Sidari v D'ALFONSO - [2011] SASC 8

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
SIDARI & ANOR v D'ALFONSO & ORS
[2011] SASC 8
Judgment of The Honourable Justice Vanstone
9 February 2011
MORTGAGES - MORTGAGE CONTRACT
Loans secured by mortgages not repaid by defendants - assertion by second and third defendants that some signatures on loan documents were either written by first defendant in the name of others or otherwise improperly obtained.
Held: all defendants bound by agreements.
Law of Property Act 1936 (SA) s 26, referred to.

SIDARI & ANOR v D'ALFONSO & ORS
[2011] SASC 8
Civil
VANSTONE J:
Introduction

On the strength of loan deeds and mortgage documents prepared by their solicitor, the plaintiffs made three short term loans to the defendants. The loans were for sums of $115,000, $45,000 and $28,000, the total of the three amounts being $188,000. The loan periods were three months, five days and four days respectively. None of the loans was repaid. The plaintiffs now take proceedings to enforce the agreements (including the unregistered mortgages) and to obtain orders for possession of the land offered as security. There are two proceedings. Action number 1134 of 2007 is concerned with the first, or October, advance in which only the first and second defendants were said to be borrowers. Action number 1135 of 2007 deals with the November and December advances, in which all three defendants were said to be borrowers. During the trial the second and third defendants discontinued a cross-claim which had been filed in the latter action. The plaintiffs rely on the documents establishing the three advances.
Only the second defendant (Mr Papathanasiou) and third defendant (Mr Perriam) defend the claims. The first defendant (Mr D’Alfonso) has recently been discharged from bankruptcy. The central issue for determination is whether either of the second or third defendants is liable to the plaintiffs at all. The second defendant contends that in respect of the October and November loans he did not execute the documents and that the first defendant executed them in his name without his knowledge. In respect of the December advance, the second defendant, while acknowledging his signature on the documents, contends that he was in effect duped into signing them by the first defendant. The final position of the third defendant is that he acknowledges signing the loan deed and mortgage related to the November advance and endorsing the relevant cheque so that it could be paid to the first and second defendants. However he claims he was misled by the first defendant as to the meaning of the documents and as to the significance of what was being effected and that none of the loan monies was received by him. In respect of the December advance, the third defendant was unsure whether the signatures on some of the documents were his. He ultimately admitted signing the relevant deed and mortgage, although he was unsure about the disbursement authority and he denied signing an endorsement on the cheque allowing the proceeds to be paid to the first and second defendants.
In relation to the dispute between the first and second defendants, the issue is one of authority. The first defendant acknowledges placing signatures on the October and November documents on behalf of the second defendant, but claims that this was done with the authority of the second defendant. As mentioned, the second defendant says he was misled as to the nature of the December documents and signed them under a misapprehension.
The dispute between the first and third defendants is a little more complicated. During the trial, for the first time, the third defendant alleged that his signature on several important documents was not genuine. In relation to other documents bearing his genuine signature, he asserted that he had been misled by the first defendant as to their purport and in many cases was not given the full document.
During the trial a number of issues raised by the defendants on the pleadings were abandoned. Ultimately the actions turn on credibility issues.
Background
In this trial, for reasons which have not been made clear to me, the first defendant (D1) was motivated to give evidence for the plaintiffs. He described a relationship of long standing between himself and the second defendant (D2) in business matters, extending to signing documents on behalf of each other and advising the sharebroker they each used to conduct transactions on the market on behalf of the other. The evidence of D1 in this regard was supported to some extent by tender of a power of attorney dated 23 June 2003 (exhibit P42) in which D2 appointed D1 as his attorney without condition, limitation or exclusion.
The main contest in terms of credibility was between D1 and D2. As I have said, D1 gave evidence for the plaintiffs. What led to that occurring and his interest in doing so was not explored in cross-examination. I found his role in the trial rather puzzling. However, since it was not explored, I am not in a position to draw any inference about it that might affect his credibility. A noteworthy feature of the evidence he gave was his admission that he had been convicted in the District Court for an offence of dishonesty, the facts of which seem to bear some parallel with what was alleged against him in this trial. He acknowledged that on an occasion not long before the first advance he prepared power of attorney documents in the names of two acquaintances, without their knowledge and that he wrote their apparent signatures on these documents, seemingly appointing himself as their attorney. He then used those documents to obtain loans secured by mortgages against a property which he owned jointly with them.
