Re Puls, D.T. v Ex Parte Adams, J.D.

[1990] FCA 101

NOT FOR DISTRIBUTION

102, q o

JUDGMENT NO. . .. ...... ........ ....... I ,

IN THE FEDERAL COURT OF AUSTRALIA )

VICTORIA DISTRICT REGISTRY )

1      No VB 139 of 1984

GENERAL DIVISION	)
I
BANKRUPTCY DISTRICT OF THE STATE	)

OF VICTORIA 1

- RE: DAYLE TREVOR PULS
(A Bankrupt)

EX PARTE: JOHN DAVID ADARS

(Applicant)
ALFRED BRUNO PULS
(First Respondent)
MONA PULS
(Second Respondent)
MAUREEN ANNE PULS

(Third Respondent)

Judge Haking Order: Ryan J

Date of Order:	1 and 21 Barch 1990
where Made:	Melbourne

Volume 9036 Folio 081;

MINUTES OF ORDER

ON 1 MARCH 1990, THE COURT MADE THE FOLLOWING ORDERS:

1.  That, by consent of the third respondent, judgment be entered for the applicant for a sale, in lieu of partition, of the land comprised in Certificate of Title

2.   That, by consent of the applicant, execution of the said judgment for sale be stayed for a period of two months from this day;

3 .   That liberty be reserved for any party to apply to Ryan J on not less than 3 days notice in writing to the other parties for such directions in connection with the said sale as he or she may be advised;

4 .   That the question of the distribution of the proceeds of the said sale, and the question of the costs of the application for that sale between the applicant and the third respondent, be adjourned for hearing by Ryan J on a date to be fixed.

ON 21 MARCH 1990, THE COURT MADE THE FOLLOWING ORDER:

5.  That the applicant pay the costs of the first and second respondents to this day, and one half of the costs of the third respondent to this day, such costs to be taxed in

default of agreement.

NOTE: Settlement and entry of orders is dealt with by

Bankruptcy Rule 124.

NOT FOR DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA	)
)
VICTORIA DISTRICT REGISTRY	1
) No VB 139 of 1984
GENERAL DIVISION	1
)
BANKRUPTCY DISTRICT OF THE STATE	)
OF VICTORIA	)

- RE : DAYLE TREVOR PULS
(A Bankrupt)

EX PARTE: JOHN DAVID ADAMS

(Applicant)
ALFRED BRUNO PULS
(First Respondent)
MONA PULS
(Second Respondent)
MAUREEN ANNE PULS

(Third Respondent)

Coram: Ryan J
Date: 21 March 1990

Place: Melbourne

REASONS FOR JUDGMENT

On 23 February 1984 a sequestration order was made in this Court against the estate of Dayle Trevor Puls ("the bankrupt") based on an act of bankruptcy committed on 21 June 1983. The bankrupt and his wife, the third- respondent, Maureen Anne Puls, have, since 18 March 1980, been registered as the joint proprietors of the land comprised in Certificate of Title Volume 9036 Folio 081 ("the land"). The land was

purchased as vacant land by the bankrupt and his wife on

11 ~ecember 1979 for $12,625.

Upon registration of the bankrupt and his wife as proprietors, the land also became subject to a mortgage in favour of the Bank of New South Wales. That mortgage was discharged on 7 March 1980, and on 9 September 1980, a Mortgage No 5144450 ("the first mortgage") over the land in favour of the bankrupt's parents, the first and second respondents, Alfred Bruno Puls and Mona Puls, was registered. The first mortgage secured a principal sum of $25,450 payable on demand in writing made by the mortgagees to the mortgagors. The instrument recording the terms of the first mortgage was dated 1 June 1980 and provided for payment of interest at the rate of 9% per annum on the principal sum or so much thereof as should for the time being remain unpaid.

