#7189 - Mortgages - Property and Equity 2

Concept	Key Cases	Issue	Principle	Ratio	Comments
In Torrens the mortgage is a charge s 57(1) RPA Things to note – equity of redemption (value = difference between the debt and value of property; it is an equitable interest in land can be mortgaged again) as distinguished from the right to redeem (arises when the mortgage is made) The doctrine of tabula in naufragio (generally for subsequent equitable mortgagees) – if a first mortgagee exercises his power of sale and a subsequent mortgagee buys the legal estate, he will take priority over all other mortgagees in between as long as he does not have notice (Bailey v Barnes) In Torrens land priority is determined by date of registration (s 36(9) RPA) In Esber it was decided that S&D International (VSC) would be followed (though they expressed disagreement) that paying off mortgagees includes equitable mortgages after all registered mrotgages But Lyria also notes that regardless you cannot pay money to a mortgagee who is not owed anything; if a first mortgagee does so it has to repay that amount to the mortgagor
Tacking	Mercantile Credits v ANZ Banking Group		The rule of ‘tacking’ is that if the taker of a facility mortgage has no notice of a subsequent mortgagee then they do not lose priority to the extent of the increase (Hopkinson v Rolt) The scheme and provisions of the RPA are compatible with the rule in Hopksinon v Rolt and hence it applies to mortgagees under the RPA Note: Only applies to legal/registered mortgages (Chase Corp v North Syd)	What about constructive notice? Donemore’s Case (NSWSC) says no, obiter in Sibbles v Highfern (HCA) says no taking if you have AOC notice Donemore’s Case – lodgment of a caveat does not constitute constructive notice Westpac v Adelaide Bank – actual notice but not actual knowledge – enough to convey to an agent but not enough to convey to a clerical worker Scope of tacking Only refers to further sums of money, not time extensions on original sum (Burns v Trade Credit) Right to tack is lost if the mortgagee is compelled to make advances; the right only exists if they have the right to do so (but knowledge of a later mortgage relieves the mortgagee of any existing duty to make further advances) Matzner v Clyde - first mortgagee had knowledge of subsequent mortgagees and made further advanes. But he, under an agreement, had to build to complete works. Priority was altered since it would produce an unfair result for all involved otherwise (they would all be left with an incomplete security)

In Torrens the mortgage is a charge s 57(1) RPA

Things to note – equity of redemption (value = difference between the debt and value of property; it is an equitable interest in land can be mortgaged again) as distinguished from the right to redeem (arises when the mortgage is made)

The doctrine of tabula in naufragio (generally for subsequent equitable mortgagees) – if a first mortgagee exercises his power of sale and a subsequent mortgagee buys the legal estate, he will take priority over all other mortgagees in between as long as he does not have notice (Bailey v Barnes)

In Torrens land priority is determined by date of registration (s 36(9) RPA)

In Esber it was decided that S&D International (VSC) would be followed (though they expressed disagreement) that paying off mortgagees includes equitable mortgages after all registered mrotgages
But Lyria also notes that regardless you cannot pay money to a mortgagee who is not owed anything; if a first mortgagee does so it has to repay that amount to the mortgagor

Tacking

Mercantile Credits v ANZ Banking Group

The rule of ‘tacking’ is that if the taker of a facility mortgage has no notice of a subsequent mortgagee then they do not lose priority to the extent of the increase (Hopkinson v Rolt)

The scheme and provisions of the RPA are compatible with the rule in Hopksinon v Rolt and hence it applies to mortgagees under the RPA

Note: Only applies to legal/registered mortgages (Chase Corp v North Syd)

What about constructive notice? Donemore’s Case (NSWSC) says no, obiter in Sibbles v Highfern (HCA) says no taking if you have AOC notice

Donemore’s Case – lodgment of a caveat does not constitute constructive notice
Westpac v Adelaide Bank – actual notice but not actual knowledge – enough to convey to an agent but not enough to convey to a clerical worker

