LWB233
Murray McCarthy
Week 11
MORTGAGES
ELEMENT 1: State the Parties
ELEMENT 2: Draw a Diagram and define the issues
Terminology





Borrower of money: mortgagor – gives the mortgage
Lender of money: mortgagee – takes the mortgage
It’s fundamental to a mortgage that the mortgagor has the right to repay and get their property back
free of the burden – equity will guard that right.
If the mortgagors defaults, the mortgagee has several remedies including power of sale.
Eg State “ The property involves the rights of the mortgagor (Mary) to redeem her mortgage. It
appears the following issues arise.
ELEMENT 3: Define a mortgage




A mortgage is a means by which an owner of land may borrow money
The definition differs depending on whether it’s a mortgage of general law land or a mortgage of
Torrens land.
Under the general law, the mortgage worked as a transfer – the borrower transferred to the lender, the
borrower’s land.
Under Torrens, it operates as a charge over land – the borrower gives the lender a charge over land as
security of a debt or performance of some other obligation.
ELEMENT 3: Characteristics of a Mortgage
LEGAL MORTGAGE OF GENERAL LAW(Non-Torrens) LAND
Transfer of Legal O’ship
Lends$
Mor
Mee
Repays $
Mge
Clog
Equity of Redemption
Elements
1. Promise my mortgagor to repay loan
2. Conveyance of legal title land by mortgagor to mortgagee (Mortgagee obtains legal title)
3. Mortgagee promises to reconvey land to mortgagor upon repayment of debt and interest: EQ right of
redemption
 Must be in writing and signed by Mortgagor or s.11PLA
Page 1
LWB233
Murray McCarthy
MORTGAGORS Rights over the Mortgaged Property
1.
The two rights to redeem
Legal right to redeem.
 The contractual right of the mortgagor to repay the debt on the date fixed by the contract of
mortgage and to require the mortgagee to reconvey the land.
 At law the mortgagor’s obligation was regarded very strictly, so if the mortgagor didn’t repay on the
exact date, the law saw the mortgagee’s title as absolute and the mortgagor lost the right to regain the
property.
Equitable right to redeem.
 The right of the mortgagor to repay the debt even after the contractual date has passed.
 It arises when the contractual date passes and lasts until it is extinguished by the statute of limitations
or foreclosure.
 Relieves harshnes of CL.
 Equity intervened and saw the conveyance as a security interest – the mortgagee should not make an
excessive profit. The mortgagor shouldn’t lose their property just because they’re late repaying the
loan. If the mortgagor paid the principal and interest and any costs due to the late payment, equity
compelled the mortgagee to reconvey the property.
 If there was a mortgage given 1 January and the repayment date was 30 June – if the mortgagor repays
on the 30 June, that is the exercise of the legal right to redeem; mortgagee reconveys the land. If the
mortgagor does not repay on 30 June, from 1 July mortgagor has equitable right to redeem; lasts until
exercised or extinguished by mortgagee selling land or foreclosing.
2.




3.
The equity of redemption
This should be distinguished from the equitable right to redeem.
A bundle of rights that the mortgagor has – it gives the mortgagor of general law land an interest in the
land (mortgagee has legal interest; mortgagor has equitable interest) and it includes the equitable right
to redeem (to pay late and get the property back)
It can be measured in money terms but is not money – e.g. if there’s a house worth $170,000 and you’d
borrowed $120,000, the mortgagors interest in the property (i.e. the value of the equity of redemption)
would be $50,000 (but it isn’t money, it’s a bundle of rights).
The equity of redemption is the sum total of all the mortgagor’s rights – it’s an equitable interest in
land and the mortgagor can sell it, devise it on death, or mortgage it again to another lender.
The right to possession arises only if conferred by the mortgage.
MORTGAGEES Rights over the Mortgaged Property



Foreclose is a process of extinguishing the mortgagor’s rights to repay and get the property back.
There has to be some limit on the mortgagor’s right to redeem, otherwise the mortgagee would never
be able to get back their money.
The mortgagor is given several opportunities to pay the money, and only after this would the court
make a decree of foreclosure and the mortgagee would obtain the land absolute at law and in equity.
EQUITABLE MORTGAGE OF GENERAL LAW LAND
(1)



