Much is said of late about the “bank of Mum and Dad” in the context of parents helping children into their first home. However, with the passage of time positions can change as to whether sums advanced were loans or gifts and how much has been re-paid. When Mum or Dad is elderly questions can also be raised as to whether the transaction exploits a vulnerable party to permit improper personal gain.
In Putt v Putt Mr Putt (senior) successfully sustained a caveat lodged over the home owned by his son and his partner. While a consideration of the substantive matter is yet to be heard, the case highlights issues that can arise with inter-family borrowing where good intentions can erode into something entirely different. The background facts are summarised as follows:
- Mr Putt who lived in a campervan provides, by way of an interest free loan repayable on demand, the bulk of the purchase price of a property for him to live in
- Mr Putt (junior) and his partner borrowed the balance of the purchase price and made the loan repayments, they also paid for the insurance
- Mr Putt (senior) was not independently advised
- Mr Putt paid for the LIM, the building inspection, rates and maintenance and lived in the property
- Relations soured and attempts were made to sell the property and Mr Putt was served with a trespass notice
- Mr Putt lodged a caveat
Four courses of action were argued to support the caveat – estoppel, undue influence, breach of fiduciary duty and unconscionable bargain / equitable fraud.
Notwithstanding the loan agreement, which may have been subsequently forgiven the court was satisfied that the elements of an estoppel were made out (a belief or expectation has been created or encouraged; the belief or expectation has been relied upon; and detriment will arise if this is departed from). A successful estoppel can lead to a proprietary remedy. See Wellesley Property Club Inc v Wellesley Property Holdings Ltd
It was also found that there was an arguable case that the loan agreement and exclusion of Fred from the title were an unconscionable bargain.
Putt v Putt highlights risks that can flow from bargains entered into where there is no equality of bargaining power. The decision is not determinative of the facts, but illustrative of the risks of close party dealings in the absence of independent advice and demonstrable checks and balances.
- Putt v Putt  NZHC 1849
- Gillies v Keogh  2 NZLR 327 at 345-356; see also Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Brookers, Wellington 2009) at [19.2] and Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd  3 NZLR 567 at 
- Wellesley Property Club Inc v Wellesley Property Holdings Ltd (2007) 8 NZCPR 421 at .