CUA v Lyons: recovery of moneys advanced to customer by mistake

In Credit Union Australia Ltd v Lyons [2009] NSWSC 1188 CUA obtained judgment for money advanced to its customer Mrs Lyons under a $300,000 line of credit account, together with interest. The line of credit account was initially secured by registered mortgages, but those mortgages were discharged in 2006 when the loan was re-financed by a third party lender.

By administrative oversight the line of credit account was not closed when the mortgages were discharged. The borrower was able to draw on the account back to its original overdraft limit. It was only when that limit was again exceeded in 2008, and CUA made attempts to obtain repayment, that the relevant officers then dealing with the borrower appreciated that the account was in fact totally unsecured.

In October 2008 CUA served a notice of default on the borrower requiring repayment of what was called the “over limit amount” of then $5,531.55. CUA then threatened to enforce the mortgage if the default were not remedied. However, CUA had no mortgage to enforce.

The defendants are husband and wife. The husband held a power of attorney from his wife who was the borrower. The borrower was seriously injured in a car accident and was suffering from brain damage and was not capable of attending to her own affairs.

The judge said the wife as the borrower was clearly liable for the amounts drawn under the line of credit account, together with interest at the rates provided for in her loan agreement with CUA.

CUA also obtained an order against the husband for money he withdrew and deposited to his account with Westpac totalling $81,700. But it failed to regain its security aganst the properties. The judge ordered a charge on those properties subject to the rights of the new mortgagee which had advanced $805,000.

The judge said:

“22 As I have said, it is clear that the plaintiff allowed drawings on the line of credit account because it was acting under a mistake, and an important mistake, that the account was still secured. There is no direct evidence that either the first defendant or the second defendant was aware of that mistake. As I have said, the defendants have not appeared and so of course they have not put on any evidence. However, it was a term of the agreement on the opening of the line of credit account that it would be secured by mortgages initially over the Hazelbrook property, and subsequently over both the Hazelbrook property and the Ferguson Road, Springwood property.

I infer that the second defendant knew or understood that the further drawings on the account were permitted only by error…

25 I infer that the drawings from the first defendant’s line of credit account which were applied to the second defendant’s account with Westpac, and those which were applied in reduction of the loans secured by mortgages, were drawn by the second defendant acting under power of attorney. His knowledge and understanding of the plaintiff’s mistake, when acting for the first defendant as her agent, would be imputed to her. Hence I infer that both defendants had actual knowledge, or at least imputed knowledge in the case of the first defendant, that the drawings were permitted by the plaintiff by mistake.

26 In those circumstances, and possibly, in the case of the second defendant, even if he had not had such knowledge, the second defendant is liable in an action for restitution, or as it would formerly have been characterised, in an action for money had and received, for the drawings permitted by the plaintiff by mistake, which were applied for his benefit. …

29 The moneys received by the defendants from the accounts, with knowledge that they were permitted to be drawn as a result of mistake, when the moneys were paid without any consideration passing from the defendants to the plaintiff other than the original promise made by the first defendant in her loan agreement, were at that time impressed with either a constructive or resulting trust in favour of the plaintiff. ..

30 Those moneys were not used as contributions to the purchase price of properties acquired by the first defendant. I do not accept that the plaintiff is entitled to declarations that properties of the first defendant are held by her on trust for the plaintiff. However, as certain of the payments can be traced as having been used to reduce the mortgage debts secured over the properties at Great Western Highway, Springwood, and Great Western Highway, Hazelbrook, the court may treat those lands as charged with the payment to the plaintiff of the amounts so applied. ..

31 There is no evidence that the interests of innocent third parties would be adversely affected by an order charging those lands. The charge will not affect the rights of the registered mortgagees to exercise their power of sale, and will not affect the interests of any other person having prior security over the property without notice of the plaintiff’s claim. It would be against good conscience for the defendants to be permitted to receive any surplus proceeds of sale of the property, free of the plaintiff’s claim for repayment, where the plaintiff’s money was applied to reduce the mortgage debts. That charge should also secure interest on the moneys so applied at the contractual rate.”

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