Contract
This can arise through a general agreement to grant a legal mortgage for valuable consideration
BUT it’s not formally taken out – ie did not comply with writing requirements (s.11 and s.59)
ORAL Agreement is NOT enough UNLESS $ advanced and sufficient acts of Part Performance
Page 2
LWB233
Murray McCarthy
(2) Deposit of Title Deeds
 Deposit of title deeds by way of security is an equitable mortgage – writing is not necessary, simply
depositing your title deeds is sufficient.
 Any second mortgage is equitable – that is the mortgagor is mortgaging the equity of redemption.
TORRENS TITLE MORTGAGE
Mor ®
Lends $
Repays $$
Mee





A Torrens mortgage does NOT take effect as a transfer of land BUT instead operates as a charge
on land for the debt or liability secured by the mortgage.
The mortgage obtains its legal character upon registration.
The Torrens mortgagor remains the owner of the land, but their rights are diminished.
S.74 LTA – registered mortgage operates as a charge on the land for the debt or liability secured by the
mortgage.
S.4 LTA – “mortgage” includes a charge on a lot for securing money
What is a charge?




A charge is a creation of a new interest in property; not a transfer of an interest – it involves
making a property available to meet a debt.
Mortgagee a chose in action to get Crt to recover debt
If the Mortgagor defaults, the holder of the charge has a right to realise the property
The property is “charged with”/ “responsible for” repayment of the debt.
Requirements of LTA:
To register a mortgage of Torrens land, the requirements of the LTA must be complied with.
 s.72 - The Mortgage must be in the prescribed instrument
 s.73(1)
(a) Must be validly executed by the mortgagee and mortgagor.
(b) It must include a description of the lot
(c) description of the debt being mortgaged.
 registered under LTA – s.72; s.181
Indefeasibility of Mortgagee’s interest

Once registered, the registered mortgagee is entitled to the benefits of indefeasibility conferred
by s.184
Tessman v. Costello
- This case established the nature of a mortgage interest in Torrens land.
- The pl.’s mortgaged their land to Action Home Loans to secure a loan to their son
- AHL transferred the mortgage to the defs. (Costello) The first defs became registered as mortgagees.
- The parents said they wanted to set aside the mortgage with AHL and their son for undue influence and
fraud (as well as the first defs)
- The pl.’s argued that the 1st defs are registered mortgagees but they didn’t have an interest in land, only
a right to sue for a debt – they are just assignees of a chose in action and therefore they take subject to
equities available against AHL(assignor).
- The 1st defs argued that even if the Mortgage could be set aside for undue influence, they had an
interest in land protected as a result of indefeasibility
Held
- The court held that the first mortgage was voidable as against the original mortgagee. However, the
transferee of the first mortgage obtained indefeasible title upon registration of the mortgage.
Page 3
LWB233
-
-
-
Murray McCarthy
The estate or interest of the transferor of a registered mortgage is an interest in land and therefore the
indefeasibility provisions applied. Therefore, the transferees, the 1st defs acquired indefeasible title
upon registration even if voidable against the original mortgagee.
The court went through the nature of a torrens mortgage and they said it was a charge – it is a separate
and distinct interest in land. It’s capable of transfer by registration and once it’s registered, the
mortgagee’s title is indefeasible.
A torrens mortgagee obtains a distinct interest in land, it is protected by registration and enjoys the
benefits of indefeasibility. So even if it’s voidable against the first mortgagee, it’s not against the
second b/c they have indefeasible title.
Covenants in mortgages
1. Express in Mortgage
2. Implied by PLA Subject top terms of A’ment
 Repayment of principal and interest s78(1)(a)
 Cov designed to preserve the Mort Prop s78(1)(b) & (3)
 Power to insure against fire and storm s83(1)(b)
3. Incorporated by Reg of Standard Doc
 Doc that contains terms and Cond s168, s169 LTA
 Then becomes part of Instrument s170
Usual Terms
 Charging land with repayment
- “the M’or charges the estate or interest in the land with repayment of $ …..”
- Usually M’or  have right to early repayment (before K date) unless stipilated in K
- Hyde Management v FAI
-  No EQ right to redeem prior to K date
- BUT CCC has Stat right to repay at any time subject to penalty
 “all accounts”/ “all monies” clause
- Cov to repay this loan and any past or future future loan - all secured by THIS Mortgage
 Acceleration clause
- If Mort’or fails to pay one instalment, M’ee can call up all the money to be repaid in future
- s95 Releif
 Cov to Protect Property
- Maintain in good repair and insure
- Pay all rates etc
- Does not deal except with consent of M’ee
EQUITABLE MORTGAGE OF TORRENS LAND
Can be created in three ways:
 An agreement to grant a mortgage but the mortgage is not executed (compliance with s.59 required)
 A deposit of title deeds: s.75 LTA
 Unregistered mortgage
ELEMENT 4: Rights of the Mortgagor under Torrens
MORTGAGOR’S RIGHT TO POSSESSION OF TITLE DEEDS:
General Law:
Page 4
LWB233

