Spano, Vito & Anor Ex Parte The Official Trustee in Bankruptcy v Belfiore, Maria

[1996] FCA 713

IN THE FEDERAL COURT OF AUSTRALIA )

GENERAL DIVISION                 )    No. VB 3452 of 1992

BANKRUPTCY DISTRICT OF THE STATE  )

OF VICTORIA  )

BETWEEN:  VITO SPANO and MARIA SPANO

(Bankrupts)

EX PARTE: THE OFFICIAL TRUSTEE IN BANKRUPTCY (as Trustee of the bankrupt estate of Vito Spano and Maria Spano)

(Applicant)

AND:     MARIA BELFIORE

(First Respondent)

AND:     RITA BELFIORE

(Second Respondent)

AND:     MARK ROCCO BELFIORE

(Third Respondent)

AND:     MARY BELFIORE

(Fourth Respondent)

AND:     GIUSEPPE TOTINO

(Fifth Respondent)

AND:     ELISABETTA TOTINO

(Sixth Respondent)

AND:     THE REGISTRAR OF TITLES

(Seventh Respondent)

CORAM:    Ryan J

DATE:     31 July 1996

PLACE:    Melbourne

REASONS FOR JUDGMENT

RYAN J:   This is an application to set aside a settlement or disposition made by Vito and Maria Spano ("the bankrupts") in respect of a residential property situated at 31 Drummond Street, Greenvale ("the house") and an adjoining vacant block of land at 33 Drummond Street, Greenvale, ("the land").

At all relevant times before 6 February 1992 the bankrupts had been the registered proprietors of the land.  Similarly, they were the registered proprietors of the house until 18 May 1992.  A sequestration order was made against the estates of the bankrupts on 25 November 1992, the date of the act of bankruptcy in each case being 5 December 1991.

At some time, apparently early in October 1991, Vito Spano met one of his wife's cousins, Maria Belfiore, at the Belfiore family home at 10 Sheffield Street, West Preston.  He told Maria that he was in severe financial difficulties and asked her to assist him by taking a transfer of the land.  Maria agreed and accompanied Mr Spano to a branch of the Commonwealth Bank where it was indicated that another joint borrower was required for a loan to be made on the security of the land.  Accordingly, it was arranged for one of Maria's sisters, Rita Belfiore, to join with her in taking a transfer of the land.

Mr Spano explained to Maria and Rita Belfiore that he would arrange the preparation of a contract of sale and transfer of land and any other requisite legal documents including the mortgage, and would make all necessary payments including the initial deposit and instalments under the mortgage.  Maria and Rita Belfiore were given to understand that they would hold the land for the benefit of the bankrupts and at some unspecified time in the future would transfer it back to them. Maria and Rita Belfiore on 7 October 1991 signed a contract note to buy the land for $110,000 with a deposit of $11,000 and the balance of $99,000 payable on 7 January 1992.

In January 1992 they attended the Regent West branch of the Commonwealth Bank and entered into a mortgage to secure a loan for the balance of the purchase price, namely $99,000. Monthly payments of $1140 each under the mortgage were made, usually by Rita Belfiore, who applied for the necessary funds to Mr and Mrs Totino, the parents of Maria Spano who lived nearby in Sheffield Street, West Preston.  According to Rita Belfiore, Mr Totino, when those requests were made, went to Mr and Mrs Spano and returned with the money in cash.

Also according to Rita Belfiore, when she enquired why the Spanos could not make the payments directly themselves she was told by Mrs Totino that they (the Spanos) were being watched. An account dated 22 December 1992 for municipal rates on the land in the sum of $753.40 was paid on 16 March 1992 by a cheque drawn on an account in the name of J. Glynn and Co Pty Ltd trading as Real Estate City.  J. Glynn and Co Pty Ltd had succeeded to the business of Vic Spano Real Estate City Pty Ltd ("Real Estate City") of which the male bankrupt had been the principal.

By early 1994 there were increasing delays in the provision of money to Rita Belfiore to pay instalments under the mortgage and she and her sister made no further payments.  The deposit book was collected by Mr and Mrs Totino for return, as Maria Belfiore has deposed, to Vito and Maria Spano.  The evidence further discloses that, in early October 1991, shortly after his approach to Maria Belfiore, Vito Spano convened a family meeting at the home of his wife's uncle and aunt at 10 Sheffield Street, West Preston.  In attendance were Maria Belfiore, the aunt of Maria Spano and her children,  Rocco Belfiore, Rita Belfiore, Anthony Belfiore, Vicky Belfiore and Maria Belfiore Junior.

Vito Spano then indicated that he was in financial difficulties and in danger of losing his house.  He asked whether Rocco Belfiore and his wife would assist him by purchasing the house in the same way as his, Rocco's, sisters, Rita and Maria, had already agreed to purchase the land.  It was then indicated by Mr Spano that he would arrange the preparation of all necessary legal documents and make all necessary payments.  He further indicated his intention that Rocco and Mary Belfiore should hold the house on behalf of himself and Maria Spano and allow them and their family to continue to live there.

