An assignee of the rights under a loan agreement succeeded in enforcing the loan against the borrower on the basis of estoppel by deed.  In reaching its findings, the Court made some interesting observations on the concept of estoppel by deed and emphasised that the expressed intention to be bound by propositions set out in the deed meant the borrower could not deny the truth of that proposition.  This is a reminder to be vigilant about all statements (including recitals) which are included in deeds.

Mr Isaac and Ms Cuturich entered into some deeds (Loan Deeds) in relation to $550,000 (Indebtedness) loaned by Mr Isaac to Ms Cuturich.  Mr Isaac subsequently assigned the Indebtedness to Labracon Pty Limited (Labracon) for $100,000 by way of a Deed of Assignment.

Ms Cuturich argued that the Loan Deeds were unenforceable (and were in fact a sham designed to defraud Ms Cuturich’s creditors) and Labracon sought to enforce them on the basis of ‘estoppel by deed’.  The Court rejected the sham assertion and made the following observations in finding for Labracon:

  • estoppel by deed precludes a party who by entering into a deed expresses a solemn intention to be bound by a particular proposition from denying, by reason of entering the deed, the truth or at least the operation of that proposition;
  • estoppel by deed is not a subset of estoppel by convention.  Given the tenacity with which the concept of a deed has endured, the Court counselled caution against any assumption that estoppel by deed can be subsumed into another estoppel category;
  • the Loan Documents constituted both a contract and property, and Mr Isaac’s entitlement to the benefit of an estoppel by deed was capable of transmission to Labracon as an incident of the assignment of the Indebtedness;
  • section 38(1) of the Conveyancing Act 1919 (NSW) requires each of the Loan Deeds to be attested by at least one witness not being party to the deed, but this does not require that every signature of Ms Cuturich be attested by a non-party witness;
  • a party who knowingly takes the benefit of a deed may be bound by it even without execution.  In allowing Mr Isaac to continue to lend her money, Ms Cuturich took the benefit of the Loan Deeds;
  • a statement supporting an estoppel must be precise, clear and unambiguous when read in the context of the whole deed.  In this case, the Loan Deeds contained statements particularising the Indebtedness as arising from a request for a loan, agreeing to pay and repay, and acknowledging receipt of money lent; and
  • equity will not enforce an estoppel arising from a receipt clause in a deed if money acknowledged to have been received has not in fact been paid.  The amount paid at the time of execution of the Loan Deeds was less than stated in the Loan Deeds but as Labracon took the assignment of the Indebtedness without notice of this deficiency, it was immune from any equity Ms Cuturich had against Mr Isaac. 

See the case.