Murray McCarthy
Possession of title deeds passed with the legal estate as so were held by the mortgagee.
Torrens:
 The mortgagor retains legal title, so the mortgagee is not entitled to possession of the CT unless
conferred by the mortgage.
 However, the effect of .42(2) LTA is that the mortgagor is no longer entitled to hold the certificate if
there is a registered mortgage unless the mortgagee consents to the issue of a certificate of title.
MORTGAGOR’S RIGHT TO POSSESSION OF LAND:
General Law:
 Mortgagee is the legal owner and therefore is prima facie entitled to possession.
Torrens:
 The mortgagor has legal title to the land and therefore has the right to possession
MORTGAGOR’S RIGHT TO GIVE A SECOND MORTGAGE
General Law:
 All the mortgagor could do would be to offer an equitable mortgage,
Torrens:
 Since the mortgagor retains legal and equitable interest in the land, it is possible to enter into a second
mortgage.
 Eg If home buyers buy a house worth $175,000 and have a registered mortgage to the CBA to secure
loan of $100,000
 They subsequently enter into a second mortgage with Westpac for $20,000 which can also be
registered, which is a legal mortgage also (cf. Under general law, where the second mortgage is
equitable).
MORTGAGOR’S RIGHT TO LEASE:
Leases existing AT THE DATE of the mortgage.
 Registered leases are binding on the mortgagor and mortgagee s.184(1) Land Title Act.
 Unregistered short leases also are binding on mortgagor and mortgagee s.185(1)(b).
 Unregistered leases for more than 3 years will not bind the registered mortgagee - s.184(2).
Leases created AFTER mortgage registered.
 Section 66 Land Title Act - both short leases and leases for more than 3 years are only binding if
mortgagee consents.
MORTGAGOR’S RIGHT TO REDEEM MORTGAGE:
 Right to repay mortgagee and obtain a discharge of the mortgage from the land, rather than a
reconveyance under the general law – essentially the same – have the land freed from the burden of the
mortgage.
Re Forest Trusts
- Process of redemption was described as being substantially the same as a reconveyance at general law.
- It’s the method by which the mortgagor fulfills obligations and frees up the land.
- He decided it was appropriate to use the term redemption.
EQUITABLE DOCTRINE PROTECTS THE MORTGAGOR’S RIGHTS TO REDEEM


Equity will not permit a clog on the equity of redemption
A clog is an attempt by a mortgagee to fetter a mortgagor’s rights to recover the land free of the
mortgage.
3 Forms
1. Option to purchase
2. Postponing Right to Redeem
3. Collateral Contract
1. Option to Purchase:
Page 5
LWB233