I have given careful consideration to that matter and to the danger in accepting his evidence where it is unsupported. I perceive that there is such a danger, because I see him as being untrustworthy and as a person who might be inclined to disregard the truth where it suited his purposes to do so. Notwithstanding these considerations I find him to have been truthful about the important aspects of this trial, in particular as to the events leading to the obtaining of the three loans from the plaintiffs and as to the execution of the documents supporting those loans. I accept that he had D2’s authority to write D2’s name on the documents.
Important in my decision to prefer the evidence of D1 to that of D2 was the adverse view I took of D2’s evidence and of his character. I turn to that now. It was common ground that during the early 1990s D1 and D2 were in business together, that business being concerned with striking contracts between communications companies and customers. That was of short duration. Later, working in a similar field he met the third defendant, Mr Perriam (D3). Subsequently they worked together under the banner “Mobile Management Solutions” from the premises of the Telstra Shop on Unley Road, Malvern. The presentation of D2 in terms of demeanour was unusual. At various stages of his evidence he was flippant, boastful, and over-confident. While wishing to demonstrate his expertise as a businessman he in fact appeared to have poor comprehension of the questions asked of him and a very limited ability to address critical questions without clothing his answer in needless and repetitive detail. Time and time again he cut off the questioner, wishing to jump in with a wordy and self-serving answer. He was argumentative and self-justifying. I formed the view that he had no insight into the way in which his evidence painted him. I also formed a poor view of his honesty. In my view he was prepared to make up answers to suit what he saw as his interests. He appeared to enjoy giving evidence and, in particular, to enjoy positing himself as a too trusting victim of D1’s guile and dishonesty.
Importantly, D2’s evidence was in conflict on quite separate topics, not just with that of D1, but with the evidence of Mr Ouwens and Mr Sidari, whom I accept as honest and reliable witnesses. Also damning of D2’s credibility was the claim that D3’s signatures on the endorsements for the November and December cheques (P14 and P20) were forgeries. D2 claimed to be able to give that evidence on account of his familiarity with D3’s signature. I accept that he was familiar with D3’s signature, but do not accept that he believed that these were other than genuine signatures. In fact D3 admitted that the signature on P14 was his. I find that the signature on P20 was as well. I reached the conclusion that D2 and D3 had decided that D3’s signature on the endorsements of the two cheques was a difficulty in their case and that they would be better to deny the genuineness of those signatures. D3 probably forgot that the conspiracy extended to P20. Unfortunately for them, they did not appreciate that the defence that had been filed on their behalf contained allegations that there was forgery in relation to signatures of D2, but not of D3. Therefore they did not appreciate that the failure to earlier plead that D3’s signature was forged would itself undermine their pact.
The pleadings of D2 and D3 further embarrassed them inasmuch as a cross-claim had been filed in reliance on a deed of variation, exhibit P55. On its face the document was executed on 5 January 2006. It was not duty stamped until 19 April 2007. Taken at face value, the deed had the effect of creating a charge over D1’s beneficial interest in the Grange and Kent Town properties in favour of D2 and D3 which would rank ahead a the plaintiffs’ interest. It would also have defeated the claim of D1’s trustee in bankruptcy. However, during the trial it was acknowledged by D2 that the deed of variation had been backdated and that its execution date was not earlier than December 2006. Consequently, the cross-claim was abandoned.
The pleadings embarrassed D2 still further in as much as, by paragraph 13.20 of the Defence and Counterclaim, D2 had denied receiving notice of a caveat registered by the plaintiffs. In the face of evidence from Australia Post that he signed for receipt of the relevant documents, he abandoned that denial.
Even D2’s own account of events was implausible. He denied seeing any significance in the backdating of documents, including the deed of variation. He claimed to have signed either blank or obscured or incomplete documents at the instance of D1. In respect of the power of attorney, exhibit P42, he stridently denied that the words “no conditions or restrictions” appeared on the document when he signed it – although he was unclear as to what, if anything, had appeared in that section of the document – yet the absence of those words would not have changed the fact that the power given by the document was unlimited. He claimed that he told both D1 and the justice of the peace who was present at the execution of that document that the power was to be limited to the period he was about to spend overseas. However, even a man of his limited insight must have realised that any restriction needed to be recorded on the document itself. What the execution of the power of attorney by D2 clearly shows is that, at least in mid 2003, and indeed thereafter, D2 was content for D1 to hold such a power.