To finance the purchase of the house and discharge the existing mortgage over the property it was necessary to procure a fresh loan secured by a new mortgage in favour of an entity then known as Australian Natives' Association Building Society, securing an advance of $288,000.  Rocco Belfiore and his wife agreed to assist in the way suggested and executed the mortgage and other documents which resulted in their becoming the registered proprietors of the house.  They had earlier, on 7 November 1991, signed a contract to purchase the house for $370,000 of which a deposit of $37,000 was payable immediately.

Rocco and Mary Belfiore had been assured by Vito Spano that, as with the arrangement in respect of the land, neither of them would have to make any payment in relation to the house.  Consistently with that assurance, monthly payments of $3022 each were made under the mortgage, usually by cheque drawn on J. Glynn and Co Pty Ltd or by employees of that company. At all times since November 1991 the house continued to be occupied by Vito and Maria Spano and their children.  Rocco and Mary Belfiore never believed that they had any beneficial interest in the house.  They regarded themselves as holding it for the benefit of Vito and Maria Spano and their children, who were to continue to live in it and to whom it would ultimately be retransferred.

On 19 September 1994 Mr and Mrs Totino, the parents of Maria Spano, lodged a caveat claiming a beneficial interest in the house and land and, on 16 January 1995, issued a writ in the Supreme Court of Victoria to maintain that claim.  In their respective statements of affairs which disclosed net liabilities in excess of $3.3 million, each of the bankrupts had denied selling or mortgaging in the last two years any real estate worth more than $1000.

At a meeting of his creditors on 9 February 1994 Mr Spano was asked about the house and land, and replied that Rocky and Maria Belfiore owned the house and that he, Spano, paid rent of $100 per week. He denied that the house was being held on trust for him until his discharge from bankruptcy.  As to the land, he said that it was owned by Maria and Rita Belfiore who were both in their 30s, working and living with their parents.  He denied making any contributions to the payment of instalments under the mortgage of either the house or the land, and denied that Maria and Rita were holding the land on trust for him. On 9 August 1994 each of Rocco Belfiore, his wife and his sisters, Maria and Rita Belfiore, were interviewed by a solicitor on behalf of the Official Receiver, and disclosed the circumstances which I have already recounted in which they came to be registered as the proprietors respectively of the house and the land.

At a similar interview on 15 August 1994 the male bankrupt asserted that the fifth and sixth respondents, his father-in-law and mother-in-law, had provided the funds for the purchase of the house and land in the names of the Belfiores and were the beneficial owners of both properties. Documents obtained by the Official Receiver in the course of investigations disclosed payments made on account of the mortgage over the house by cheques drawn on J. Glynn and Co Pty Ltd General Account No 2, and R.P. and C.A. Schlachetka and John and Linda O'Connell.  On each of 23 October 1992, 30 November 1992 and 1
July 1993 payments of $3022 were made by bank cheque drawn on the Bank of Melbourne.

On each of 13 January 1993, 15 February 1993, 25 March 1993, 21 April 1993 and 28 May 1993 a payment of $3022 was made by a cheque drawn on the Bank of Melbourne by Melissa Spano, a daughter of the bankrupts, who was employed by Real Estate City.  On 18 December 1992 a similar payment was made by bank cheque drawn on the Shopping Town Centre Airport West branch of the Commonwealth Bank.  On 26 March 1993, 2 September 1993, 20 October 1993, 24 November 1993, 23 December 1993, 25 January 1994, 10 March 1994 and 29 April 1994, similar payments were made by cheques drawn by Carlo Gargano, a nephew of the bankrupts, who was also, it seems, employed by Real Estate City.

It was asserted under cross-examination by Mr Spano that payments were made by Melissa Spano and Carlo Gargano on account of mortgage instalments in respect of the house by way of helping the family.  Even payments made by Real Estate City were said to be on account of commissions due to one or other of both Melissa Spano and Carlo Gargano.  Small cheques drawn always for $205.84 by R.P. and C.A. Schlachetka and John and Linda O'Connell were explained as loans from Christine Schlachetka and John O'Connell, who were other employees of Real Estate City.

Neither of those employees, Melissa Spano nor Carlo Gargano, was called to give evidence. Mr Totino gave evidence that he and his wife had contributed an amount totalling something of the order of $100,000 which had been applied by Mr Spano to payment of the deposit for the house and land and further amounts in payment of stamp duty, exacted on the transfers to the Belfiores and the mortgages of the house and land. Mr Spano, in answer to a question which I put to him, said that the whole of the deposit moneys in addition to the proceeds from the new mortgages in favour of the ANA Building Society and the Commonwealth Bank had been necessary to discharge pre-existing mortgages over the house and land.

