third defendant. The second and third defendants played no part in the proceedings and claims against them were not pursued. 5 Nelia's mother and Maria's late husband were cousins. Nelia and Maria have known one another for about 50 years. 6 When Maria arrived in Australia, she and her husband rented premises first in Double Bay and later at Kensington. They bought the Kensington property in 1973. In 1986, a property at Kurnell was purchased, with Maria, her husband and Emily registered as proprietors as joint tenants. Although Emily contributed no funds towards the purchase, she was included as a joint tenant because she had agreed to live with Maria and her husband and care for them. 7 When Nelia arrived in Australia in 1987, she and her husband and their children lived with Maria and her family at the Kensington Property for three or four months rent–free until moving to a home of their own at Redfern. 8 Maria's husband died in 1991. Maria and Emily became the registered proprietors of the Kurnell property as joint tenants. 9 Since Nelia's move to Australia, she and Maria have been close friends and have stayed in regular contact. Nelia calls Maria "Tiang" (which is "Aunty"). Emily has also had regular contact with Nelia. 10 In 1992, Nelia invested money in a travel agency known as "Aussie Air World Travel" and in the same year helped Emily become involved in the business. Emily invested $10,000 in the business. 11 In early 2003, Emily opened a furniture shop in Rozelle called "Victoria Collections". Thereafter, a series of loans was made by Nelia to Emily. They are central to these proceedings. 12 I turn now to events concerning the loans made by Nelia to Emily. In early December 2003, Nelia lent Emily $1,000 to pay off a debt. Nelia says that she later told Maria about the loan. In mid December 2003, at Emily's request, Nelia lent $34,000 to help pay for stock being imported for the Rozelle shop. Again, Nelia told Maria about the loan after it had been made. Nelia says that Emily agreed to pay interest at the rate of 8% per annum on the $34,000. There is a letter of 15 December 2003 from Emily to Nelia promising to repay "within the month" – "including the $1,000 you lent me last week plus any interest you require". 13 In early April 2004, Emily asked Nelia to lend her a further $40,000 to pay for further stock. Nelia says that Maria was present when the conversation took place. The loan was made. 14 Soon after the April 2004 meeting, Nelia prepared a form of promissory note. The "borrowers" were identified as Emily and Tony and the "lender" as Nelia. The "principal amount" was stated to be $70,000 and was to be paid "within ten (15) [sic] days after the execution of this Note but no later than the 27th of April 2004". There was a provision requiring the payment of interest at the rate of 8.5% per annum. Emily signed the promissory note. Maria witnessed her signature and accepts that she was present when it was signed. The promissory note is dated 13 April 2004. 15 In July 2004, Emily and Tony participated in a furniture exhibition at Darling Harbour Convention Centre. Nelia visited the exhibition and, while there, was asked by Emily for the use of her credit card to secure the exhibition space at a cost of $3,000. Nelia obliged and was, she says, assured by Emily that she would immediately give her a cheque for that amount. A cheque was given, as promised, but it was not met on presentation. 16 Nelia says that she was again approached by Emily in late July or early August 2004, when Emily requested a loan of a further $100,000. According to Nelia, Emily said, and Maria confirmed, that they were in the process of refinancing the Kurnell property to raise the money to repay Nelia (Maria's version is that money was borrowed so that Emily could buy out Maria's interest in the property and that this happened). Emily also explained that she needed the $100,000 to clear a loan on her own residence in Pyrmont, otherwise a "liquidator" would take the property. According to Nelia, Maria explained that although the refinancing of the Kurnell property had been approved, the money would not be available in time to avert the "liquidator" proceedings. 17 Nelia said that she wanted to discuss this with her solicitor. Nelia, Maria and Emily all went in early August to the solicitor's office. Maria and Emily had stayed with Nelia at her home the night before. According to Nelia, she proceeded to suggest that she should visit her solicitor with Emily and Maria to discuss this further loan. All three of them visited the plaintiff's solicitor the next day. The solicitor advised that Nelia should not make any more loans unless she received a guarantee and mortgage. 