The account of D2 of what led to a meeting with Mr Ouwens, the plaintiffs’ solicitor, was quite improbable. On the plaintiffs’ case the purpose of the defendant’s meeting with Mr Ouwens was to have the pre-existing caveats on the Kent Town property (lodged by Unique Loans) removed, so that a caveat in favour of the plaintiffs could be registered. D2 said that he understood Mr Ouwens was acting for the defendants for the purpose of clearing the Unique Loans caveats, but that it was not in association with any planned advances by anyone else. His evidence about the encounter with Mr Ouwens was further undermined by the fact that certain matters to which D2 attested were not put to Mr Ouwens. Indeed, Mr Ouwens’ evidence was not challenged in any particular.
I turn to the evidence of the third defendant, Mr Perriam. At all times relevant to these events the three men were working in the business, Mobile Management Solutions, which they owned jointly. D3 said that he first met D1 through D2 about seven years ago. Subsequent to D1 and D2 signing a contract of purchase for the Kent Town property, it was decided that D3 would advance monies towards the deposit for that property. A trust structure was established, with a view to the property becoming part of the assets of the trust. All three defendants became trustees. Thus, although D3 was not a registered proprietor of the Kent Town property, he had, through the trust, an interest in it. When the Grange property was purchased, the three defendants were the registered proprietors of interests as tenants in common. After settlement on the Kent Town property the three men agreed that monies would be borrowed against it by way of second mortgage for the purpose of D1 trading in shares for the benefit of all three men. When the Grange property was purchased there was a first mortgage to Permanent Custodians registered on it. That was arranged through Unique Loans, apparently the business of a Mr Piccaro. Thus it can be seen that D3’s dealings with D1 were much more limited than those of D2.
I found D3 to be an unimpressive witness. His manner was unconvincing. He seemed to find it difficult to focus on a question and to address the import of it. He consistently resorted to speaking in generalities and, to an extent, in formulas encapsulating his feelings at various points. He seemed to lack any detailed recollection of any single event relevant to this action.
Perhaps the most extraordinary aspect of his evidence was his claim, in evidence-in-chief, that a number of signatures apparently his on relevant documents related to the November and December advances were not in fact his. As I have related, in relation to some of D2’s signatures, the defence position had always been that they were not written by D2. D1 acknowledged having written some of them. However, there was no allegation in the defences in these actions that any of D3’s signatures were not written by him. Indeed, in letters written by the solicitors of D2 and D3, Messrs Deller & Co, dated 13 April 2007, addressed to the mortgagees of the Kent Town and Grange properties (P65), the allegation of D2’s signature being forged on mortgage documents is clearly made; whereas in relation to D3 the allegations were put as follows:
We are further instructed that Mr D’Alfonso procured certain unregistered mortgages in the name of Mr Perriam by deception.
However, in his evidence-in-chief, D3 denied that signatures purporting to be his on P12 (disbursement authority) and P13 (borrower’s acknowledgement) relating to the November advance and on P15 (deed), P18 (disbursement authority), P19 (borrower’s acknowledgement) and P20 (endorsement on cheque) in relation to the December advance were his. Even more surprisingly, having made these assertions, he then, in cross-examination, specifically acknowledged that the signatures in his name on P15, P18 and P19 could in fact be his and, further, ended up saying “I can’t categorically say yes or no on any of them” (484).
There were other weaknesses in his evidence on this topic. For example, in asserting in respect of P12 that the signature in his name was not his, he seemed to be relying on a recollection that he knew nothing of the November advance. (481) However, when questioned about his basis, he said (484) that he was relying only upon the appearance of each signature. D3 was questioned about the failure to produce the evidence of a handwriting expert to support his contentions. He agreed that he had discussed with his solicitor the prospect of retaining the services of such a witness. He disclaimed knowledge of why that avenue had not been pursued.
In relation to the deed P9, forming the basis of the November advance, D3 acknowledged his signature, but said that he was intoxicated when the document was presented to him by D1 for his signature. He said that D1 had come to his home late at night along with D1’s cousin, Marino, and asked him to sign a document in relation to refinancing. He had done so. He said that the next morning he had no recollection of D1’s visit until reminded of it by Ms Vanzo, who had been present. He said he must have signed P9 but could not remember it. Notwithstanding that lack of recollection he asserted that it was P9 and not any other document which had been presented to him on that evening. He claimed that what was presented, though, was merely a “piece of paper” and not the whole document. There did not seem to be any basis upon which he could assert that it was any particular document which he had signed that night, apart from “feeling” that to be the case (466). It may be noted that D1 agreed that there was an occasion when he went to D3’s home in the evening, but he claimed that the document he had taken for D3’s signature was probably a different document, namely P63, a “letter of offer” which was in fact initialled by D3, D2 and other persons. D1 claimed that the documents relating to the November advance were signed by him with D2’s authority which he obtained by telephone and then later by D3 at the Unley premises, in Ms Vanzo’s presence (148 & 149).