On 21 October 1982 another mortgage, No K130473 ("the second mortgage") over the land in favour of the first and second respondents was registered. That mortgage was dated 17 September 1982 and was expressed to be "in consideration of

of $6,000 (hereinafter together called 'the principal sum')	the sum of $15,550 and further advances not exceeding the sum
this day lent to or agreed to be lent to the said Dayle Trevor Puls at the request of the said Maureen Anne Puls by Alfred Bruno Puls, retired farmer, and Mona Puls, married woman, both of 53 Bennett Road, Horsham."
BY the second mortgage the mortgagors covenanted to pay the principal sum "on demand therefor made in writing to and upon the mortgagors by the mortgagees" and to pay rnterest on the principal sum at the rate of 9% per annum. It was further recited in the body of the mortgage that:

"The interest referred to in the covenant secondly

herein before set forth shall be computed

(a)	as to $11,000 part of the principal sum from the 18th day of May 1979
(b)	as to $4,550 other part of the principal sum from the 29th day of May 1980

(C) as to the said further advances other part of the principal sum from the date of such further advances

and shall be payable on first days of June and
December in every year."

By the present application, the applicant who is the Trustee of the bankrupt's estate seeks a declaration that the first mortgage "is and was a settlement of property within the meaning of the Bankruptcy Act 1966 made within five years before the commencement of the bankruptcy of the bankrupt and that pursuant to Section 120(2) of the Bankruptcy Act 1966 the said mortgage is void as against the Applicant as Trustee

direction that the second mortgage "is and was a settlement	rn Bankruptcy of the bankrupt." The applicant seeks a further
of property made within 2 years before the commencement of the bankruptcy of the bankrupt and that pursuant to Section 120(1) of the Bankrupty Act 1966 the sard mortgage is void as against the Applicant as Trustee in Bankruptcy of the bankrupt". A further declaration is sought that the second
mortgage "is and was a settlement of property w~thln	the

i

I meaning of the Bankruptcy Act 1966 made within five years before the bankruptcy of the bankrupt and that pursuant to section 120(2) of the Bankruptcy Act 1966 the said mortgage is v o ~ d as against the Applicant as Trustee in Bankruptcy of the bankrupt". The appl~cant also seeks consequential orders setting aside each of the first and second mortgages and orders requiring the first and second respondents to discharge those mortgages. The grounds of the application are indicated in the foll'owing paragraph of an affidavit sworn by the applicant on 18 August 1989:

"8. I have reviewed ln detail the records evidencing the affairs of the bankrupt In the course of administering the estate of the bankrupt and from my said review I can say that:

(a) On or about 1 June, 1980 the sum of $25,450.00 was not lent to the bankrupt by the First and Secondnamed Respondents, the documents of the bankrupt which I have reviewed do not reveal any agreement between the bankrupt and the Respondents to loan the said sum on or about the said date and I am not aware of any oral agreement between the bankrupt and the First and Secondnamed Respondents to loan the said sum on or about the said date.

(b) On or about 17 September, 1982 neither the sum of $15,550.00 nor further advances not exceeding the sum of $6,000 were lent to the bankrupt by the First and Secondnamed Respondents, the documents of the bankrupt which I have reviewed do not reveal any agreement between the bankrupt and the First and Secondnamed Respondents to loan the said sums on or about the said date and I am not aware of any oral agreement between the bankrupt and the First and Secondnamed Respondents to loan the said sums on or about the said date."

The relevant sub-sectlons of s.120 of the Bankruptcy

Act provide:

"(1) A settlement of property, whether made

before or after the commencement of this Act, not
being -

(a)	a settlement made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration; or
(b)	a settlement made on or for the spouse or chlldren of the settlor of property that has accrued to the settlor after marriage in rlght of the spouse of the settlor,

is, if the settlor becomes a bankrupt and the settlement came into operation after, or within 2 years before, the commencement of tbe bankruptcy, vold as against the trustee in the bankruptcy.

(2) A settlement of property, whether made before or after the commencement of this Act, not being a settlement referred to in paragraph (l)(a) or (b) or a settlement that is void as against the trustee by reason of the operation of that sub-section, is, if the settlor becomes a bankrupt and the settlement came into operation after, or within 5 years before, the commencement of the bankruptcy, void as against the trustee in the bankruptcy, unless the parties claiming under the settlement prove -

(a)	that the settlor was, at the time of making the settlement, able to pay all
property comprised in the settlement; his debts without the aid of the and
(b)	that the settlorls interest in the property passed to the trustee of the settlement or to the donee under the settlement on its execution.

