Foux v Philpott, Warren and Warren

[2003] NSWLC 4

Local Court of New South Wales

CITATION:	Foux v Philpott, Warren & Warren [2003] NSWLC 4
JURISDICTION:	Civil
PARTIES:	Melvin Roy Foux (Plaintiff) Albert Andrew Philpott (First Defendant) Charles Warren (Second Defendant) Katherine Warren (Third Defendant)
FILE NUMBER:	12640/00
PLACE OF HEARING:	Downing Centre Local Court Sydney
DATE OF DECISION:	16/05/2003
MAGISTRATE:	Magistrate P S Cloran
CATCHWORDS:	Civil - Contract
LEGISLATION CITED:	Contracts Review Act 1980
CASES CITED:	Bolton v Madden (1873) 9LR 55 Commercial Bank of Australia v Amadio (1982-1983) 151 CLR 47
REPRESENTATION:	Mr Menadue for Plaintiff Mr Ash for Defendant
ORDERS:

Reasons for Decision

1. The plaintiff has sued the defendant and two others pursuant to an alleged guarantee given by the defendant. Only Mr. Philpott has lodged a defence and henceforth a reference to the defendant will be a reference to him only.

2. The plaintiff is, according to his evidence, the sole shareholder in a company called Conran Associates Pty Ltd (Conran). The company extract which is Annexure A to the plaintiff’s statement shows two shareholders including the plaintiff. Through the company, the defendant does Architectural work.

3. There is no dispute that a construction company called Riverlink Constructions Pty Ltd (Riverlink) owed Conran money for architectural services. Conran obtained default judgement against Riverlink at the Waverley Local Court on 6 March, 2000 in the sum of $28,965.03 with respect to the services that Conran provided. It is appropriate to note at this stage that the plaintiff did not seek further interest on the principal amount from the time of issue of the summons to the time that default judgement was entered.

4. A name that has been mentioned a number of times in these proceedings is a solicitor Bruce R. Rexstraw. Mr. Rexstraw was the solicitor for Riverlink, he was also a friend of Mr. Foux. Indeed the evidence is that Mr. Rexstraw was the intermediary between the plaintiff and officers of the defendant company when work between the two companies was first mooted.

5. On 9 March 2000 the plaintiff (on behalf of Conran) wrote a letter to Mr. Rexstraw agreeing that Conran would not to take any action against Riverlink on the proviso that Conran be given an interest by way of registered mortgage, personal guarantees of directors of Riverlink (including the defendant) and other conditions not relevant to these proceedings.

6. Letters were sent in similar terms on 14th April, 2000 and 5th May, 2000.

7. On 5th May Mr. Foux was advised by Mr. Rexstraw that a mortgage on the property had been concluded on or about 1 April, 2000 naming Mr. Foux as the mortgagee and signed by the first defendant along with another in his capacity as director of Riverlink. The mortgage document is Annexure I in the affidavit of Mr. Foux before the court. The mortgage document contains two annexures A and B. It is appropriate to set out the relevant parts of Annexure B

THIS IS ANNEXURE B REFERRED TO IN MORTGAGE DATED
ITEM 1. Name of Borrower; Riverlink Constructions Pty Ltd
2. Title Reference 20/808656
3. Principal sum: $30,938.67
4. Final date of mortgage 31/3/2001
discharge
5. Interest rate 16% per annum
6. Payments Monthly
7. First payment At call
8. Lower interest rate Not applicable
9.Address for Service of Notices
Lender 24 Bundock Street,
Randwick. NSW 2031
Borrower Riverlink Constructions Pty Ltd
Guarantors C/- Helena Rule
Level 3, 56 Neridah Street,
Chatswood. NSW 2067

10. Guarantors Albert Andrew Philpott

Charles Brough Warren Katherine Elizabeth Brough Warren
____________________________________________
THE COMMON SEAL of
RIVERLINK CONSTRUCTIONS PTY LTD
Was hereunto affixed by
Authority of the Board of

Directors in the presence of:

Albert Philpott K E B Warren
Secretary Director
Signed in my presence by the guarantors who are personally known to me.
C Warren

8. Mr. Rexstraw also advised Mr. Foux that he had lodged a caveat in his name (Annexure J). It appears from that document that Mr. Rexstraw gave his name and address as the “Address for Service of Notices on the Caveator”.