In any event it appeared from his evidence that D3 had looked no more closely at other documents where he acknowledged his signature and which were not accompanied by an allegation of his being intoxicated, than he did at P9. It appears that he was happy to sign documents presented to him by D1 without reading them. Although he claimed that he was never presented with full mortgage documents, it was obvious from the appearance of the execution pages on the mortgages that they were part of much longer documents and there was no explanation on D3’s part for failing to demand presentation of the whole of such documents. Indeed, in terms of the cheques and disbursement authorities, the purport of the documents, which were only single pages, was plain. Again, it seems clear that, either D3 signed the documents without any inquiry as to the need to do so and without any examination of them, or, as the plaintiffs’ case has it, he signed them with full knowledge of their purpose.
The conflicting evidence of D2 and D3 in relation to the November advance cheque, P14, is, as I have observed, telling. The cheque was made out to all three defendants in the sum of $36,000. On the back of the cheque was written the endorsement “Please pay Peter D’Alfonso and George Papathanasiou”, accompanied by a genuine signature against the name “Troy Perriam”, and a driver’s licence number and date. In his evidence D2 said that none of the writing was that of D3. He said it looked like D1’s handwriting. In support of that he said:
… I have been in business with Troy [Perriam] for eight years and we’ve signed many documents, obviously, together and I’ve seen his signature on many, many occasions. I can definitely say that’s not his signature.” (299)
It may be seen at once that had D3 endorsed the cheque in this manner, as D1 claimed, it would have been an embarrassment to the second and third defendants’ cases, as it would have tended to demonstrate knowledge of the November advance. However, when D3 gave evidence, he clearly acknowledged that the writing and signature were his, although he could not remember placing them on the cheque. The inconsistent evidence given in relation to the November advance cheque tells me that D2 was prepared to lie about an item of evidence which he saw disadvantaged himself and D3. In relation to D3, his inability to explain how his writing and signature came to be on the cheque undermines his denial of knowledge of the November advance.

I do not propose to deal with Ms Vanzo’s evidence in detail. She accounted for having witnessed all relevant signatures on the mortgage and deed documents by reference to a single occasion in which she said D1 had come to the Unley business premises and encouraged her to place her initials as a witness against blank execution clauses referring to D2 and D3. She said that D1 told her that D2 and D3 had authorised him to proceed in this way. When asked how many separate pieces of paper she had endorsed she said “a few, maybe, I remember three, there was only the pieces of paper that I had were the ones that I had to sign. … no more than five” (537-538). Nothing about this incident had been put to D1.
While I would be prepared to find that D1 was quite capable of persuading Ms Vanzo to put her initials against an unsigned execution clause, I am not persuaded by her evidence. Ms Vanzo’s version does not account for the number of times when her initials appear against that of D2 and D3. Further, the documents were not all generated at one time and would not have been signed or witnessed on only one occasion. There are occasions when Ms Vanzo’s initials appear against a signature of D2 which is not genuine (for example, P9, P10, P13). It also appears on documents containing genuine signatures of both men. It is noteworthy that Ms Vanzo claims that she did not tell either D2 or D3 of D1’s claimed visit to the Unley premises for the purpose of procuring her initials. She said that the first that was mentioned was on an occasion which must have been very late in 2006 or early in 2007. I find that last assertion implausible. There was no necessity for D1 to obtain the genuine mark of Ms Vanzo or anyone else against any of these signatures; particularly if he were prepared to forge D2’s signature then, he would patently have been prepared to forge that of a witness to it. I am not prepared to rely on Ms Vanzo’s evidence.
There is another topic of evidence to which I have not so far referred and which I now mention only to dismiss.
It is common ground that in early 2007 the first plaintiff, Mr Sidari, was contacted by D2 who advised him that the signatures on the loan document were fraudulent and that they should “catch up”. Up until that time only D1 had met Mr Sidari. Two meetings subsequently occurred at the premises of “Sensible Priced Autos”, which was Mr Sidari’s business. There are various accounts of what was said at those meetings. The plaintiffs claim the defendants said that they would “work the matter out” and that there was discussion of obtaining a loan so that the plaintiffs could be repaid. The plaintiffs rely on this evidence as constituting an acknowledgment by the defendants of the debts. As will be seen, it becomes unnecessary for the plaintiffs to make good this contention. I do not find the evidence about the discussions at the two meetings to be particularly helpful, although, as with his other evidence, I found Mr Sidari’s account to be persuasive.