Murray McCarthy
This form of clog only applies if option is unfair or unconscionable in all circumstances
To avoid, must be genuinely independent as a matter of substance (another doc is not determinative)
Samuel v. Jarrah Timber
- The mortgagee had an option to purchase the property which would have totally extinguished the right
to redeem (the mortgagor would have had no rights to get the property back)
- It was held to be invalid.
Westfield Holdings v. Australian Capital Television
- This case involved large-scale enterprise
- The defs owned land and there was TV stations on the land. They wanted to buy the TV stations.
- They got a loan from WH and gave WH a mortgage over the land. WH asked for an option to
purchase the land.
- The Ct held this to be valid.
- The judge said that the fundamental purpose of this transaction was to enable the defs to buy the
TV stations – the loan, the mortgage, the option to purchase were minor elements in the
transaction. In substance, this transaction is not really a mortgage, a mortgage is just an incidental
part of it. The rule against clogs on the equity is basically a rule to protect mortgagor’s against
unconscionable conduct or unfair conduct.
- Equity will always intervene to help a necessitous borrower, because a necessitous borrower is not a
free borrower. He didn’t see this borrower as needing any help from equity.
- The option to purchaser was therefore held valid.
Plan:
- The plan was for the defs to sell the land to the pl., and lease it back, to use the loan to acquire the TV
stations and conduct them on the land.
- It was held in substance not to be a mortgage transaction so the option to purchaser given to the
mortgagee was valid.
- He said that if it was a mortgage transaction, then this option was fair and not unconscionable.
2. An attempt to postpone the mortgagor’s right to redeem:
Knightsbridge Estates Trust v. Byrne
- The mortgagors wanted a loan at low interest rates for a long term.
- They arranged a loan repayable by 80 ½ year instalments over 40 years.
- They wanted that loan for commercial reasons and then after 6 years that got a substantial sum and
sought to redeem and get out of the mortgage.
- The court said the right of redemption had been postponed (for 40years - 40 years before the
mortgagor could recover the property free of the burden), but the court said there is no rule that the
contractual right to redeem may be postponed only for a reasonable time.
- The only rule is that - the courts will not let the right of redemption be made illusory and the
courts won’t let the mortgagee impose oppressive or unconscionable terms.
- Here the court said there was nothing oppressive or unconscionable in the transaction – on the
contrary, this was a commercial transaction b/w two experienced businesses. They said it wasn’t the
case where a needy borrower was being oppressed by an unscrupulous lender (what equity seeks to
protect)
- Therefore, the 40 years was upheld.
3. Collateral Covenants
 Gives Mortgagee some advantage beyond principle and Security Interest.
 E.g. if you own a hotel and you got a loan from a brewery and mortgaged it, the mortgagee might have
you seek to sell only their alcohol in your hotel.
 Collateral advantages are usually upheld if they last up until redemption only. If they operate
only until redemption, they are valid.
 In the following case, the collateral advantage operated AFTER redemption.
Kreglinger v. New Patatgonia
- The mortgagor took a loan for 5 years, but had the right to pay early.
- The mortgagee wanted the right of first refusal – first chance (a preemption right) to buy the
Page 6
LWB233
-
Murray McCarthy
mortgagor’s product for the next five years. And the mortgagee promised to match the mortgagor’s
best price.
The mortgagor repaid in 2 ½ years and the lender wanted to keep the first right of refusal for the
balance of the five years.
The court upheld this and said that it was a business relationship and there was nothing unfair or
unconscionable about the advantage. It didn’t impose any penalty.
 May be Valid, even though endures beyond redemption provided
1) Not unfair or UnCon
2) Not in the nature of a pealty clogging EQ of Red
3) Not inconsistent or repugnat to K or EQ right to Red
Biggs v Hoddinott
 M’or granted mortgage over hotel to Brewery Co.
 5 Year term
 While $ owing, M’or to buy all beer etc from M’ee
Held
- NO Clog  right to Red  affected by the clause
- Once debt paid, “tied house clause” ceased to have operation
- NOT otherwise unfair or UnCon
ELEMENT 5: Remedies of the Torrens Mortgagee’s
SUE ON PERSONAL COVENANTS

Under a mortgage, the mortgagor always promises personally to pay the debt – so the mortgagee can
always sue on the personal covenant to pay.
ENTER POSSESSION OF MORTGAGED PREMISES

The mortgagee can also go into possession of the property – s.78(2)LTA (if there is a tenant on the
property, the mortgagee does this by receiving the rent from the tenant)
 s78(2) LTA
 If M’or defaults M’ee may
a) Take peaceful possession
b) Enter into Poss by receiving rents and profits
c) By Ct action to obtain possession
POWER TO APPOINT RECEIVER
 Impied power by s83(1)(c)
 BUT must be entitled to exercise POS s92(1)
FORECLOSURE


Source: s.78(2)(c)(ii)
It involves a mortgagee taking the property for themselves.
 Vests full legal and Equitable ownership in Mortgagee in full satisfaction of debt.
 Foreclosure usually takes place when there is a falling market.

