A dentist owned a property in Lightning Ridge. Her receptionist entered into a payment plan to purchase the property in instalments. The dentist did not transfer title in the property, but allowed the receptionist to live in it subject to the instalment payments being made.
Some time later, the dentist left the area and the receptionist, having no employment, stopped making payments. She argued that she found a purchaser for the property so they could sell and discharge the debt to the dentist but the dentist frustrated the sale, purported to terminate the payment plan agreement and transferred the property to her de facto for $1.
The dentist and her de facto brought possession proceedings against the receptionist and her de facto. The receptionist argued that the transfer for $1 was at undervalue and the de facto was guilty of fraud aimed at defeating their interest, which should mean he loses indefeasibility of title as a result of s 42 of the Real Property Act.
The court found that the credit contract created an equitable interest in the property in favour of the receptionist, so long as she complied with her obligations under it. She therefore did not have an interest from the time of the first default.
The court found that an agreement was reached to sell the property which had the effect of varying the terms of the credit contract such that the receptionist did not have to pay the arrears nor any weekly instalments until the property was sold. Accordingly, the purported termination by the dentist was not valid and the transfer of the property for $1 to her de facto husband was a breach of the sale agreement. The dentist therefore could not rely upon the breach of the payment plan to obtain possession.
The dentist had arranged for a mortgage and loan agreement to be signed by her de facto for $70,000. The court found that the de facto did not understand what he was signing and at the time he signed the transfer he did not know he was paying anything for the property. His understanding was as simple as if I sign this document I will have a house to live in. He therefore did not act with actual fraud, moral turpitude or dishonesty and therefore could not be deprived of indefeasibility pursuant to s42 Real Property Act.
The court then turned to consider whether the de facto, as a volunteer, knew of the receptionist’s interest in the land and whether he took the land free of that interest. The court found that the de facto believed the payment plan agreement had been terminated and thought that the defendants were merely “squatters”. The court followed the NSW position in Bogdanovic v Koteff that mere constructive notice of an outstanding equitable interest will not defeat indefeasibility of title. This is not the case in Victoria.
The de facto thus took title in the property free of the receptionist’s interest and was granted judgment for possession of the property, albeit with the defendants being granted a lengthy vacation period. The de facto was also granted a small amount of money for profits he would have otherwise received from rent
The receptionist was successful in her claim for breach of the sale agreement and was awarded damages in the amount of the net sale price that would have been realised from the willing purchaser, and the amount due under the payment plan.
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