LAWS 2204
SEMESTER 1 2000
MARK: 78
QUESTION 2
In this problem, Hashim (H) wants the power of sale exercised subject to his lease, Jane (J) wants to
prevent the power of sale being exercised, and wants to have the variation on the mortgage removed. FM
wants to exercise the power of sale over Blackacre as vacant property.
Hashim
Hashim’s lease in Blackacre (B) is in writing, but because it is more than three years in total (including
option to renew) it should have been registered. As it stands, H has an unregistered lease, and therefore
equitable. FM has a registered mortgage over B is indefeasible (s41 RPA). In order for H to have the
power of sale exercised subject to his lease, he must prove that one of the exceptions to indefeasibility
apply.
H could argue that FM has been fraudulent. This involves actual dishonest, not mere notice of an
unregistered interest (Assets Co). the fact that the mortgage was created subject to the lease and that an
FM official gave an assurance indicated that they intended to be bound by it. The difficulty for H is that
fraud must occur before registration. H’s case can be distinguished from Yohe v Lew, where the purchaser
only made a promised to respect in order to get the property, and had no intention of respecting it. Here,
FM merely changed their minds, which according to Hoskings, is not enough to constitute fraud. H can
attempt to argue Mason and Dawson’s line from Bahr v Nicolay, that repudiating a promise to respect an
unregistered interest after registration equals fraud. However, their reasoning has been heavily criticised
because it doesn’t place enough emphasis on the evidence. On the balance of probabilities the timing issue
will weigh against H and make it difficult for him to succeed.
H could argue that an in personam exception applies. Contract wouldn’t work because there is no
specifically enforceable agreement between H and FM. However, the courts may impose obligations in
equity to prevent unconscionable conduct.
-constructive trust.
H could argue that FM undertook to be bound by H’s interest, and that repudiation would be
unconscionable, therefore FM could be held to hold their interest subject to a trust (H’s interest). Bahr v
Nicolay is the authority for this proposition, however, it is really uncertain because of the unclear
distinction between FM taking the interest knowing there is an unregistered interest affecting land which
will be defeated on registration of FM, and one who has undertaken to be bound. Because the facts here
are analogous to Bahr, H has a good chance of succeeding. In Bahr, ‘X’ took a transfer on the basis that it
was subject to B, wrote a letter acknowledging, and made offers to B. here, FM took the mortgage subject
to B, assured J that H was safe, and tried to negotiate with H to leave.
FM’s strongest argument against constructive trust would be that their assurance was subject to “the
property earning income”. Because they would get more money by selling it vacant, H ids ceasing to earn
them money, and therefore the agreement doesn’t apply. While the law is unclear in this area, the facts are
close to Bahr and FM’s actions should be found unconscionable, even if their rebuttal is considered.
Jane
Jane wants to restrain the power of sale from being exercised (Allfox v Bank of Melbourne). She could
argue that the power is being exercised improperly, if MF hasn’t given her notice of the default. She could
also argue that no occasion has arisen for the exercise of power, assuming the only reason she has
defaulted is because she can’t make the higher repayments. J’s argument would be that she hasn’t defaulted
on the original mortgage, and because the variation is void, the power of sale could only be exercised if she
has defaulted the original. To succeed, she must prove that the variation is void.
Because FM’s mortgage is not registered, J must argue that an exception to indefeasibility applies (s42
RPA). J’s first argument will be that the mortgage was fraudulently varied, and that FM was a party to that
fraud. The two cases which apply here are Grgic and DeJager. Here, A (accountant) forged J’s signature
and the attestation clause. The difficulty for J is that DeJager will most likely not apply, because in that
case, the bank officer filled in the attestation clause, and thus engaged in something which they knew to be
false. FM should be able to successfully apply Grgic, where there was held to be no fraud because the
bank officer could not have known that the person was an impersonator, and the documents were valid.
While J is unlikely to succeed on this point, she can still successfully argue fraud. While FM did not know
when they varied the mortgage that A was an impersonator, then they informed J, her confusion about it
prompted them to register the mortgage which they previously hadn’t done (fraud goes up to point of
registration). If J had varied the mortgage herself, she would not have become confused when FM
contacted her. This would have aroused FM’s suspicions about the variation, and the fact that they
abstained from discovering the truth, which is fraudulent (Assets Co). this is reinforced by Ferguson
which states that fraud can be discovered by looking at the purpose of what was done. The purpose behind
FM registering the mortgage was most likely to prevent the variation from being voided.
FM could argue that the registration was irrelevant, because they were protected by s43A RPA. This
would only apply if the mortgage was a registrable dealing before FM had notice of the variation. The
effect, if it applies, is to make FM appear as if r4gistered from the registrable dealing. This may result in
the timing of registration not resulting in fraud, but it would go on evidence.
J also has the ability to argue that actions in personam apply. Personal obligation cannot be avoided. Jane
can argue that the variation of the mortgage was a breach of contract and a breach of trust. In Gosper,
Mrs Gosper didn’t authorise the variation of the mortgage contract, so it was held that the mortgage
producing to CT to the titles office was a breach of contract. The only problem with J raising this
argument is that the case has been criticised for using a ‘sleight of hand’ because the mortgagee had no
knowledge of the forger’s fraud. The facts here are very similar, so even if Gosper is limited to apply to its
facts, J may win.
Also from Gosper, there was a breach of trust because a mortgagee holds the CT on trust for the
mortgagor.