-
Example:
A mortgagor buys a house for $200,000
Page 7
LWB233
Murray McCarthy
-
They take out a loan for $150,000 and secure it with a mortgage
The market is falling so the house is only worth $140,000
The amount of the debt is $150,000 but the house is only $140,000
Here the mortgagee would foreclose and take the house.
Interest stops running on the loan so that the mortgagor doesn’t have to go into further debt.
If you had a property worth more than the debt, you would never let a mortgagee foreclose.



A mortgagee has to go through the courts to get foreclosure.
They ask for a foreclosure order nisi.
The court orders accounts to be taken and there’s a calculation made of how much the mortgagor owes
and then there’s 6 months waiting time to give the mortgagor every chance to repay the money.
Only if at the end of the 6 months the mortgagor hasn’t paid will the court make a foreclosure order
absolute. It extinguishes the mortgagor’s interest in the land and the mortgagee needs to get title to the
land. This is done in one of 2 ways:
Instrument of transfer or the court may make a vesting order under the Trusts Act – which is registered
in the Titles Office and mortgagee gets legal title.


POWER OF SALE


The mortgagor has a vital interest in the mortgagee’s power of sale.
The power of sale is always granted by the mortgage and it’s given by s.83 PLA

Example:
A mortgagor buys a house for $200,000
The debt is secured by a mortgage for $150,000
The property value doesn’t fall below the amount of the debt – house worth b/w $160,000 and
$210,000
Because the debt is less than the value of the house, the mortgagee will sell, retain enough to cover the
debt and the mortgagor is entitled to the balance.


Where the value of the property is more than or equal to the debt, the mortgagee would not be
allowed to foreclose.
All the mortgagor’s rights in the property will be extinguished upon the sale.
S.84(1) PLA lays down the pre-requisites for exercise of the power of sale by the mortgagee:
1. The mortgagor has to be in default
2. The mortgagee must serve a notice in form 7 specifying the default and requiring a remedy of default
3. The default has to have continued for 30 days.
4. If the mortgagee hasn’t complied with all of these then the m’ee is not entitled to sell, the power of sale
does not become exercisable, and the mortgagor has a right to obtain an injunction and prevent the
sale.
MORTGAGEE’S DUTY ON SALE: S.85PLA


Mortgagees have to take reasonable care that the property is sold at market value (more than
simply acting in good faith) – without fraud or reckless disregard
Mortgagor has a remedy in damages against a mortgagee who sells in breach of duty.
 s85
(1) Market Value
 Take R care to ensure Prop sold at Market Value
(2) Notice to M’or
 Must give M’ee notice w/i 28 days from completion
(3) Breach of Duty
 Title of Purch  impeachable on ground that M’ee committed breach of duty
 BUT M’or has a remedy in damages against M’ee
Page 8
LWB233
Murray McCarthy
(5) Contrary Agreement
 A’ment VOID to the extent that it purports to relieve M’ee from duty imposed
Relevant Factors In deciding whether the mortgagee’s duty has been discharged:
(a) The mortgagee has to adequately advertise the property:
 In sufficient time
 The advertisement has to describe all the desirable features of the property in order to get the best
price.
Cuckmere Brick Co. v. Mutual Finance Co Ltd
- The mortgagors had town planning permission to build 100 flats or 35 houses.
- They were in default and the mortgagees were selling.
- The advertisement of sale stated that the planning permission was to build 35 houses – it did not refer
to the permission to build 100 flats.
- When the mortgagor found out, he asked them to postpone the sale but they wouldn’t, but they
instructed the auctioneer to mention the permission for the flats at the start of the auction.
- This was too late b/c people had already made up their minds as to how much they would bid etc.
- The mortgagees were held to have breached their duty to adequately advertise the property.

