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Decisions of the Superior Courts of New South Wales, 1788-1899

In re Brennand (1843) NSW Sel Cas (Dowling) 619; [1843] NSWSupC 12

insolvency

Supreme Court of New South Wales

Dowling C.J., 30 October 1843; December 1843

Source: Select Cases, New Series , Vol. 1, S.R.N.S.W. 2/3467, p. 16; the earlier decision, which was to the same effect, can be found in Select Cases, Vol. 7, S.R.N.S.W. 2/3465, p. 215

Where a creditor always looked to his security over land for repayment of debts due to him by the insolvent; held that he has no right to prove against the insolvent's estate.*

On the last day of last term Richard Windeyer Esquire applied ex parte for an order on the Chief Commissioner of Insolvents to call a special meeting of creditors to be allowed to prove a debt against the estate of the insolvent Thomas Brennand upon the footing alleged to have been unquestioned (only as to amount) by the insolvent himself or his trustees. The Court took time to consider the application, but the pressure of other duties has prevented as early a decision as might be desired.

Dowling C.J. The real object of the application was, I apprehend, to obtain revision of the decision pronounced by this Court on the 30th October on cross appeals. Four principal grounds were taken. First, that part of the decision of the Court on that occasion was founded on a point not in issue between the parties. Second, that it was never disputed by the insolvent or his other creditors that Mr Windeyer was entitled to prove for something as a creditor. Third, that Mr Windeyer was ignorant of the grounds of the insolvents cross appeal against the decision of the Chief Commissioner allowing Mr Windeyer to prove for the sum of £5,170. And fourth, that the Court had not all the circumstances of the case before it, now supplied by the affidavits of Mr Windeyer and others, disclosing facts not presented to the notice of the Court on the hearing of the appeals.

This motion, though made by Mr Windeyer in person, was open in limine to the objection that after the decision by the appellate jurisdiction upon the whole matter laid before the Court below and brought up on appeal it was not competent for him to re-open the case, especially upon other facts and circumstances not presented in an earlier stage of the proceedings. If the Court had adhered to the strict rule in such cases, the violation of which, if generally countenanced, would lead to the most obvious inconvenience, the matter could not have been heard again and the party affected left to as he should be advised such remedy. Yielding however to the personal position of Mr Windeyer in the transaction in question, no obstacle was opposed to a reaudience from an anxious desire to correct any error into which the Court might have fallen from a supposed hasty determination of a case in some degree involving, as it seemed to be felt, the character of a member of a body whose honour, high tone of feeling, gentlemanly bearing and privity of action, the Judges, on public grounds, expressed the deepest interest in maintaining. These considerations alone induced the Court to relax a rule in Mr Windeyer's favour, by which in the case of the other suitors it would have been bound to abide.

For nearly four hours on the last day of term Mr Windeyer argued his case with zeal, ability and ingenuity to which was superadded a tone of sincerity calculated to make a deep impression. Since the former decision I have bestowed the most anxious attention upon the old as well as the new matter which Mr Windeyer was allowed to introduce, and it is with painful regret that I am bound to declare that I have not been persuaded of the propriety of granting the application, nor convinced of the error of the substantial ground taken by the Court in its former decision.

The main objection to the former decision is that the Court pronounced judgment upon a matter which was not in issue between the parties, namely as to the validity in equity and good conscience of the instruments by which Mr Windeyer sought to prove his claim to come in as a creditor of Brennand. According to the case, as reported by the learned Judge who first heard the matters of the cross appeals, the very gist of the contest was not whether those instruments were in fact entered into by Brennand with his eyes open voluntarily and with full knowledge of their contents, but whether they were not, according to the argument of Mr Foster on a former day, a mere "cloak" to cover a claim for a demand really not due and which would be void as against creditors.

In the consideration of that aspect of the case was necessarily involved an inquiry into the origin or circumstances, how it happened and for what purposes the mortgage securities were entered into by the insolvent. It may be that there was no "issue" raised in the technical sense of the word, as to whether there was simulation, clandestinely or fraud in the transaction. On the part of the insolvent indeed, such an issue could not with any color of propriety be raised, he being the first to make overtures to Mr Windeyer to enable him to retain the ostensible proprietorship of the land in order to obtain a secondary grant by the use of Mr Windeyer's capital in effecting the improvements required by government to be made by the holder of a primary grant before he could entitle himself to a secondary one. But this Court could not shut its eyes to the very grave question evoked when the whole proceedings in the case were brought under review upon appeal.