Scope of tacking

Only refers to further sums of money, not time extensions on original sum (Burns v Trade Credit)
Right to tack is lost if the mortgagee is compelled to make advances; the right only exists if they have the right to do so (but knowledge of a later mortgage relieves the mortgagee of any existing duty to make further advances)

Matzner v Clyde - first mortgagee had knowledge of subsequent mortgagees and made further advanes. But he, under an agreement, had to build to complete works. Priority was altered since it would produce an unfair result for all involved otherwise (they would all be left with an incomplete security)

Tacking

Vukicevic v Alliance Acceptance – X gives Y a mortgage, then later a profit a prendre to Z – both registered
- If Y exercises the power of sale they can sell it free of the profit since they are registered first
How to exercise the power of sale?
- S 109(5) CA gives the power, which is further regulated by s 111 which points you to s 57-59 of the RPA
  - S 57(2) gives the power of sale
  - S 61-62 gives the power of foreclosure
  - S 60 gives the power to enter into possession to effect sale

Concept	Key Cases	Issue	Principle	Ratio	Comments
Power of sale	Websdale v S&JD Investment Claim for principle not due	Duty of notice	A misstatement of the amount of the principal is distinguished from a claim for a principal not due Notice not providing the precise amount outstanding will be good as long as it properly identifies the defaults which the mortgagor is given the opportunity to remedy	The notices given in this case were defective	The power of sale exists under s 57(2)(b) and s 57(3) – it is the most common remedy. It is dependent on default of payment, breach of covenant + failure to remedy breach with notice Websdale qualified in Wongola v Mulingelbar – not only for non-existent defaults but also unequivocal insistence to pay a specified some and nothing less Note NRMA v Individual Homes – implied term that mortgagor facilitates mortgagee’s entry when POS exercised (hand over keys etc.) Sale to associate – Note: Benzla’s Case – sale to associate set aside; sale took place well before end of tender period Farrar v Farrar – mortgagee cannot sell to itself
Conduct of sale (equitable duty)	Bangadilly’s Case Sale at Christmas?	Sale to associate	Steps taken in sale has to be considered – lack of planning/deceptiveness etc. can lead to a conclusion of lack of bona fides The closer the association the greater the possibility of unconscious preference	Sales to associates may stand but the objective facts must show no shortcomings. Here there was: Lack of advertising No information given to the second mortgagee Undesirable time for sale (pre-christmas)
Conduct of sale (equitable duty)	Southern Goldfields	Auction	Relying on Pendlebury The real question is whether the mortgagee so acted in the sale of the property as to bona fide endeavor to obtain the best price reasonably available If they take reasonable precautions to do so, the plaintiff fails even if the price was below market value	The trial judge’s verdict was overturned because : He placed undue emphasis on the ‘reserve price’ The highest bid was still the highest bid despite what the valuers said; that a higher price than the reserve could have been obtained was not suggested by the evidence	Approved in Caitlin v NAB Nilerm Nominees v Karaley – failure to obtain valuation indicates a lack of prudence; but this would be remedied if it was well advertised Artistic Builders v Elliot – mortgagee exercising power of sale but deliberately keeping away interested purchasers are guilty of recklessly disregarding the mortgagor’s interest PT V Poala – mortgagee not in breach of duty of good faith in consenting to leases; doesn’t have to consent to this kind of speculation and can refuse consent as long they want
	Cuckmere		The view was taken that both the duty to act in good faith and to exercise reasonable care to obtain the true market value was applicable		Policy debate ensues
	Westpac Banking v Kingsland		The rule in Australia is as stated in Pendlebury - a duty to act in good faith; as such a breach of this duty cannot occur by failing to assess offers/exercise the power of sale A breach of a duty by the bank and its receivers (mortgagee) to properly assess an offer of occupancy of an asset by the mortgagor is determined by an action for accounts (hence a guarantor’s liability is only reduced on successfully taking accounts between the mortgagor and mortgagee)
One general trend is to impose an objective requirement of reasonable diligence on the mortgagee Irani v St George Bank – mortgagee exercising POS did not breach the duty to obtain best price since it honestly relied on valuations and negotiated with tenderers McKean v Maloney was a case of inadequate advertisement of an auction because an agent was hired from a different city. His honour held that under the statute engaging someone as such and ‘declining to follow the obvious course’ as suggested by her solicitor was a breach of the duty under s 85(1) What is ‘market value’ – Emerson v Custom Credit Corp - “A price which a willing but not anxious vendor would obtain from a person wishing to buy and not a price which a vendor would obtain only on a forced sale” If the mortgagee sells in breach of a duty to the mortgagor, and then the purchaser does not complete, and the mortgagor sells again when the market value has fallen then the mortgagor cannot deny the loss occasioned by recourse to the principle that there is no duty to sell. According to Higton v BFC (QLD – should still apply) this is viewed as a loss of opportunity to the amount needed to restore them to the position if the sale had been effected in the first place S 420 of the Corps Act (Much like the news 111A) provides for a standard of reasonable care which includes a duty to advertise (Jeogla v ANZ) and ensure genuine competition (Jovanovic v CBA) – but none of this effects the mortgagor’s right to decide when market conditions are suitable (Joegla v ANZ) but the obligation cannot be contracted out of (Duggan v Thomas)

