McCormack v Graham [2004] NSWSC 707

The first defendant, Christine Graham, and the second defendant, Bruce Graham, her husband, purchased a house in Narrabeen in 1975 for $35,000. They paid a deposit of $16,000 and raised the balance by mortgage. The $16,000 was provided by the plaintiff, the first defendant’s mother, Beryl McCormack. The house was registered in the names of Mr and Mrs Graham. The question is whether Mrs McCormack has a 16/35th interest in the house.

It was common ground that if Mrs McCormack lent the money to Mr and Mrs Graham, as they contended, Mrs McCormack had no equitable interest in the house. Her claim to a resulting or constructive trust over an interest in the house depended upon a contribution by her to its purchase price.

The first question, therefore, was whether Mrs McCormack lent the $16,000 to Mr and Mrs Graham. Mr Graham said that when he and his wife went to the solicitor’s office to sign the papers for the purchase of the house, the solicitor produced a loan agreement, requiring repayment (could not recall period) and no mention of interest. Mrs Graham remembered signing papers but did not remember what they were.

Mrs McCormack denied making a loan and said she did not attend any solicitor’s office with respect to the purchase of the house.

Mrs McCormack swore 3 affidavit in response in which he denied these conversations. The differing versions of the conversations suggest an imperfect recollection as one would expect of an elderly lady trying to recall what had happened so long ago.

Because of a deterioration in her relationship with her daughter, Mrs McCormack moved out of the house to live with her sister from about 1979 until she returned in about 1981. She made no claim in that period to enforce any equitable interest in the house.

Because of further deterioration in the relationship with her daughter, Mrs McCormack moved out of the house again on 26 December 1998 and has not returned. She made no claim to any equitable interest in the house until July 2003 when her solicitors wrote to Mr and Mrs Graham.

Mrs McCormack had inherited money, portion of which she invested in bonds that she placed in the name of Mrs Graham. On 5 March 2003, Peter O’Neill, a solicitor, wrote to Mrs Graham stating that he acted on behalf of Mrs McCormack who had advised him that she held several investments in Mrs Graham’s name. The investments were specified and the letter required Mrs Graham to sign a redemption form with respect to one of the bonds.
Mrs McCormack denied giving instructions to Mr O’Neill or ever having met him or spoken with him. She was as adamant in this testimony as she was in saying there was no shadow of a doubt in her mind that she was not mistaken in her testimony as to the conversations. Mr O’Neill’s letter contained a detailed specification of the bonds in question. Mrs McCormack accepted that the descriptions were accurate.

The Court rejected Mrs McCormack’s evidence that she did not instruct Mr O’Neill. It was held that it was highly unlikely that a solicitor would write such a letter if not acting for Mrs McCormack. It is impossible that a solicitor would have the details of her investments unless he had been informed of them and that suggests it was unlikely that he received no instructions from her. While the letter referred to the investments, no claim was made that Mrs McCormack had any equitable interest in the house.

The Court found that the inconsistencies in the evidence of Mrs McCormack compared with the consistencies in the evidence of Mr and Mrs Graham meant that Mrs McCormack did not have a clear recollection of the conversations in question. The Court found that Mrs McCormack lent Mr and Mrs Graham $16,000 without interest to be repaid on her demand at some time in the future.

To what relief was Mrs McCormack entitled? Mrs McCormack sought declarations that she had an equitable 16/35th interest in the house and an order for sale.
It was submitted that Mrs McCormack was entitled to an order for payment of an amount representing her lost opportunity for investment of $16,000 from 1975 to the present. No basis was put for this submission. The Court found that there was a contract of loan between the parties. Mrs McCormack was entitled to the benefit of her contract. She might have called for the repayment of the moneys under it. She said she did not. The Court saw no basis to depart from the contract and impose upon the borrowers an obligation to restore her to some position she may have been in had she chosen to invest the funds in a different way in 1975.

(a)  Was the loan abandoned? Mr and Mrs Graham asserted that the loan was abandoned by Mrs McCormack. Evidence was given of various conversations between the parties.

It is open to a court to infer that parties have mutually agreed to abandon their contract where it is followed by a long period of delay or inactivity on both sides (André et Compagnie SA v Marine Transocean Ltd [1981] 1 QB 694). It must be shown that Mrs McCormack so conducted herself as to entitle Mr and Mrs Graham to assume, and they did assume, that the contract of loan was agreed to be abandoned (Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] AC 854).

The Court found that the conduct of Mrs McCormack was not such as to entitle them to assume that the contract of loan was abandoned. The contract was silent as to the date for repayment. That Mrs McCormack had said it was not necessary to repay her on two occasions was consistent with her reserving the right to make a later request.

 (b) Was Mrs McCormack entitled to an equitable charge over the house? In Morris v Morris [1982] 1 NSWLR 61 a widower paid for an extension to a home jointly owned by his son and daughter in law to provide accommodation for himself indefinitely. The son’s marriage broke down and he departed from the home. The personal relationship between the plaintiff and his daughter in law also broke down and the plaintiff departed. It was held that there was nothing from which it could be inferred that there was any intention to create a trust nor anything from which a trust could be implied. It was held, however, that it would be unconscionable and inequitable for the son and the daughter in law to retain the benefit of the plaintiff’s expenditure free from any obligation of recoupment and the appropriate remedy was an equitable charge to secure the amount of that expenditure and interest.

It was submitted that the Court should impose an equitable charge over the house in this case. This was rejected. In Morris the moneys had been contributed to the extension of the house and it was appropriate that the debt due to the plaintiff should be charged over the property. In this case The Court found no contribution to the house but, rather, a contract of loan. There is no basis upon which I should burden the title to house with the loan repayment. As there was no equitable interest in the house, the issue of a constructive trust did not arise.
Mr and Mrs Graham were ordered to pay Mrs McCormack the amount of $16,000, with costs to be argued.

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