Would seem that a mortgagee wouldn’t have to mention advantages the mortgagor just claims to
have. They would only have to mention those known to be fact or they may be liable for misrep.
ANZ Bank v. Bangadilly Pastoral Co
- G set up the auction in Sydney on the 23 Dec.
- They didn’t advertise in the area (which is a must)
- They had limited advertising in Sydney and Melbourne and it was only about 10days before the
auction (mortgagee needs to advertise early to give people time – i.e. several weeks)
- They didn’t tell ANZ (2nd mortgagee) about the auction – they owe a duty of faith to the 2nd mortgage
- Before the auction they decided that the Bangadilly Coy would bid up to $265,000
- The inadequate advertising is the main focus here – it wasn’t local and wasn’t sufficient time.
b) Mortgagee must choose a suitable date for auction
 23 Dec is not appropriate, especially for a pastoral property: ANZ Bank
(c) Sale to a subsidiary or close associate
 Mortgagee NOT permitted to sell to itself REGARDLESS of price or terms
 BUT Can M’ee sell to Corp controlled by M’ee or in which M’ee has an interest
 Can sell to close Associate BUT Must take extreme care to ensure independent bargain
 Onus: M’ee and Purchaser prove Bona Fides
ANZ Bank v Bangadilly Pastoral Co
 1st M’ee Halco
 Sold to Bangadilly
 BOTH owned and controlled by Halls who set the reserve
 Also knew price that Purchaser (B) could pay
 They were the only real bidders at Auction
Held
- NO Ev. to support Independent Bargain
- Set sale aside
- M’ee and Purchaser failed to discharge onus of proving bona fides
- M’ee failed to follow up prospects of obtaining a higher price when it knew Purchaser was prepared to
pay a higher price
- Auction time Sched at an inappropriate time (2 days pre X-mas) and  appropriate Advert
Page 9
LWB233
Murray McCarthy
(d) Choice whether to sell by auction or private sale
 The mortgagee is free to choose either.
 If they decide to sell by private sale, as long as they conduct all the mattes properly, there
shouldn’t be a problem
 Still wise to advertise etc.
 Ordinarily, though sales are by auction.
 The mortgagee’s duty on the auction:
Southern Goldfields v. General Credits
- The 1st mortgagee sold by auction and actually obtained some valuations prior to the auction – one was
$715,000
- The mortgagee prepared the auction properly – the advertising was appropriate, there was no error by
the real estate agent and there was a competent auctioneer.
- The mortgagee fixed the reserve price at $360,000 and sold to the highest bidder at $360,000.
- The mortgagors complained and said that they shouldn’t have let it go on that day for that price – they
should have tried to increase the offers.
- The court said no, the mortgagee had discharged its duty – if they had rejected the bids, there was no
certainty that they would increase their offers and that interest on the debt would have kept increasing.
- It was acceptable for the mortgagee to take the highest bid – they had sold for the best price available
on the day regardless of the valuer’s opinion. (Whatever the highest bid is on the day is the market
value)
(e) Delegation of Power of Sale
 A mortgagee is not discharged from carrying out his/her duties by engaging an apparently
incompetent agent
 Personally liable for Acts of agent resulting in breach of duty (failure to properly advertise)
McKean v. Maloney
- Property was in Proserpine, - although there were good agents there, the mortgagee engaged an agent
from Mackay (thus failing to engage a local estate agent)
- Only one advertisement in a Proserpine newspaper and the others were in Mackay newspapers.
- It should have been advertised in Proserpine for three weeks before the auction.
- Mortgagee had a valuation of $62,000 but sold the land after auction for $50,000.
- The market value at the time was $60,000.
- The sale was insufficient in amount, and the advertising was in the wrong place.
- A mortgagee is not discharged from carrying out his/her duties by engaging an apparently
incompetent agent – there was nothing wrong with the Mackay agent, but it is a duty that you
can’t delegate (i.e. a mortgagee cannot escape liability by saying that the agent didn’t advertise
correctly)
- @634 – the K price was $50,000, the market value was $60,000 and the mortgagor received damages
of $10,000.
- s.85(3) gives the mortgagor a remedy in damages – the difference b/w the market value (matter of
evidence) and the K price
REMEDIES TO M’OR FOR WRONGFUL EXERCISE OF POS
INJUNCTION to restrain exercise of POS
 The inherent power of the Supreme Court to grant an injunction to prevent a mortgagee’s sale is used
sparingly
 General rule Generally, an injunction will only be granted if the mortgage money is paid into Court:
Allfox Building v Bank of Melbourne
 Applies if:
 Mortgagor admits in default but disputes amount of default
 Mortgagor is dissatisfied with manner of exercise of power of sale
Page 10
LWB233
Murray McCarthy
 Does NOT Apply if:
 Validity of Mortgage is in issue
 Mortgagor is not in default
 Statutory preconditions are not satisfied
  then POS not exercisable
 Not have to Pay $ into Ct
Mortgagor seeks to restrain COMPLETION of the K of sale not yet settled
 Must Prove against Mortgagee (Negligence  enough)
1) Bad faith
2) Reckless sacrifice of Mortgagor’s interests Forsyth v Blundell
3) Fraudulent behaviour including collusion with Purchaser Latec
 Must Prove against Purchaser
 Knowledge of Mortgagee’s bad faith or impropriety
 Will have that knowledge where Mortgagoror intervenes prior to completion and gives Purchaser
that knowledge
 Purch  have obtained a right superior to M’or
 IF Purchaser does not have knowledge of the Bad faith, then they obtain a title that cannot be
challenged by the M’or
 Recklessly sacrificing the mortgagor’s interest:
Forsyth v. Blundell
- There was a mortgage of a petrol station and the mortgagee exercised the power of sale and sold to
Shell for $120,000
- The mortgagee knew that another oil coy was prepared to pay $150,000 for the land and the purchaser,
Shell, had no notice of the impropriety at the date of K.
- The court found that the mortgagee’s conduct in knowing that they could have got more than
just selling to Shell, was more than mere negligence, it was reckless indifference to the
mortgagor’s interest (improper conduct)
- The purchaser was innocent (Shell) but the mortgagor sought to prevent the K of sale being
completed – intervened before settlement. (mortgagor intervened after K but before settlement)
- The court said that the mortgagor was still on the title and the purchaser from the mortgagee had an
equitable interest. They then said, alternatively, that the mortgagor has an equitable interest. If the
mortgagor has an equitable interest, then, by intervening now, and by all the circumstances (that the
purchaser knew that they were buying from the mortgagee and there was a mortgagor who had an
interest) the purchaser knows about the equitable interest.
- Therefore there were two competing equitable interests (priorities) the 2 nd interest holder knew about
the mortgagor’s interest. The mortgagee has conducted the sale properly, but the mortgagor hasn’t
induced that belief – they didn’t do anything to indicate that the mortgagee has acted in good faith – so
the mortgagor has the first in time.
- The HC took it both ways – they thought that the mortgagor had a legal interest. Alternatively,
if the mortgagor had an equitable interest, neither of them have done anything wrong, the
mortgagor was first in time, therefore the mortgagor prevails.
- **This is an important case – Read Walsh J @ 496-499

