Palenzuela v Palaje & Ors [2009] NSWSC 1371

New South Wales Supreme Court

CITATION : Palenzuela v Palaje & Ors [2009] NSWSC 1371

HEARING DATE(S) : 17.08.09, 18.08.09, 19.08.09, 20.08.09

JUDGMENT DATE : 9 December 2009

JUDGMENT OF : Nicholas J

DECISION : Par 62

CATCHWORDS : CONTRACTS - whether contract of guarantee and security formed - turns on own facts - no question of principle

LEGISLATION CITED : Contracts Review Act 1980 Conveyancing Act 1919

CATEGORY : Principal judgment

Composite Buyers Ltd v Soong (1995) 38 NSWLR 286 CASES CITED : Cubillo v Commonwealth of Australia [2000] FCA 1084; (2000) 174 ALR 97 Palenzuela v Palaje [2008] NSWSC 527 Palaje v Palenzuela [2008] NSWCA 349

Nelia David Palenzuela - plaintiff PARTIES : Maria Concecion Palaje – first defendant Emily Palaje – second defendant Antonio Mauceri – third defendant

FILE NUMBER(S) : SC 1226/07

M W Sneddon/P D'Arcy-King - plaintiff J Atkin – first defendant COUNSEL : No appearance – second defendant No appearance – third defendant

McLaughlin & O'Riordan Solicitors - plaintiff SOLICITORS : S M Boyle & Co Solicitors – first defendant No appearance – second defendant No appearance – third defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