9. Later that day Mr. Foux called at the solicitor’s office and collected the documents which consisted of a mortgage, a caveat and a Guarantee and Indemnity (Annexure L). The Guarantee and Indemnity is curious in that the page containing the signatures of the guarantors in Annexure L page 18 of 19 is not numbered and contains a provision for “Signature of mortgagee”. The other pages in that document are marked pages 1 to 15 with page 14 (containing the signatures) missing.

10. According to the evidence of the plaintiff, in 2002 at the request of his solicitor Mr. Shields, he asked Mr. Rexstraw if he had any other documents. According to the plaintiff, within a week Mr. Rexstraw handed him a copy of a document (Annexure M) which appears to be the missing page 14 of the document Annexure L along with other documents including a document that purported to be a copy of a document annexure B to the Mortgage document Annexure I.

11. Pivotal to this matter is the question of whether or not there was any consideration with respect to the document Annexure I in which the Mortgagor Riverlink acknowledges receipt of the principal sum of $30,938.67. It is agreed between the parties that that principal sum did not pass between the parties. The mortgagee was not Conran but the plaintiff.

12. The parties agree that the mortgage document is not a deed. It is submitted that the plaintiff being the driving force behind Conran was able to provide consideration.

13. The questions to be decided by the court are

a. whether there is a legally enforceable contract between Foux and Riverlink so far as the mortgage document and annexures thereto are concerned,

b. whether the Guarantee and Indemnity is binding on the first defendant

PLAINTIFF’S SUBMISSIONS

14. The plaintiff has submitted that the plaintiff was the governing mind and will of Conran. He made all the decisions and carried out all tasks. The evidence before me supports that contention. Nevertheless it is important to note that Conran and the Plaintiff are two separate legal entities. It is clear that the plaintiff regarded the moneys for which he had done the work, to be owed to him.

15. At the outset of proceedings, objections were taken to various parts of the statement of the plaintiff, Exhibit 1, where the plaintiff said “I” had done certain things that the plaintiff was by that word saying, “I as an officer and employee of Conran” had done certain things.

16. The clear evidence is that Annexures E F and H of the plaintiff’s statement show that the demands for a mortgage and security are made on behalf of Conran. The final demand being made on 5th May, the date that the mortgage, caveat and Guarantee and Indemnity were handed over to the plaintiff by Mr. Rexstraw.

17. The plaintiff has quoted from Cheshire & Fifoot’s Law of Contract (7th Australian Edition) as to how “consideration” can be defined.

In the course of the nineteenth century it was frequently said that a plaintiff/promisee could establish the presence of consideration in one of two ways: either by showing that he or she had conferred a benefit upon the defendant/promisor in return for which the defendant’s promise was given; or by showing that he or she had incurred a detriment for which the promise was to compensate. Usually the two go together: it is both a benefit to the promisor to be promised (say) payment of money and it is at the same time a detriment to the promisee. But the two need not go together; either is sufficient. For example in a contract of guarantee, the consideration for the guarantor’s promise is the lender’s promise of, or the actual making or, the loan to the third party borrower. This is not necessarily a benefit to the guarantor but it is a detriment to the promisee lender.”

18. The plaintiff relies on the decision of Bolton v. Madden (1873) 9 LR 55. In that case the parties agreed between themselves how they would vote in relation to the activities of a charitable institution. The court held there was good consideration. It was suggested by the plaintiff that Bolton stood in a similar position to Conran because the plaintiff in that case agreed to vote in a particular way. Mr Menadue for the Plaintiff submitted that in Bolton the Court did not suggest that just because the charitable institution would provide the ultimate benefit there as no consideration. Indeed, it held that the plaintiff in that case, by agreeing to vote in a particular way, had provided consideration.

19. In the present matter there is a mortgage document with annexures in which Riverlink acknowledges receipt of the principal sum of $30,938.67. The mortgagee is described as the plaintiff. There is positive evidence before the court that the plaintiff did not provide the sum of $30,938.67.

20. The amount stipulated and alleged to have been owing by Riverlink as at 31st March, 2000 in Annexure E to the plaintiff’s affidavit is different from the amount sought in the Affidavit of Debt seeking default judgement at the Local Court at Waverley on 6th March, 2000, being $28,965.03. There appears to be an interest component in the latter mortgage amount, I don’t think anything material turns on it.