Note: a lot depends on when the mortgagor intervenes (is it before settlement?) and what knowledge
the third party has of the improper conduct by the mortgagee.
If mortgagor intervenes before settlement
 Mortgagor has legal title;
 Purchaser from mortgagee has an equitable interest
 If you regard the mortgagor as having an equitable interest, then the purchaser from the mortgagee
knows of that equitable interest and the mortgagor does not induce the belief that the mortgagee
Page 11
LWB233
Murray McCarthy
conducts the sale in accordance with their duty and in good faith.
Mortgagor seeks to set aside sale AFTER completion BUT before Registration
If mortgagor intervenes after settlement but before registration
 If the mortgagee acts in bad faith (i.e. reckless indifference or fraud) and the purchaser knows of the
impropriety then the K can be set aside.
 IF the mortgagee acts in bad faith and the purchaser/3rd party does not know of the impropriety:
McKean v. Maloney
- MacPherson J said that if the mortgagor intervenes after settlement, and before registration, you’d need
to show that the mortgagee is in bad faith and the purchaser or third party knows about the
impropriety.
- It was for this reason that he would not set the sale aside, because the mortgagee had not acted in bad
faith, but had just been negligent.
Forsyth v. Blundell
- Walsh J. said that if the 3rd party doesn’t know, the courts won’t set the sale aside.
Latec Investments v. Hotel Terrigal
- HT was mortgaged to L, there was a default
- L exercised the power of sale (their conduct was later held to be fraudulent – they chose a Friday
afternoon for auction, allowed only 10 days for advertising, they fixed a high reserve to deter buyers,
and the property was passed in at the auction – they then sold to SH, a wholly owned subsidiary in Nov
1958)
- There was no bargaining, the price was fixed by a common board of directors, and the object was to
get the hotel for the mortgagee’s group of companies.
- SH gave an equitable mortgage to MLC nominees in March 1960.
- The mortgagor took action to challenge the sale.
- This is a case of fraud – fraudulent collusion with the purchaser (i.e. L and SH)
- The court said that if the mortgagor had challenged the matter at that time, after SH had become
registered, the sale would have been set aside.
- The difficulty arose, b/c the innocent 3rd party intervened and obtained an equitable mortgage.
- The HC postponed the mortgagor (HT) on two bases – all they had was a mere equity (they’d have to
get the sale set aside, they’d have to defeat title) – they can’t succeed against a later purchaser for
value without notice.
- Alternatively, if HT does still have an equitable interest and if there is a priority question b/w the two
interests, then they would postpone HT’s interest on the grounds of delay in challenging the sale (i.e.
two and half years).