( 8 ) In this section, 'settlement of propertyr

includes any disposition of property."
On 18 May 1979 there was credited to an account

standing in the name of the bankrupt at the Horsham branch of the Bank of New South Wales, an amount of $9,500. That sum was pald to the credit of that account by the bankrupt's parents who withdrew it from their account with the Federation Permanent Building Society. On 12 December 1979 the bankrupt signed an acknowledgement of a loan from hls parents of $11,000. The acknowledgement was in these terms:

"This is to Certify that Alfred Bruno & Mona Puls, loaned to Dayle Trevor Puls, the sum of Eleven Thousand Dollars ($11,000.00) being to take over the Fuel Supply Depot and Service Centre of Esso in Horsham, and other commitments.

Interest to be paid as from 1.7.79.

Loan was made 18.5.79.

Signed in the presence of each other on the 12th day of December 1979.

D. Puls

M. Puls

A.B. Puls"

On 9 April 1980 an amount of $10,000 was credited to an
account styled "business account" standing in the names of

the bankrupt and hls wife, also at the Horsham branch of the

Bank of New South Wales. That was provided as to $5,000 by	the first respondent and as to the other $5,000 by the second
respondent.
On 29 May 1980, a further cheque for $16,000 drawn on the account of the flrst and second respondents at a Melbourne branch of the Bank of New South Wales was paid to the credit of the business account of the bankrupt and his
wife at the Horsham branch of the same bank. At the same time there was credited to that account a sum of $4,000 apparently being the proceeds of a cheque drawn by the bankrupt and his wife on the AN2 Bank at Ballarat. A handwritten notation on the bank statement recording the total credit of $20,000 to the business account recites:

"26-5-80	16,000 Federation
28-5-80	V.S.&L. 4000"

Information provided by the bankrupt to the Trustee of his estate indicates that, at the time when $20,000 was paid to the credit of the business account, $4,000 was withdrawn by his parents from account No. 6500300 with the "V.S.&L. Society" (Victorian Savings and Loan Society) and paid by cheque No. 856812 to the bankrupt in respect of a "house loan", and the sum of $16,000 was similarly withdrawn by the first and second respondents from account No. 23205 with the Federation Permanent Building Society and paid by cheque to the bankrupt also as a "house loan". The applicant has not disputed, in the present proceedings, the veracity of that explanation.

Also on 29 May 1980 the bankrupt and his wlfe signed a

further acknovrledgement of a loan, on that occasion of
$4,550. The terms of the acknowledgement were:

"This is to Certify that on thls day the 29th day of Nay, Alfred Bruno and Mona Puls of 53 Bennett Rd, Horsham, paid to Dayle Trevor & Maureen Ann Puls of 24 Culliver St, Horsham, the sum of Four Thousand Five Hundred and Fifty Dollars ($4550) as a loan towards building a house on 24 Culllver St. Interest to be paid at the rate of 10% per annum. Signed this 29th day of May 1980.

D. Puls

M. Puls

In the presence of M. Puls

A.B. Puls

In addition to exlsting Mortgage

A.B. Puls"

In the light of all the evidence, I am satisfled that between 18 May 1989 and 29 May 1980 the first and second respondents paid to the bankrupt, or the bankrupt and his wife, a total of at least $39,500 and that no part of that amount had been repaid by 21 October 1982.

It was contended by Counsel for the applicant that, except for the acknowledgements of 12 December 1979 and 29 #ay 1980, there was no evidence that the moneys paid by the first and second respondents were not by way of gift. However, the onus of proving that a settlement was not made for valuable consideration is on the trustee (Re Trautwein; Richardson v Trautweln (1944) 14 A.B.C. 61 at 75).

Accordingly, even if Inferences that the payments were by way of gift were no less available than those tending to support the conclusion that they were loans, the trustee would not discharge the onus. However, in my vlew, the preponderance o f the evidence, including the acknowledgements, which I find were made on the dates which

they bear, and the instruments of mortgage themselves, is in favour of the conclusion that the payments were made as loans

Mr Maguire of Counsel for the applicant pointed to discrepancies between the amounts and dates of the payments made by the first and second respondents, the amounts of the loans recorded in the two acknowledgements and the advances of principal recited in the mortgages. He also instanced the different interest 'rate of 10% specified in the second acknowledgement compared with the rate of 9% stipulated in each of the mortgages. Attention was also drawn to the fact that in financial statements prepared by the bankrupt's accountants for the year ended 30 June 1982, and for the period to 10 November 1982, the only relevant indication of a liability was the entry "Loan A.B.&M. Puls $5,000".