18 After Nelia, Maria and Emily left the solicitor's office, the following occurred, according to Nelia: "After we left the Solicitors office at Blacktown I walked along the road with Maria and Emily Palaje when we had a conversation using words to the following effect: Me: 'Well what are we going to do, the Solicitor said that I will need to get a mortgage off you as security for the loan.' Emily: 'We have no time, the liquidator won't wait he wants the money now.' Me: 'What do you think Tiang? Can you guarantee this loan?' Maria Palaje, who was holding my arm as we walked up the road said to me words to the following effect:- Maria: 'Don't worry Nellie, I personally guarantee that you will get paid all of the monies that we borrowed from you. You know the property at Pyrmont is worth $800,000 and our property at Kurnell has recently been valued at around $1.2 million. That alone is more than enough to cover the loan we owe you once we get the refinance. You know that we have the properties for you to back up the loan. My Unit at Kensington has no mortgage on it and I fully own it. The title to Kensington is kept by Mr Simpson, my Solicitor. Robin lives at the Unit at Kensington. If you can help this time it will be the lat time that we will ask you for help." Me: 'If I give you a further $100,000 today, when are you going to pay it back because the bank will be charging interest on it because it is not extra money or savings I have merely lying around, it is a line of credit which is extended against my house that I am supposed to use for a deposit on a property for my son, Darwyn.' Maria: 'Don't worry about it, as soon as the money from the loan over our Kurnell property is released, I personally guarantee that it will be given back to you, it will be in about two or three weeks time.' Emily: 'Don't worry, we will be getting the money soon from the bank. I will be returning it to you plus the monies we borrowed previously with interest. The Strata Manager wants us to transfer $100,000 to his account no later than tomorrow. We need your help desperately. Please Nellie, lend us the money.' Me: 'Tiang, I am scared of using the line of credit over my home. If I lend you a further $100,000, when are you going to pay it back as the bank is charging interest. Being a pensioner, I definitely cannot afford to service the loan let alone pay the interest. But if you are guaranteeing this $100,000 as well as the previous $75,000 already advanced to Emily by putting up your properties, I am happy to do it for your Tiang.' Maria: 'Yes Nellie, as I said to you I am personally guaranteeing it against all of our properties. Nellie, don't worry I have myself loaned Emily some money, you know that we have the properties to back up the loan.' Me: 'Ok then, but just make sure you return all the monies you borrowed from me once your loan is approved.'" 19 They then went to the Commonwealth Bank where Nelia obtained a bank cheque for $94,000 in favour of Emily (there was a balance of $6,000 in cash). She had obtained funds by drawing a line of credit she had with ING Bank. There was also some money on term deposit. Nelia gave the cheque and cash to Emily. It is Nelia's evidence that a conversation occurred as follows: "Emily: 'Thank you for helping out Nellie, I won't forget it.' Maria: 'Thank you Nellie, you have been a great help to us.' Me 'That's Ok, but I just hope when you get the money you pay the full amount owed to me with interest so I can put it back on the line of credit as soon as possible.' Maria: 'Yes, I will make sure that it's paid back to you.'" 20 As time passed, Nelia became concerned that the money was not repaid. She had understood all the advances to be for a very short time only, to tide Emily over temporary problems. 21 A second promissory note was prepared by Nelia in August 2004. It is dated 4 August 2004 but may have been prepared and signed later, with the date of 4 August being inserted because that was when the additional $100,000 was advanced. Emily signed the promissory note and one of Nelia's daughters witnessed the signature. The principal sum was stated to be $175,000. Payment of that sum with interest was promised on 30 October 2004. At or about the same time, Nelia's solicitor prepared a caveat in respect of the Kurnell property and Emily signed it by way of consent and acknowledgment (it appears that Emily alone was the owner of Kurnell after May 2004). 22 Nelia continued to enquire about repayment. She deposes to a conversation between herself and Emily as follows in about mid-November 2004: "Me: 'Em, please tell me the truth. Did you or did you not get the loan over Kurnell?' Emily: 'Sorry Nel, I don't know how to tell you this. We were actually able to refinance over Kurnell. Mum transferred her share of the Kurnell property solely to my name to help get the loan through. She then insisted that she gets her share, so she took all the money from the refinance to pay her for her share of the property.' Me: 'What about me? How can I get my money back? It is not fair. You and your Mum said I can register a Caveat on that property to give me some sort of security and peace of mind. Neither of you have ever mentioned to me that she planned to sell her share to you. I don't understand.' Emily: 'Well, maybe you can talk to Mum to get her to pay you at least half of what we owe you as she would not listen to me.'" 23 By 2 May 2005, Emily had repaid $1,000. On that date, Nelia wrote to Emily enclosing a schedule showing the state of the account between them, including interest. She pointed out that the loan was meant to have been repaid in three months. She then said that the interest would have to be increased because of the interest she was paying out on her bank loan. Emily signed an acknowledgment of this. This letter followed emails of April 2005 in which Nelia pressed Emily for payment. 24 At about the same time, Nelia expressed her concerns to Maria. She deposes to a conversation between them at the Star City Casino: "Me: 'Look Tiang, up until now Emily has not paid me anything. She told me that you actually did get the loan over Kurnell and all the money went to you. I don't understand, you personally guaranteed that you would pay the monies to me, that's why I continued to lend the monies to Emily. If not for you, I would not have loaned Emily that much money. If you have received them [sic] money from the loan you were arranging, I was expecting I would be paid.' Maria: 'Yes, I know that Nellie. I am grateful for all that you have done. I am so sorry that Emily is not fulfilling her obligation to you.' Me: 'You are my hope Tiang. Now it is my turn to beg for your help. I am not getting anywhere with Emily, I want you to sign a statement saying that you have guaranteed the debt with your properties to give me some peace of mind.' Maria: 'Yes, I'm happy to do that. I have no problem with that.' Me: 'I will write something up and some and see you to get you to sign it.' Maria: 'Yes, just give me a call when it is ready and I'll sign it for you.'" 25 Nelia then prepared a typewritten document as follows: "I, Maria C Palaje, being of sane and sound mind do hereby declare that- I am the mother of Emily Palaje; On 13 April 2004, together with my daughter, Emily Palaje, we approached Nelia Palenzuela to seek her financial help; On several occasions Emily and I had to drive to Quakers Hill where Nelia lives. At times Nelia even invite us to sleep over. Nelia had always been very kind to my family. She even hlped me redeem my pawned jeweleries [sic] by lending me $3,000.00. During this time, my daughter Emily was having financial problems meeting our mortgage in our property at 126 Prince Charles Pde, Kurnell where I live, and the repayment on her investment property at Pyrmont. I know that Nelia will not refuse me any help. So that together with Emily, we induced her to go her bank and took out a total of $175,000.00 to lend to Emily; The first instance was on 13 April 2004, wherein Emily borrowed $75,000.00 from Nelia and the second instance was on 19 August 2004 when Emily borrowed $100,000.00. In both instances I was privy to the transaction. I am fully aware that Nelia agreed to lend Emily the money, because she trust and respect me and because I made a personal guarantee against whatever assets I have (personal or real), to back up the loan being sought for. I did convinced Nelia to lend the money and assured her not to worry, because Emily will return all monies owing to her within two weeks from the day my daughter, Emily receive the money. Emily and I are aware that the money Nelia took out from her bank is in fact her line of credit over her residence at 51 Torrance Crescent, Quakers Hill; Nelia expressed her concern that she has no means to pay back the money being taken out from her line of credit over her property, if Emily cannot pay on time, but I have given her my word that Emily will pay it back on time; To ensure and to erase any doubts and give her peace of mind, Emily and I suggested to her to place a CAVEAT on our property at Kurnell as security. I hereby declare this statement and the guaranty [sic] therein to be true and correct, and shall be binding upon and inure to the benefits of the parties and their heirs." 26 Nelia made attempts to contact Maria but was unsuccessful. She eventually left a voicemail on Maria's mobile phone saying that she would go to the casino in the hope of seeing her there. Nelia went to the casino and found Maria there. This was on 15 May 2005. It is Nelia's evidence that, after an apparently affectionate greeting, Nelia said that she had left several messages but Maria had not called back, to which Maria replied: "Sorry Nellie, sometimes I have trouble receiving messages on my mobile. Sorry, I just need to go to the toilet, I am sitting over there playing the poker machines. I will see you over there when I get back. I put my machine on Reserved, you know, I won't be long." 27 Nelia and her friend Alice Posada, who was with her, went to the poker machine at which Maria was sitting. Nelia deposed that a conversation occurred as follows: "Me: 'Tiang, I want you to meet my friend Alice.' Maria: 'How are you Alice.' Me: 'I am so glad that you are here, as I mentioned to you before I have brought the statement that we spoke about the other day, which you said you would sign for me. I made two copies, one for you to keep and one for me to keep.' Maria: 'Oh yes.'" 28 Nelia's evidence about events thereafter on that occasion were as follows: "I then handed Maria Palaje two copies of the document entitled 'Statement' which appears at Annexure 'D' of my Affidavit sworn on 22 January 2007. When I handed the documents to Maria I said to her words to the following effect:- Me: 'Please read it Tiang and make sure that you are happy with what it says before you sign.' Maria Palaje adjusted her reading glasses, then read the document in front of me and she then looked up at me and our conversation continued when we used words to the following effect:- Maria: 'That's fine, where do you want me to sign.' Me: 'Just above your name.' As I said these words I handed Maria Palaje a ballpoint pen I had in my handbag and we then held a conversation using words to the following effect:- Me: 'Alice is here to witness your signature.' Maria: 'That's good.' I then saw Maria Palaje sign the document where I showed her and she then passed the document back to me. I then handed the document to Alice Posada and said to her words to the following effect: 'Can you please be a witness for Maria's signature?' I then saw her sign both documents under the words 'witnessed by'. After Alice Posada signed the two documents she handed them back to me and I handed one copy to Maria Palaje. As I handed the copy of the document to Maria Palaje I said to her words to the following effect:- Me: 'That's your copy, please keep it and I will keep the other one.' Maria: 'I will talk to Emily about this matter, Nellie.' Me: 'Please do so Tiang. I don't want to bring this matter to Court as I value our relationship so much. You know that.' Maria: 'Yes I know. Emily should do something about this.' Me: 'But it's been so long Tiang. You know that I would have never given such a large sum of money to Emily without your intervention and guarantees. Your presence and assurances to me during the times that Emily was borrowing the money from me, was enough inducement for me to trust Emily and I 100% trusted your word.' Maria: 'Yes I know, Nellie. I am sorry to have put you under pressure and caused you this stress. I will surely discuss this matter with Emily very soon.'" 29 Two particular episodes are of importance. The first (and more important) is the visit to the solicitor's office and the subsequent visit to the Commonwealth Bank where Nelia advanced a further sum of $100,000 to Emily against, she says, Maria's promise to guarantee repayment. The other is the events at the casino when, according to Nelia, the acknowledgment document was freely and knowingly signed by Maria in the presence of Ms Posada. I have so far given accounts of these based almost exclusively on Nelia's evidence in chief. I now consider evidence of other witnesses and Nelia's cross-examination. 30 There is evidence about the first episode from Mr Acar, Nelia's solicitor. He confirms that Nelia, Maria and Emily visited his office. He expressed concern about seeing them all together. Nelia explained that they were related and had nothing to hide. Mr Acar therefore proceeded. He asked Emily some questions, then said to Nelia words to the effect: "Do not lend the lady any more money without obtaining a guarantee supported by a mortgage." 31 Maria's evidence is that Mr Acar said words to the effect: "I recommend that you not loan any moneys to Emily". 32 Maria further deposes that, as they left the solicitor's office, Nelia said: "The solicitor advised against it but I am not going to listen to what he said, I will lend the money to Emily, let's go to the bank before they close." 33 In her affidavit, Maria denies that she spoke to Nelia the words of guarantee and like assurance attributed to her by Nelia in her account of their conversation on the way to the bank. Maria was pressed on this in cross-examination. She said that she did not speak the relevant words, adding that she was a pensioner and had no financial strength to offer a guarantee. She had already lent $50,000 of her own money to Emily. She also denied that there was reference to the properties at Kensington and Kurnell during the conversation. She said that there was reference to Emily's Pyrmont property because that was the property threatened by the "liquidator"; as well as talk about a second property at Pyrmont owned by Emily that was ready to be sold, of which Emily said, "If everything goes through you will get paid in two months time". There was no reference to this second property in Maria's affidavit. It is pertinent to quote a substantial part of Maria's cross-examination: "Q. Okay. Emily was asking for $100,000? A. Emily, yes, that is true.