The Court was bound to notice what savored of contrivance to defeat the policy on the appellant's own shewing of the crown in making secondary grants. In one of the affidavits made by Mr Windeyer it appears that the government regulations required an expenditure of upwards of £2,000 within seven years in improving a primary grant when made and that the party must shew a certain capital before obtaining the secondary grant. The question then naturally arose whether the mortgage deeds which were based upon the agreement of the 1st March 1838 could be otherwise regarded than as simulated, to cloak a demand arising out of a transaction touched with the infirmity to which I have alluded. It is too technical an argument therefore to say on a proceeding of this kind, touching proof of debts, that there was no direct issue raised as to the original foundation of the mortgage securities.

With respect to the second objection, that it was never disputed in the Court below that Mr Windeyer was entitled to prove for something as a creditor of the estate, it appears from the proceeding that the question was not whether Mr Windeyer was entitled to prove as a general creditor against the estate of the insolvent, but at what value his mortgages should be estimated with reference to the money actually received by the insolvent and the value of the improvements made by Mr Windeyer on the land, together with interest at 15 per cent, in order that the trustees might redeem the mortgage at such estimate. If they were of ability to do that, acting upon that principle, the Chief Commissioner allowed Mr Windeyer to prove to the amount of £5,170. With this decision both Mr Windeyer and the insolvent's trustees were respectively dissatisfied, the former maintaining that he was entitled to prove for £12,363.0.4 standing upon the mortgage as a bona fide security and the latter that Mr Windeyer was entitled to prove for nothing, on the ground that he had always looked to the land itself and that only as security for the money originally advanced for the value of the improvements.

Cross appeals having been lodged and entered, the matters of them came on to be argued before his Honor Burton J., who was on a subsequent day prepared to deliver his opinion with the concurrence of the other Judges, adverse to the claim, when Mr Windeyer prayed that the case might be argued before the full Court. It may be that Mr Windeyer did not see and was ignorant of the contents of the appeal lodged on the part of the insolvent and his trustees, but it can scarcely be maintained from the course of the argument taken in the Court below that he was not fully informed of the grounds on which the insolvent's trustees resisted the claim. Those grounds were again debated by the learned counsel who argued the case before the full Court during last term. The third objection therefore, taken by Mr Windeyer, that he was ignorant of the grounds of the insolvent's cross appeal, seems scarcely well founded. The remaining question then is whether Mr Windeyer has presented such new circumstances as ought to change the opinion of the Court upon the substantial ground on which they have determined that he is not entitled to come in as a creditor.

The object of the affidavits, it was announced, was not so much gaining the facts on which the Court formerly proceeded, as to supply links of continuity and explanation and thereby to remove unfavorable impressions which might arise from a consideration of the facts taken debatedly. Mr Windeyer produced several affidavits and amongst others one made by himself entering into a history of his transactions with the insolvent to which was appended the copy of another affidavit of his intended to have been used by him in answer to an affidavit made by the insolvent at chambers, but withdrawn from the files of the Court, but of which a copy was now produced together with an examined copy of the bill filed in equity by the insolvent.

The new and most material circumstance to be collected from these affidavits evidenced as well by the statement of the insolvent's bill in equity, is that it was agreed between the parties that the indenture of the 27th February 1838, by which the insolvent sold and conveyed to Mr Windeyer his order to select 2,500 acres of land, should be abandoned and the new arrangement of the 1st March 1838 entered into, by which Mr Windeyer was to regard and treat the insolvent as owner of the land when selected, he to improve it with his own means to such value as would entitle the insolvent to a secondary grant and stipulating for such security as he should require at 15 per cent, and also for one half the secondary grant when obtained in the value thereof if sold. With the exception of this new feature nothing appears on the affidavits materially to vary the prominent facts upon which the question arose whether Mr Windeyer was entitled to be ranked as a creditor of the insolvent's estate.

Adverting again to those facts they appear to be these: In February 1838 the insolvent being possessed of a government order to select 2,560 acres of land, wants to borrow money on it of Mr Windeyer. He refuses to lend money on it, but offers to buy it out and out for £800 to which the insolvent agrees and executes the indenture of the 27th February 1838, covenanting to select in such place as Mr Windeyer should desire and then effectually to convey the land in fee. At this time Mr Windeyer had in view that the land should be selected at Raymond Terrace adjoining some swampy property of his own, which could be improved and become highly valuable by draining. Having become possessed of the order, he reflects on the hardship of depriving the insolvent of the chance which he would have of a secondary grant if he still retained the order and had means of improving the primary grant when obtained to the extent required by the government regulations. He however complains to the insolvent the reasons why he desires himself to have the land, and nothing but the land, which though then of little or no value would become of great value in his hands when improved by draining in connexion with his own land at the Terrace. Moved by considerations of kindness towards the insolvent, he then listens to an overture from him, that a fresh agreement shall be entered into with a view to his obtaining the secondary grant by means of improvements to be effected by Mr Windeyer and holds out as an inducement that Mr Windeyer shall have such security as he may require at his own valuation of the land to himself at 15 percent and the like interest upon such money as he shall lay out in improvements and half the secondary grant when obtained, or half the value if it should be sold. Mr Windeyer yields to this overture and consents to the arrangement, not intending however to avail himself of the stipulation for having half the secondary grant unless he should be put to any trouble or expense not then contemplated.

