Terry v O’Connell [2010] NSWSC 255

In this case a little old lady agreed to pay for a granny flat to be constructed above the garage of her daughter and her daughter’s husband’s property. There was a verbal contract to the following effect:

  1. that the little old lady would be entitled to reside in the granny flat free of charge other than the payment of the sum of up to $150.00 per week for groceries, electricity accounts and other household expenses for life or until the sale of the land.
  2. If the land was sold the proceeds would be charged with the sum of $40,000.00 and the $40,000 would be paid to the little old lady.

A few years later the daughter and her husband told the little old lady that they intended to sell the property. The little old lady said “Okay as long as I get paid my $40,000 when it sells.” There was then an argument and the little old lady was then required to leave the property.

The little old lady lodged a caveat claiming an estate or interest in the land in the nature of an equitable charge and/or an equitable mortgage in the sum of $40,000. The daughter and her husband filed a lapsing notice. The little old lady sought in these proceedings to maintain the caveat.

The court found against the little old lady noting that:

Her evidence does not establish a serious question to be tried that she is entitled to a charge or equitable mortgage over the land as distinct from a charge over the proceeds of sale. An interest in the proceeds of sale is not an interest in the land, at least where the chargee of the proceeds of sale does not have a right to have the land sold.

His Honour was taken to the well known decision of Morris v Morris [1982] 1 NSWLR 61 where the court found that a plaintiff who had expended money on a house jointly owned by his son and daughter-in-law, on an assurance that he would be entitled to reside in the property indefinitely, was entitled to recoup his expenditure when his expectation of residence was disappointed and was entitled to an equitable charge over the property to secure repayment. His Honour distinguished the decision “because in the present case the plaintiff says that the agreement was that she would be recouped, not out of the land but out of its proceeds of sale”.

His Honour pointed the way for the little old lady by noting:

My conclusion that the caveat should not be extended does not imply that the plaintiff may not be entitled to other relief. Subject to hearing the second defendant, I see no reason the plaintiff should not have leave to amend, if leave be necessary, to seek a declaration that any proceeds of sale of the property are charged with repayment of $40,000 and to seek an injunction to restrain the defendants from dealing with up to $40,000 of the proceeds of sale. However, for the reasons I have given, I refuse the relief in paragraph 3 of the summons.

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