Therefore, the court won’t set a sale aside against an innocent purchaser from the mortgagee, even if
they’re not yet registered.
Mortgagor seeks to set aside sale AFTER completion and AFTER Registration

Can only be set aside if there is an exception to indefeasibility
s.87 PROTECTION OF PURCHASER
s.87 PLA
 If the purchaser has knowledge at the time of entering into the contract of the lack of good faith by the
mortgagee, then the purchaser cannot obtain a right superior to the right of the mortgagor and the sale
will be set aside
 If the purchaser has no notice of the facts that constitute a lack of good faith at the time of entering into
the contract, then the sale will not be set aside.
 s87
Protection of Purcahsers
Page 12
LWB233
Murray McCarthy
 Where Conveyance (Reg) made in exercise of POS
 Purch title  impeachable on ground that
a) No case had arisen to Authorise the sale
b) Due notice not given
c) Leave to Ct was not obtained
d) POS exercised improperly
 Purch not obliged to Inq whwther M’ee entitled to exercise power or if done properly
 Position of the Purchaser after they buy from the Mortgagee
Figgins Holdings v. SEAA
- There was a mortgagor who had property leased out to a tenant.
- The mortgagor and the tenant made an agreement reducing the tenant’s rent to $1
- The mortgagor defaulted and the mortgagee exercised the power of sale.
- The lease was binding on the mortgagee – it wasn’t reg’d but b/c of statutory provisions it was binding.
- But the agreement to reduce the rent to $1 didn’t bind the mortgagee
- The mortgagee sold the property to a purchaser and the HC had to examine the position of the
purchaser and had to work out whether the purchaser succeeded to the mortgagee’s interest in the land
or did it succeed to the mortgagor’s interest.
- If the purchaser succeeded to the mortgagee’s interest, it could have recovered all of the rent that
would have been due if the rent hadn’t been varied down to $1 (therefore could have recovered all of
the rent due up to the variation agreement). But if the purchaser succeeded to the mortgagor, they
wouldn’t be able to get all the rent, they’d be an assignee to the reversion in relation to the tenant.
- The HC found that they were not a successor of the mortgagee – therefore they would stand in the
position of L2 in respect of the reversion.
Page 13