The indenture of the 27th February 1838 was then abandoned, though not in fact cancelled and remained in Mr Windeyer's possession. We must take it now, however, as beyond dispute that both parties regarded it as abandoned and as if it had never been executed. The agreement of the 1st March 1838 was then entered into. The land was selected at Raymond Terrace adjoining Mr Windeyer's own land and the grant having been made out in the insolvent's name, arrangements are entered into to secure Mr Windeyer on the footing of the agreement of the 1st March. An estimate is made by Mr Windeyer of the value which the land would be of to him had he become the absolute purchaser of the order to select and obtained the grant. At first it is estimated at £10,000 but ultimately it is agreed to be considered of the value of £5,000 and the insolvent appears satisfied.

Accordingly on the 16th March 1838 , before a shilling is laid out in improvements, the insolvent executes a mortgage for £5,000 as for money lent by Mr Windeyer and received by him on the security of the land and for further advances for improvements at 15 percent payable half yearly. This instrument it must be now taken was freely and voluntarily executed by the insolvent with his eyes open and with full knowledge of what he was doing, and that he was signing a receipt on the deed for £5,000 when he had not in fact received anything from Mr Windeyer beyond the £800 for agreed to be paid for the original order to select in pursuance of the agreement of the 1st March.

Upon the execution of the mortgage, Mr Windeyer is let into possession of the land for the purpose of making the improvements with his own money and he has the services of some of the convicts assigned to the insolvent in virtue of his grant. But for the agreement of the 1st March it would have been regarded as unusual for a mortgagee to be let into immediate possession of land upon which a mortgagor borrowed money for the purpose of making improvements. Regarding this however as a bona fide transaction and that the insolvent had covenanted to pay interest half yearly at 15 per cent upon the principal sum of £5,000, it would have been satisfactory to have seen some proof of a demand for interest before the second mortgage of June 1841 was executed. The absence of any such proof would seem to import that although the transaction was in fact evidenced by solemn instruments under seal, it was then only colorable.

In August 1840, Mr Windeyer having made improvements with his own means, the insolvent who has in the mean time visited the land and appeared satisfied with what had been done, applied to the government for a secondary grant according to the regulations which required proof of an expenditure by him to the value of £2,100 in improvements and that he had capital to cultivate the secondary grant. The form of the application and the statements contained in it are no parts of the present inquiry. It now appears that the application was refused on the ground that the government had ceased to make free grants. Being informed of this refusal Mr Windeyer then for the first time desired to have the land conveyed to him according to the original agreement. Could this circumstance escape observation as indicating the light in which Mr Windeyer himself then viewed the transaction? The insolvent prayed for a year to appeal to the home government upon the subject of his secondary grant. Mr Windeyer consents to this upon condition of his executing a further mortgage as the issuing of the first grant in the insolvent's name had vested the legal estate in him. At length he consents and he gives the mortgage of June 1841 to secure £7,386.19.8 including the interest then due on the first mortgage which was to become principal at 15 per cent, promising to get Mrs Brennand to bar her dower.

It appears that this second mortgage was not in fact executed until Mr Windeyer had written to the insolvent to assure him that he looked only to the land for payment. We may fairly collect from the whole of that letter that this declaration was made upon a full expectation and understanding on the part of Mr Windeyer that Mrs Brennand would, according to the insolvent's promise, become a party to the mortgage to bar her dower.

Take it that the insolvent has grievously broken faith with Mr Windeyer and has used him very ill in not completing his engagements solemnly entered into, the question is whether this mortgage under the circumstances in which it was entered into could be received as proof on oath of a debt of £12,363 "justly and truly" due from the insolvent in the face of all the circumstances now enumerated with Mr Windeyer's declaration that he looked only to the land for payment?