Findings of fact
On the basis of the evaluation of the evidence as already discussed I make the following findings.
The October loan agreement, mortgage and disbursement authority were signed by D1, both on his own account and on behalf of D2, with the authority of D2. The plaintiffs had no reason to suspect that there was any irregularity in relation to the execution of the documents. The loan agreement and mortgage are enforceable against D1 and D2. Of the total sum advanced, $63,000 and some fees went towards discharging an earlier loan made to D1 and D2. Thus D2 had the benefit of that. A further sum of more than $37,000 was paid into an account operated jointly by D1 and D2. I infer from the fact of D2’s acquiescence in obtaining the October advance that he was aware of the disposition of the loan monies. The October advance was in the sum of $115,000 for a period of three months and the lower (non-default) interest rate was 6 per cent per month compounding. The plaintiffs now only seek 6 per cent per month on a simple interest basis. Indeed, in respect of all three advances the plaintiffs do not press the higher (default) rate, or that interest be compounded. The advance and other monies due to the plaintiffs under the terms of the loan were secured by a second mortgage over the Kent Town property.
In respect of the November advance I find that D1 and D3 executed all relevant documents and that D1 executed P9, P10, P12 and P13 on behalf of D2 and with D2’s knowledge and acquiescence. The November advance was in the sum of $45,000 for a period of five days with an agreed amount of interest in the sum of $6,000 (lower rate). The advance was secured by a second mortgage over the Grange property. Again, there was an “all monies” clause. There was no reason for the plaintiffs to suspect irregularity with the execution of the documents. The agreement and mortgage are enforceable against all defendants.
Since I have found that documents were executed in D2’s name with his authority it is not correct to refer to the signatures as forgeries. D2 is bound by the documents.
I find against D2’s argument that because D2 did not sign the October and November mortgages, s 26 of the Law of Property Act 1936 precludes the plaintiffs’ actions. That D1 signed with D2’s authority, whether verbal or by virtue of the power of attorney, answers the requirement of s 26. In any event, I would have found that there was part performance in the form of the two advances.
My findings in respect of the December advance are that both D2 and D3 signed the relevant documents and did so having at least a basic understanding of their nature and purpose. I reject the evidence of D2 that only the last page or so of the deed P15 and memorandum of mortgage P16 were presented to him by D1 for his signature and that he was misled about the nature of the documents. In respect of the disbursement authority P18 and borrower’s acknowledgement P19, I reject D2’s evidence that they were blank when signed. I find that D3 signed the disbursement authority P18 and that he was aware that the loan monies were to be placed into the joint account of D1 and D2.
The December advance was in the sum of $28,000 for four days with an interest rate of 6 per cent per month, compound (lower rate). The advance was secured by a mortgage over the Grange property. The terms were otherwise the same as for the earlier advances. The agreement and mortgage are enforceable.
Whether or not D2 and D3 read and understood all of the documents they signed is of no moment in this case. They might have relied on D1 and his judgment about the details of the transactions and might have done so ill-advisedly, but that does not avail them now. I find that each of them understood that they were signing documents which were creating legal relations. I am not satisfied that D1 misled them in any material way. If they were imprudent they must suffer the results.
Conclusion
I find that the plaintiffs’ claims are made out. They are entitled to recover.
I shall make declarations to the effect that the mortgage dated 25 October 2006 is valid and binding on the first and second defendants, that it secures the principal sum of $115,000, that it secures the plaintiffs’ claim for costs in this action and that it secures the plaintiffs’ claim for interest (which the plaintiffs have capped at a simple rate of 6 per cent per month).
I shall make a declaration that the mortgage dated 24 November 2006 is valid and binding on the first, second and third defendants, that it secures the principal sum of $45,000, that it secures the plaintiffs’ claim for costs in this action and that is secures the plaintiffs’ claim for interest (which the plaintiffs have capped at a simple rate of 6 per cent per month).
I shall make a declaration that the mortgage dated 1 December 2006 is valid and binding on the first, second and third defendants, that it secures the principal sum of $28,000, that it secures the plaintiffs’ claim for costs in this action, and that it secures the plaintiffs’ claim for interest (which the plaintiffs have capped at a simple rate of 6 per cent per month).
I propose to adjourn the matter to enable the parties to consider these reasons and to make submissions as to further orders sought. It seems to me that orders for sale and possession are the easiest way forward.
I propose to make an order that the plaintiffs recover their costs of action on an indemnity basis as provided in the contract in the absence of argument to the contrary.