Remedies of the mortgagee

Concept	Key Cases	Issue	Principle	Ratio	Comments
Court ordered sale	S103 CA – empowers the court to order a sale of property in lieu of foreclosure/redemption Palks’s Case – the mortgagee cannot subject the mortgagor to increasing risk and debt against their wishes. The mortgagor is not to be made liable for the income shortfall and is to be credited with this (note – this qualifies the position in Westpac v Kingsland concerning the mortgagees discretion to sell) The NSW legislation does not expressly authorize sale for Torrens land but in Yarranga v NAB it was held that there is probably an inherent jurisdiction to do so if it benefits both parties This was utilized in Sandgate v Ionnou because of the need for the property to be maintained on an ongoing basis in light of the fact that postponed sale would diminish the value of the property And in King Investment Solutions v Hussein (for an unregistered second mortgagee – judicial sale is the only remedy in such a case) Sood v Christianos [2008] NSWCA 1087 - It is possible to do a sale by the second mortgagee subject to the first’s interest – here the first mortgagee did not want to conduct it and would get his money either way. The court held that in such a case it should be conducted by the person who has the most to lose (this is in the court’s inherent jurisdiction) New Beach Apartments v Epic Hotels –inherent jurisdiction for torrens sales used since mortgagor ran out of...

Court ordered sale

S103 CA – empowers the court to order a sale of property in lieu of foreclosure/redemption

Palks’s Case – the mortgagee cannot subject the mortgagor to increasing risk and debt against their wishes. The mortgagor is not to be made liable for the income shortfall and is to be credited with this (note – this qualifies the position in Westpac v Kingsland concerning the mortgagees discretion to sell)

The NSW legislation does not expressly authorize sale for Torrens land but in Yarranga v NAB it was held that there is probably an inherent jurisdiction to do so if it benefits both parties

This was utilized in Sandgate v Ionnou because of the need for the property to be maintained on an ongoing basis in light of the fact that postponed sale would diminish the value of the property
And in King Investment Solutions v Hussein (for an unregistered second mortgagee – judicial sale is the only remedy in such a case)
- Sood v Christianos [2008] NSWCA 1087 - It is possible to do a sale by the second mortgagee subject to the first’s interest – here the first mortgagee did not want to conduct it and would get his money either way. The court held that in such a case it should be conducted by the person who has the most to lose (this is in the court’s inherent jurisdiction)
New Beach Apartments v Epic Hotels –inherent jurisdiction for torrens sales used since mortgagor ran out of...

#7189 - Mortgages - Property and Equity 2

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