From first to last Mr Windeyer appears to have wanted the land. He first buys the order to select with a view to have the selection made adjoining his own land, which cannot be advantageously improved without the possession of the remainder of the swamp. But of good nature and kindness he lends himself to the views of the insolvent in abandoning the sale of the order and allows him to be still the owner of the order, but stipulates that if he is to be so, he must give security upon the land when selected at the value it would be of to him, namely £5,000 at 15 percent, and he agrees to improve the land by laying out a certain sum of money also at 15 percent, to enable him afterwards to obtain a secondary grant. The only real consideration at that time given for the mortgage was £800, the price of the original order. Wanting to have the land, it is obvious that the object was to secure it by imposing such terms of mortgage as should ultimately indemnify him for the loss of it by redemption upon a speculative value which it might be of to Mr Windeyer when improved. The arrangement has failed. Mr Windeyer's object is accomplished. He has got the land and whatever value he has set upon it he must take it at that valuation. He valued it at £5,000. The insolvent in fact got but £800. He cannot have the land and also the price or value of it secured by a mortgage, for which there is in fact no consideration beyond £800. Whatever has been spent by Mr Windeyer beyond the £800 he has himself the benefit of it and he must be bound by his own acknowledgment that he looked to the land only as his security.

Little real weight could be attached to the want of any stipulation in any of the instruments except the cost respecting Mrs Brennand's dower, involves it material to consider after the sale to select whether any right of dower would attach as soon as the grant was issued. The true question was whether the two mortgages were intended by Mr Windeyer as anything more than as a means of holding the insolvent to good faith in the event of his failing to convey the land under the primary grant free of encumbrance. It was candidly admitted by Mr Windeyer that his object in seeking to prove the debt, after the refusal to bar dower, was to use the proceeding as a weapon to compel the insolvent to perform his main contract, namely to secure a good title to the land.

There is no disputing the seeming validity of the mortgages as instruments duly executed, nor can there be any doubt after what has been sworn that Mr Windeyer looked upon them as binding and bona fide, but the question for the Chief Commissioner below was whether they were provable as a debt against the insolvent personally. The money originally advanced and the value of the improvements with interest might be provable against the land and in that way the proof was received by the Chief Commissioner. The money professedly stated on the face of the mortgage deed to have been paid, was never in fact paid although the insolvent by the deed acknowledges to have received it. When the contrary was proved it came to be simply a question whether under such circumstances the mortgagee could prove as against other creditors the amount of the supposed consideration. The position taken up by Mr Windeyer is untenable, that because the instruments were freely and voluntarily executed and intended by both parties at the time to be valid and binding, therefore as against creditors the money stipulated to be paid though not paid was provable as a debt of his in the face of his own acknowledgment that he only looked to the land for security.

The error with which Mr Windeyer has fallen is that he has lent himself to a transaction, which when it comes to be sifted cannot be upheld. Having originally bought the order to suit, there he should have stood. According to the affidavits before us, the insolvent prevailed upon him to take something else in lieu of the order, knowing that the real object of the insolvent was to obtain a secondary grant, in fact, to get out of the crown 2,500 acres of land which he could not have gotten if he sold that instrument. Although Mr Windeyer might believe from the insolvent's representations that he had the means or could borrow them for improving the land to the requisite extent to entitle him to a secondary grant, yet still he stipulates for a mortgage security upon a valuation of the land as a money payment, when in fact nothing was paid on the footing of that valuation and requires interest at 15 percent as if it had really been paid. Be it that the insolvent has acknowledged the receipt of the money under his bond and seal, can such acknowledgment be taken against the truth to the prejudice of other creditors?

I agree that it is not giving things bad names that will make them bad, but call this transaction by any innocent name of which it is susceptible, it cannot be denied that it was a contrivance to benefit the insolvent by obtaining land from the crown without bona fide consideration, and at the same time so to bind him up, that he should seek good faith with Mr Windeyer. The Court is bound to believe whilst Mr Windeyer says that he acted from pure motives of Christian charity and kindness to the insolvent and that he really thought there was nothing irregular or unlawful in changing his position as a buyer of the order and then becoming a nominal lender by way of mortgage on the land itself, to enable the insolvent (for the intention cannot be concealed) of becoming entitled by Mr Windeyer's assistance alone to a secondary grant.

In a court of justice however, one must look to the transactions of mankind according to their legal effect. Mr Windeyer has a right to be acquitted of any sordid motive of a personal nature as he strenuously disclaims it and insists that he really never intended to avail himself of the stipulation for half the secondary grant, should it have been obtained. Viewing the case in all its bearings however, I have been unable to shrink from the position of holding that Mr Windeyer has no right to prove anything as a creditor against this mans estate, he having from first to last looked to the land as security and by his conduct regarded the mortgages only as instruments to be used for compelling the insolvent to convey a good title.

Published by the Division of Law, Macquarie University