However, the evidence has not been corroborated, though it could easily have been, by production of any settlement statement or by evidence of the solicitor who acted on the discharge of the pre-existing mortgages.  Nor is there any evidence to show how the money said to have been paid in cash by Mr and Mrs Totino found its way into the funds applied to the settlement of the sales to the Belfiores. Both the house and land were eventually sold by the respective mortgagees of those properties, leaving a balance after discharging the mortgages and meeting the expenses of sale of $84,212.55 which is now held by the Official Trustee in the Commonwealth Investment Fund.

It is clear that Rocco and Maria Belfiore were bare trustees of the legal estate in the house, and it is similarly clear that Maria and Rita Belfiore stood in the same relation to the land.  Whether those properties were held on express or resulting trust it is unnecessary for me to decide.  In other circumstances, a critical question may have been for whom were the Belfiores trustees?  As far as they were concerned, all money paid by way of deposit or instalments under the respective mortgages was provided or gathered together by the bankrupts.  I accept the Belfiores as truthful witnesses.  At no time was it suggested by any of them that the house or land were held on trust directly or indirectly for Mr and Mrs Totino.

I accept their evidence that the purpose of the trust as they perceived it was to continue to provide a home for Mr and Mrs Spano and their children and to transfer the house and land back to the bankrupts when it became appropriate to do so. On the view which I take of the evidence, Mr and Mrs Totino were only claimed to be beneficiaries after it became apparent that the Belfiores had disclaimed any beneficial interest in the house and land and that the bankrupts themselves could not be disclosed as beneficial owners without making their equity available to their creditors.  I accept that Mr and Mrs Totino advanced from their own resources the whole or a substantial part of the moneys needed to pay the deposits under each contract of sale and from time to time contributed to instalments required to be paid under the respective mortgages of the house and land.

In the same way contributions were made by Melissa Spano and Carlo Gargano and other members of the bankrupts' extended family.  But no suggestion is made that they acquired a beneficial interest in the house or the land.  In my view all of those contributions were made as part of a family effort to enable Mr and Mrs Spano to retain possession of, and preserve an equity, in the house and land notwithstanding their bankruptcies.  One of the many factors which tends to this conclusion is that no record was kept of the contributions made by Mr and Mrs Totino or any other family members.

It is now impossible on the present state of the evidence to identify the amounts contributed in the ways which Mr Spano described by Mr and Mrs Totino, Melissa Spano, Carlo Gargano and Mr Spano himself.  In these circumstances I regard all of the contributions as having been made by way of loan to the bankrupts, who accordingly have, since the transfer of the house and land to the Belfiores, been the beneficial owners of those properties.  Section 120 of the Bankruptcy Act provides:

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

...

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

Whether the purchasers of the house and land be identified as the Belfiores who, as I have already said, on any view became bare trustees or as Mr and Mrs Totino who claim to have acquired an equity by reason of the advances made to Mr Spano it is impossible to characterise them as purchasers in good faith in the sense used in the authorities;  see e.g. Williams v Lloyd re Williams (1934) 50 CLR 341 at 362 and PT Garuda Indonesia Ltd v Grellman 107 ALR 199.

Mr Spano was the architect of the whole transaction and his intentions are to be imputed to those for whom he acted and from whom he received money which he applied to effectuate the transaction.  Viewed in that way it is clear that an intention of the purchasers whether they be regarded as the Belfiores or the Totinos was to preserve from the claims of creditors of Mr and Mrs Spano whatever equity might remain in the house and land.  I accept that there may have been other motives for the purchasers' entry into the transactions, including the continuing provision of a home for Mr and Mrs Spano and their children and possibly in the future the provision of a home for the two disabled children of Mr and Mrs Totino.

However, the presence of those other more altruistic motives does not permit a finding that the Belfiores or the Totinos were purchasers in good faith in the requisite sense.  For these reasons the sale and transfer of the house to Rocco and Mary Belfiore and of the land to Rita and Maria Belfiore are void as against the trustee in bankruptcy.  I shall make a declaration to that effect and declare that the money representing the balance of the proceeds from the sale of the house and land has vested in the trustee of the bankrupt estates of Vito Spano and Maria Spano.  The costs of the Official Trustee of the application dated 20 November 1995 including any reserved costs should be taxed and paid by the fifth and sixth respondents.

I certify that this and the preceding eleven (11) pages are a true copy of the Reasons for Judgment of his Honour Justice Ryan.

Associate:

Date:

Counsel for Applicant         :  Ms S.L. Kirwan-Hamilton

Solicitors for Applicant      :  Australian Government

Solicitor

Counsel for First, Second,       :    -

Third and Fourth Respondents

Solicitors for First, Second,  :  Messrs Kahn & Clahr

Third and Fourth Respondents

Counsel for Fifth and Sixth    :  Mr I.W.J. Bowditch

Respondents

Solicitors for Fifth and      :  Privitelli Solicitors

Sixth Respondents

Counsel for Seventh Respondent :  -

Solicitors for Seventh Respondent:    -

Date of Hearing               :  30 and 31 July 1996

Date of Judgment              :  31 July 1996