#6883 - Goss V. Chilcott Ii - Restitution of Unjust Enrichment BCL

Goss v. Chilcott

Facts

Mr. Haddon was one of four directors of a small finance company in Palmerston North. At a directors' meeting on or about 6 May 1987 Mr. Haddon put forward a proposal for a loan to Mr. and Mrs. Goss. They had a nursery property and Mr. Goss was involved in a development at Waitarere. Mrs. Goss was Mr. Haddon's sister. The proposal was for an advance of $30,000 for three months on the security of the nursery property. The proposal was made orally to the directors by Mr. Haddon. It was agreed to orally by them and there was no minute of the directors' decision. On 6 May a cheque for $30,000 drawn on the company's account was paid to Haddon Marshall & Co. for the credit of the mortgagors and was credited to them in the trust account of the firm. On the same day Mr. and Mrs. Goss called into his office and signed a memorandum of mortgage and a disclosure document to satisfy the Credit Contracts Act 1981.

The mortgage was in standard form. As signed, it secured a principal sum of $30,000 repayable on 6 August 1987 carrying interest at 33 per cent. (penalty rate 36 per cent.) payable on 6 June, 6 July and 6 August. Mr. Goss's evidence was that Mr. Haddon told him that he wanted to borrow $30,000 but as a director could not borrow from the company. Mr. Haddon asked him to give a mortgage over his property on the basis that Mr. Haddon would have the loan repaid in three months and would then have the security cancelled. Mr. Goss agreed and was insistent that the security be for only three months. There is no evidence of any oral agreement on Mr. Goss's part to pay interest or of any discussion relating to interest. The mortgage was never registered. At some later time it was altered, as was the disclosure document. The repayment date was amended to 6 May 1988 and the interest dates were also amended to provide for monthly payments throughout the 12 months. That was done without the mortgagors' authority or knowledge. No doubt it was done because Mr. Haddon could not provide the funds for repayment in August. Mr. Jourdain's evidence was that the original loan for three months was rolled over. There is no clear evidence as to what happened. But on 11 December 1987 Mr. Haddon wrote to the company advising that registration of the mortgage had been delayed, that they (the law firm) had been able to amend the mortgage to provide for a 12-month term expiring 6 May 1988 and had disclosed the extension to the borrowers in terms of the Credit Contracts Act 1981.

Only two repayments were made to the company in respect of the loan. One was of $914.25 on 31 July 1987 when a cheque on Mr. Goss's bank account was paid to the company. His evidence was that Mr. Haddon said that he wanted to repay part of the loan, asked Mr. Goss for the cheque and put him in funds for that amount. The other payment was of $2,625 on 6 November 1987 by cheque drawn on Mr. Haddon's own account. Both payments were appropriated in the accounts of the company to interest due. Mr. Goss said that in September 1987 Mr. Haddon led him to believe that the loan had been repaid and the security cancelled. They knew nothing of the alterations to the mortgage or of the purported extension of the term until November 1988 when the company's accountant told him they owed the company $47,000. The first formal demand was made by letter of 6 December 1988. Mr. Goss saw Mr. Haddon who undertook to pay but did not do so before his wider misconduct became known.

Holding

On the question of liability, the Court held that Mr. and Mrs. Goss were liable to the bank since there was a failure of consideration in respect of the loan transaction between the bank and the defendants. Hence they are liable to the bank regardless of the fact that they were...