21. On the evidence before me I am satisfied that the plaintiff actually put to the defendant’s solicitor and the defendant that he would take steps to wind up Riverlink unless he obtained security over the property and a personal guarantee. I also accept that the plaintiff put this to Mr. Rexstraw and Mr. Warren. In paragraph 21 of his affidavit, the Plaintiff recites the effect of the conversation he had with the first defendant as follows

Plaintiff: “Albert, could you please sign the documents. I don’t want to do this and I don’t want to wind-up Riverlink but I have had advice from my accountant and I need to protect myself.”
First Defendant: Speak to Charles (the second defendant) as he is arranging all of this. He does all the financial matters.”

22. The defendant says he does not recall the conversation although he does not deny it. The defendant’s evidence in this regard is decidedly weak.

23. It could only have been the case that the plaintiff would seek to have Riverlink wound up through Conran. I find some merit in the defence submission that anything the plaintiff did in these negotiations with Riverlink or Riverlink’s solicitor Mr. Rexstraw, he did as an officer and employee of Conran.

24. In my view, the forbearance from winding up could have come from Conran. However, I do not see any difficulty in a person who, it is acknowledged has a governing influence in Conran making a promise in his own right that he will not take certain action or cause another entity over which he has a controlling influence to abstain from doing something. The annexures to the mortgage acknowledges receipt of a sum of $30,938,67. This did not take place. That document shows the Borrower as being Riverlink but does not identify the Lender. Annexure A to the mortgage provides that the mortgagor will pay to the mortgagee (the plaintiff) the principal sum. It is acknowledged by both parties that this does not constitute the contract on which the plaintiff sues. The mortgage is a security document.

25. Finally, Mr Menadue for the plaintiff refers to Chitty on Contract (Twenty Eighth Edition) at 3-035 where it is said

“The rule that “consideration must move from the promisee means that a person can enforce a promise only if he himself provided consideration for it. Thus if A promises B to pay a sum of money to B if C will do a certain act, B cannot enforce the promise (unless of course, he procures or expressly or impliedly undertook to procure C to do the act.)”

26. What the plaintiff was evidencing in the mortgage document and annexures was a debt that did not arise to the plaintiff however there had been discussion with the defendant of a general nature and with Riverlink’s solicitor of a very specific nature that the plaintiff would provide consideration in the form of a forbearance from winding-up or of undertaking to procure Conran in forbearing from winding-up.

THE DEFENDANT’S SUBMISSIONS

27. The defendant, through his counsel Mr Ash describes the plaintiff as a third party in these proceedings. He states that on ordinary principles, for Mr Foux to have the benefit of what the creditor company had (ie the judgement debt) one would expect evidence of one or more of

- An assignment from the creditor company to Mr. Foux
- Consideration moving from Mr. Foux;
- or Alternatively to consideration, a deed.

28. Both parties acknowledge that the mortgage document is not a deed.

29. Further the defendant submitted that the loan amount of $30,938.67 was not a loan. Secondly, whatever the thing is, it is an asset of Conran not of the plaintiff. There was no assignment to Mr. Foux, in fact Conran issued a statutory demand in respect of money due from Riverlink some five months later.

30. The defendant further submits that the “loan” said to exist is not a loan. It is further submitted that whatever the thing is, it is an asset not of Mr. Foux but of Conran’s. The defendant’s submissions seem to ignore the fact that there has been an oral agreement, in my view, between the plaintiff and Riverlink’s solicitor with the full knowledge the defendant.

31. The defendant asked what do the alleged guarantors purportedly guarantee? In clause 2.1 the guarantors guarantee the payment of the guaranteed moneys. Clause 2.2 provides that “The guaranteed moneys means: (a) the unpaid balance of the Loan Contract and any future loan contract. On any view of the matter the guarantors guarantee the sum of $30,938.67. The “Guarantee and Indemnity” was drawn up by Riverlink’s solicitor, on what I can only infer were the instructions of its directors. The intention of the parties is drawn from their conduct, evidence of oral agreements and the written documents. It is my view that the plaintiff by promising to secure Conran’s forbearance has struck a bargain with Riverlink which the defendant has personally guaranteed.

32. The defendant also seeks relief under the Contracts Review Act 1980. He described himself as an experienced businessman. He said he left legal documents to his solicitor Bruce Rexstraw. He asserts that he only signed one page of the guarantee document, page 14 and he didn’t see the whole of the document until the beginning of these proceedings. He did say that he read the whole of page 14. He was asked if he knew it was a serious document he said he didn’t have time to think about it. More importantly, the defendant said that he had signed guarantees before. Asked if he had read Annexure B he said “Not fully. Don’t understand all the legal language. May have glanced at it.” He was then asked if he saw the $30,000 owing, he replied “Yes”. Shortly after the defendant was asked “Foux said if there was no guarantee he would have to wind up Riverlink” the defendant replied “I don’t remember him saying that to me.” On the evidence the only rational conclusion that I can reach is that from his own evidence he was aware that there was $30,000 owing and being secured by the mortgage.