Nicholas J

9 December 2009

1226/07 Palenzuela v Palaje & Ors JUDGMENT 1 His Honour: By her amended statement of claim filed 11 February 2008 the plaintiff claims declarations that the first defendant guaranteed the repayment to her of all money owed by the second defendant, and that the plaintiff has an equitable interest in the real property of the first defendant as security for the guarantee. The relief sought is said to arise under a contract made in August 2004, alternatively by way of estoppel. 2 The first defendant by her cross-claim filed 10 May 2007 claims relief under the Contracts Review Act 1980 in the event that the plaintiff's contract claim succeeds. 3 No relief is sought against the second and third defendants. On 13 July 2005 the plaintiff commenced proceedings against the second defendant in the District Court for the recovery of loans in the total sum of $191,604.34. She obtained judgment in default about six months later. The loans remain unpaid. 4 For convenience, I refer to the plaintiff as Nelia, to the first defendant as Maria, to the second defendant as Emily and to the third defendant as Tony. Nelia, Maria and Emily are of Filipino origin, and have lived in Australia for many years. Maria is Emily's mother. Nelia and Maria have known each other for about 50 years. At least until the commencement of these proceedings their relationship was close, trusting, and affectionate and such that Nelia refers to Maria as "Tiang" (equivalent to "Auntie"). At relevant times, Emily carried on business as a retailer of furniture under the name "Victoria Collection" at Rozelle, with Tony, with whom she had a de facto relationship. 5 It is common ground that between December 2003 and April 2004 Nelia made loans to Emily in the total amount of $75,000. It is also common ground that in August 2004 Nelia lent Emily an additional amount of $100,000. The principal issue in this case is whether Maria personally guaranteed to Nelia the repayment of Emily's borrowings, namely $175,000, alternatively, the repayment of the loan of $100,000. Maria has denied agreeing to provide such guarantee. 6 The other, and related, issue is whether the statement dated 15 May 2005 which was signed by Maria at the Star City Casino, Sydney, (the statement) evidences her admission of the guarantee, and operates as a charge over her property at Kensington to secure the guarantee. It is accepted that Maria signed the statement. 7 In her defence, Maria denies the pleaded bases of Nelia's claim. With reference to the statement, Maria alleges, inter alia, that she was induced to sign by Nelia's false representation that it contained a statement only to the effect that Maria witnessed the plaintiff loaning [sic] Emily an amount of $100,000, and that the document was required by Nelia in order to apply for a loan from St George Bank. The August 2004 loan 8 Nelia relied upon the statements made to her by Maria on 11 August 2004 during a conversation on their way to the Blacktown branch of the Commonwealth Bank of Australia immediately after they had attended a conference with Nelia's solicitor, Mr Aydin Acar. As Maria disputed Nelia's version of the conversation, it will be necessary to evaluate the reliability of each as a witness. In doing so, it is important to keep in mind that the relevant events took place over 5 years ago, and neither kept a contemporaneous diary note or other record. Thus evaluation of their evidence of the conversation requires an understanding of the events which preceded it and the circumstances in which it took place. 9 It is convenient to begin with a summary of the situation of the parties as at the beginning of August 2004. The underlying matters were not in dispute and, in any event, there was ample evidence of them. (Earlier background details are contained in the judgment of Barrett J in Palenzuela v Palaje [2008] NSWSC 527, and on appeal, in the judgment of Tobias JA [2008] NSWCA 349.) 10 Maria and Emily were the registered proprietors as joint tenants of a property at Prince Charles Parade, Kurnell (the Kurnell property). They were in the process of completing arrangements made in early May 2004 whereby Maria would transfer her interest to Emily for the consideration of $350,000. On 17 May 2004, under this arrangement, Emily made a part payment to Maria of $197,892.40, and Maria executed the relevant transfer. The balance of $150,000 was secured by an unregistered mortgage over the property dated 5 May 2004. The property was subject to a registered mortgage, and secured finance arranged by Emily from which source she paid her mother. (The transfer to Emily was not registered until 17 November 2004.) Nelia knew of these arrangements. She had witnessed the signatures of Maria and Emily on the mortgage agreement, and Maria's signature on the transfer 11 Nelia, a pensioner, was the registered proprietor of the property at Torrance Crescent, Quakers Hill (the Quakers Hill property) which secured a line of credit provided by ING Bank. Part of the $75,000 lent to Emily had been drawn under this advance. 12 At this time Emily was in a perilous financial situation. In late July 2004 she required refinancing in order to fund her business operations and to repay her debts to Nelia and Maria. However, her solicitors advised that it had become necessary for her to obtain the amount of $100,000 to pay a creditor in order to avoid "liquidation", which payment was required urgently. The timing had become critical. In these circumstances Emily asked Nelia to lend her that sum "to get out of the liquidation" (T p 272). Nelia said she would think about it and speak to her solicitor first. 13 Maria was the registered proprietor of the property at South Dowling Street, Kensington (the Kensington property). It was unencumbered. She knew Emily was in desperate and urgent need of money to meet the threat of liquidation, and was anxious for Emily to obtain financial assistance. She believed Nelia was the only person likely to provide any money to Emily. 14 On 4 August 2004 Emily, as borrower, signed a document entitled "Promissory Note" by which she agreed to repay Nelia the sum of $175,000 on demand, or by 30 October 2004. The evidence was unclear as to the circumstances in which it was prepared, or the purpose for which it was provided. I make no finding about it other than to observe that it shows that by this date Emily had requested Nelia to lend her an additional $100,000 and had undertaken to repay the total borrowing within the time specified. 15 On 5 August 2004 Maria obtained from the Blacktown branch of the Commonwealth Bank of Australia a bank cheque payable to Emily for the sum of $50,000 from funds held on a term deposit, which she described as her last emergency money. This she did at Emily's request. 16 On the same day, at the same branch of the bank, Nelia deposited a bank cheque for the sum of $104,990 drawn on ING Bank being the proceeds from a line of credit secured on her property at Quakers Hill. The deposit was to her account with the bank's branch at George and Market Streets Sydney. 17 It was accepted during final submissions that, as evidenced by Nelia's bank statements, the visit to the bank when the cheque for $94,217 was handed to Emily, took place on 11 August 2004. 18 I now turn to the conference with Mr Acar in his office at Blacktown. It had been arranged by Nelia for the purpose of obtaining advice on whether or not to lend the money to Emily. It was attended by Nelia, Maria and Emily. Maria and Emily knew of the purpose. It took place on the same day, and shortly before they went to the bank. 19 Mr Acar and the parties each gave an account of what was said at the conference. I prefer Mr Acar's version, which was unchallenged. I found him to be a truthful witness and accept his evidence. In any event the other versions, although less complete, were substantially consistent with his. To the extent that Maria's and Emily's versions differed from his, I find Mr Acar's version should be accepted as correct. 20 Relevantly, Mr Acar's evidence included the following: