Matheny (Trading as Steel Construction Company) v Maier
| Jurisdiction | Bahamas |
| Judge | Thorne, J. |
| Judgment Date | 30 November 1993 |
| Court | Supreme Court (Bahamas) |
| Docket Number | Equity of 1355 of 1987 |
| Date | 30 November 1993 |
Supreme Court
Thorne, J.
Equity of 1355 of 1987
Mr. F. Mitchell for plaintiff.
Mr. E. Lockhart for defendant.
Mortgage - Failure to repay mortgage — Enforcement of debt sought — Whether mortgage null and void — Immovable property (Acquisition Foreign Persons) Act (Bahamas), ss. 5, 7 — Exchange Control Regulations (Bahamas), regulations 1, 5, 6, 33.
Deed - Mortgage deed — Delivery — May be actual or implied — No formal act required.
Rectification - Mortgage deed — Misdescription of lender — Whether misdescription common mistake between parties — Whether rectification allowed if mistake unilateral.
The circumstances which gave rise to the present dispute are distressing but by no means complicated. The plaintiff, Dr. Matheny, and the defendant, Dr. Maier, both residents of the United States of America, first met in 1972. Dr. Matheny was a graduate in medical school and Dr. Maier was a professor of pathology. They became fast friends, as did their families. Dr. Matheny was then what may be described as a mature student and affluent businessman. He had inherited a large sum of money on the death of his father, and he owned a construction business called Steele Construction Company in the State of Ohio. From time to time he had various other business interests, including an apparently successful bar and restaurant. He also practised medicine as a podiatrist and for some period was in business with Dr. Maier operating a medical clinic. Dr. Maier, on the other hand, had for many years had financial difficulties. Dr. Matheny testified that in 1972 Dr. Maier discussed these difficulties with him and sought a loan from him. At that time, he said, he lent him $50,000 for which Dr. Maier signed a promissory note. Then in 1974 he again lent him $40,000. Subsequently he made several loans to him, and by January 1983 Dr. Maier was owing him $614,000. This included both principal and interest and was a figure agreed upon by them both. Over the years Dr. Maier's situation worsened and by the end of 1983 reached the point where he was facing bankruptcy, Dr. Matheny then, on the advice of his attorney, insisted on having some collateral to secure the loans.
In 1984 an Indenture of Mortgage dated the 3rd, January, 1984 and made between Dr. Maier as borrower and Steel Construction Company as lender was prepared by McKinney Bancroft, a firm of attorneys in Nassau, Bahamas. The mortgage recited, among other things, that “the lender has agreed to advance the borrower the sum of seven hundred thousand dollars ($700,000.00) in the currency of the United States of America upon having the repayment thereof with interest…” and witnessed that, “In consideration of the (said sum) now paid by the lender to the borrower (the receipt whereof the borrower hereby acknowledges),” the borrower entered into certain covenants with the lender.
Dr. Matheny now asserts that Dr. Maier has failed to repay the money borrowed or any part of it, and by an Originating Summons filed on the 19th November, 1987 seeks a declaration that he is the mortgagee under the mortgage, and other consequential relief. By Order dated the 11th January, 1990 the proceedings were ordered to be continued as if begun by writ, and on the 19th January, 1990 Dr. Maier filed a defence in which he admitted the existence of the mortgage, but contended that for several reasons it was null and void and of no effect. He also asserted that the mortgage was a “friendly transaction” between himself and the plaintiff and claimed that the plaintiff was a trustee of the legal estate in the property “because of the relationship which existed between them”. At the commencement of the hearing the plaintiff's counsel applied for, and was granted, leave to amend the relief sought in the Summons to include a claim for rectification of the mortgage.
It is common ground between the parties that, by agreement between them, the deed of mortgage was prepared on the instructions of Dr. Maier. Where they differ is on the circumstances which brought this about. Dr. Maier says that the mortgage was merely a document prepared in order to assist him in bankruptcy proceedings but that there never was any loan made to him. Dr. Matheny disputes this. Dr. Maier admits that he gave the information for the preparation of the mortgage to Mr. Winston Saunders, an attorney in the firm of McKinney, Bancroft in Nassau, and that he prepared the mortgage document along with a promissory note for $700,000 both of which he signed. This note read:
“Promissory Note
Nassau, Bahamas
3rd, January A.D. 1984
U.S. $700,000.00
ON DEMAND A.C. Maier promises to pay Steel Construction Company or order the sum of Seven hundred thousand dollars (U.S.$700,000.00) in the currency of the United States of America with interest thereon in the meantime at the rate of ten percentum (10%) per annum, for value received.
A.C. Maier
Mable Smith Witness”
He said that Mr. Saunders prepared the mortgage exactly as he had instructed. He had further instructed him to lodge the deed for recording, and, upon its return, to hold it in his Chambers on his (Dr. Maier's) behalf. The document, he said, was never to have been delivered to Dr. Matheny. He admitted giving incorrect information to Saunders for the preparation of the mortgage, and said that this was deliberate. He incorrectly gave the parties to the mortgage as himself as borrower and Steel Construction Company as lender, and instructed Saunders that the company was
“incorporated in the State of Ohio one of the United States of America and having its registered office at P. O. Box 18038, Cleveland Heights in the State of Ohio and which is registered in the Commonwealth of the Bahamas under the provisions of the Foreign Companies Act…”.
He knew that Steel Construction Company was not incorporated in the State of Ohio; that it did not have a registered office at P. O. Box 18038, Cleveland Heights; and that it was not registered in the Commonwealth of the Bahamas under the Foreign Companies Act. He did so because the mortgage was a sham transaction which was never intended to take effect.
Mr. Lockhart submitted that the mortgage was void and of no effect, firstly because neither the sum of $700,000 (nor any other sum) was paid to Dr. Maier as sated in the mortgage deed; second, that Steel Construction Company as described in the deed is a non-existent entity and the plaintiff was not a party to the mortgage and had nothing to do with its preparation; third, that the mortgage was never delivered because Dr. Maier had, by his attorney, retained custody of the mortgage and title deeds to the property; fourth, that the mortgage having been executed in the Bahamas, permission from the Controller of Exchange was required and was not obtained; fifth, that the property was subject to widow's dower; and sixth, that no permit was obtained as required under the Immovable Property (Acquisition by Foreign Persons) Act Ch. 125.
On the first issue, Mr. Lockhart urged me to find that neither the sum of $700,000.00, nor indeed any other sum, was paid to Dr. Maier. He argued that despite the provision contained in section 37(1) of the Conveyancing Law of Property Act Ch. 123 the defendant is entitled to establish that no payment was made. This section reads:
“47(1) a receipt for consideration money or securities in the body of a deed shall be sufficient discharge for the same to the person paying or delivering the same, without any further receipt for the same being endorsed on the deed.”
Dr. Matheny's evidence is that he began making cash loans to Dr. Maier in 1972. In January of that year he lent him $50,000 and subsequently made several loans to him. All these loans bore interest, but Dr. Maier repaid neither the capital nor interest, nor any part thereof. Sometimes, he said, notes were prepared which included cash advances together with outstanding interest owed. In January 1983 they agreed that the amount owing for principal and interest to date was $614,000 and Dr. Maier signed a promissory note to that effect. By this time, however, Dr. Maier's financial position had deteriorated to such an extent that he faced bankruptcy, and so he insisted on some collateral being given to secure the loans. Dr. Maier offered to have a mortgage drawn in Nassau on the security of his property in Cat Cay Bahamas to secure the money owing. In January 1984 a mortgage was drawn for $700,000.00 and a promissory note was prepared for the same amount. Dr. Matheny said that the difference between $614,000 and $700,000 represented interest for approximately one year, and it was a figure agreed upon by himself and Dr. Maier. He had given Dr. Maier the benefit of some interest.
Dr. Maier's story is altogether different. His evidence was that in 1984 he filed for bankruptcy in Cleveland, Ohio in the United States, and, in order to protect the only asset he then owned from his creditors, Dr. Matheny agreed to serve as a lender in what he described as a “friendly mortgage” which was fictitious. Dr. Matheny, he said, had also offered to sign a satisfaction of the mortgage at the time but this was never done. He denied that he received $700,000 or any part of it. Dr. Matheny had merely agreed to act as a lender as a gesture of friendship to a professional colleague in order to help him to save his home from his creditors in the bankruptcy.
Dr. Matheny produced several promissory notes, all of which, except the last, he said, were signed in Cleveland, Ohio. The notes given in chronological order with the amounts and interest rate were:
January 1972 — $50,000 at 9% per annum
January 1974 — $50,000 at 12% per annum
January 1975 — $71,000 at 12% per annum
January 1978 — $88,000 at 20% per annum
January 1978 — $164,000 at 20% per annum
January 1978 —...
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