33. The defendant had signed guarantees before. Page 14 of the “Guarantee and Indemnity” gives very clear warning that the signatory should understand what he/she is signing. The document reads at the top of page 14

IMPORTANT BEFORE YOU SIGN
THINGS YOU MUST KNOW
READ THIS GUARANTEE DOCUMENT
AND THE CREDIT CONTRACT DOCUMENT

34. If a person chooses not to read all of a document before signing it, he/she cannot then seek to avoid being bound by the document for that reason. I have fully considered the provisions of Sections 7 and 9 of the Contracts Review Act 1980 and I am satisfied that the defendant has not made out this part of his defence. I do not find the contract to be unjust within the meaning of s. 7. I do not find the defendant to be under a special disability as a guarantor. Commercial Bank of Australia Ltd v Amadio (1982-1983) 151 CLR 447. I am satisfied that the defendant understood what a guarantee was. There was no failure on Mr Foux’s part to disclose any pertinent matter.

35. The defendant appears in his defence to be pleading non est factum. I have made my thoughts clear on this topic but would add the following passage from Petelin v Cullen (1975) 132 CLR 355 at 359-60:

"The class of persons who can avail themselves of the defence is limited. It is available to those who are unable to read owing to blindness or illiteracy and who must rely on others for advice as to what they are signing; it is also available to those who through no fault of their own are unable to have any understanding of the purport of a particular document. To make out the defence the defendant must show that he signed the document in the belief that it was radically different from that which it was in fact and that, at least as against innocent persons, his failure to read and understand it was not due to carelessness on his part. Finally, it is accepted that there is a heavy onus on a defendant who seeks to establish the defence."

36. I find that the defendant understood he was signing the guarantee, so that it could not be suggested that he signed the document in the belief that it was radically different from what in fact it was. I might add that, in any event, Mr Foux was an "innocent person" and the defendant could not establish that any failure to read and understand the guarantee was due to anything that he had done.

CONCLUSIONS

37. In my view, there was an agreement that has not been reduced to writing in which the plaintiff agreed that he would ensure that Conran did not take any action to wind up Riverlink provided certain securities and guarantees were given. These are well set out in the letter from the plaintiff, on behalf of Conran to Mr. Rexstraw. There is nothing in the evidence before me that would suggest that Mr. Foux sought his name to be included in the mortgage or guarantee documents.

38. The “Guarantee and Indemnity” provides for guaranteed moneys that, it is acknowledged, were never provided. I am satisfied that Mr. Foux did provide consideration and the defendant and Riverlink through their solicitor Mr. Rexstraw sought to enter into an agreement, albeit one that was unclear and badly drafted. From it however, the court is clearly able to establish the intention of the parties to enter into a binding agreement.

39. I am clearly of the view that the plaintiff by promising to secure the forbearance of Conran entered into a valid contract. Both the solicitor for Riverlink and the defendant knew what had to be done. It was the solicitor for the defendant who drew up the documents in favour of the plaintiff. It was as if the company, through its directors, had drawn up the documents itself and presented them to Mr. Foux for the purpose that had been agreed between the parties. In fact, what the defendant appears to be attempting to do in these circumstances is to say, Riverlink drafted these documents now I am asserting there is a technical error therefore I should not be liable, even though I was aware that the plaintiff was able to offer me something in the sense of procuring a forbearance from winding up from Conran and I was willing to do all that was necessary to lead the plaintiff to believe that that was what was being done. Riverlink, through its directors, was willing to agree that a loan had been made to Riverlink, the plaintiff in my view provided consideration.

40. Having come to the conclusion that consideration did move from the plaintiff to Riverlink, that a charge in the form of a debt was created by the solicitor for Riverlink in consideration of the promise of the plaintiff, Mr. Ash’s submissions concerning the consideration for the guarantor’s promise lose their effect.

41. I answer the questions posed at paragraph 13

a. whether there is a legally enforceable contract between Foux and Riverlink so far as the mortgage document and annexures thereto are concerned - I answer the question – yes

b. whether the Guarantee and Indemnity is binding on the first defendant – I answer the question – yes

42. I enter a verdict for the Plaintiff.