These features may be explicable, at least partly, by an accrual of unpaid interest, by the making of further small advances as well as those of whlch there is documentary evidence, and by a £allure of recollection between the making

mortgages. The fact that the bankrupt's financial statements	of the acknowledgements and the execution of the respective
reclte a loan from the first and second respondents of only $5,000 may reflect no more than a distinction drawn by the bankrupt between loan moneys applied to the business which he then carried on (to which the financial statements were clearly confined) and that part of the funds lent by his parents which was applied to the construction of a house on
the land. At all events, I do not consider that the discrepancies and inconsistencies to which Mr Maguire has pointed negative the inference that at least $39,500 was lent by the first and second respondents.
I have been referred to the decision of a Full Court of this Court in Official Trustee in Bankruptcy v Arcadiou (1985) 8 F.C.R. 4. Counsel for the applicant argued that it is authority for the proposition that, for an application of the present kind to be resisted successfully, the execution of the mortgage must be contemporaneous or nearly so with the payment of the principal sum which it secures. I find no support for that proposition in the reasons of the Court in that case. As indicated in the joint judgment of Woodward and Northrop JJ, at 12, the issue in each case is whether what the mortgagees did constituted valuable consideration for the mortgage to them. The inference which I draw is that, at the time of execution of the first mortgage, the first and second respondents forebore to require payment of loans payable on demand amounting to not less than $39,500 together with accrued interest thereon. Consistently with In Re Dundas
amounted to valuable consideration for a mortgage granted on (1933) 6 A.B.C. 265, the implied agreement to forebear
1 June 1980 securing $25,450 "this day lent or agreed to be

lent" by the mortgagees. It may be that the use of that conveyancing formulary does not accurately reflect the actual effect of the implied agreement, but, as was made clear in Arcadiou's case (supra), that is not fatal to the respondents on the issue of valuable consideration. There is similarly no difficulty in inferring a further agreement to forebear when the second mortgage was executed on 17 September 1982 to secure a principal sum of $15,550 then "lent to or agreed to be lent to" the bankrupt at the request of his wife. BY that date, the evidence suggests, the total of the principal sums amounting to at least $39,500 advanced by the first and second respondents was still owing and payable on demand. Of that total amount only $25,450 was then secured by the first mortgage. As well, such evidence as there is suggests that there was then a further substantial debt due and payable to the mortgagees as accrued interest on the total moneys advanced. I am therefore satisfied that the second mortgage also was supported by valuable consideration in the sense explained by a Full Court of this Court in Barton v Officlal Receiver (1984) 4 F.C.R 380 esp. per Lockhart J at 396, and approved by the High Court in Barton v Official Receiver (1986) 161 C.L.R. 75 at 86.

For these reasons, the declarations sought by the

applicant that each of the first and second mortgages is void

as against him must be refused. In confining myself to this
conclusion I have been mindful of the admonition of Woodward

and Northrop JJ in Arcadiou's case (supra) at 11 that "it must be remembered tht the court is not required to enforce the mortgage. The court is not required to construe the mortgage. The court is not required to determine what amount, lf any, is owed by [the bankrupt to the mortgagees]. The court is not required to determine whether the [mortgagees] are able to enforce the security."

I shall hear Counsel on the question of the costs

referable to the refusal of the declarations sought by the
applicant.

I certify that thls and the preceding

eleven (11) pages are a true copy of
the Reasons for Judgment of His Honour

Mr Justice Ryan.

Date:  31. 3 , q 0

Counsel for Applicant	: Mr G Maguire
Solicitors for Applicant	: Dunhill Madden Butler
Solicitors for First and	: Messrs Power & Bennett
Second Respondents
Counsel for Third Respondent	: nr S # Anderson
Solicitors for Third	: O'Brien Davies
Respondent
Date of Hearing	: 1 March 1990
Date of Judgment	: 21 March 1990