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Property Law News, July/August 2010
The NSW Courts revisit the law relating to forged signatures on mortgages and “sexually transmitted debt” between spouses
Perpetual Trustees Victoria Limited v English & Anor[2010] NSWCA32
This case concerned a mortgagee seeking to take possession of a security property following the default of the mortgagor, where one of the mortgagors’ signatures had been forged on the mortgage documents.
The mortgagors, Mr & Mrs English, registered joint proprietors of a property in Castle Hill. They had been separated for several years. In 2003, Mr. English sought a loan of $536,000 from Perpetual for his business – this loan was sought in the joint names of Mr. English and his wife. Mr. English forged his wife’s signature on the mortgage documents. Mr. English subsequently defaulted under the Perpetual mortgage, and Perpetual sought an order for possession against both Mr. & Mrs. English.
The Court revisited the key judgments of Frazer v Walker [1967] 1AC 569 and Breskvar v Wall (1971) 126 CLR 376. In Breskvar, it was said that:
“The Torrens system of registered title ... is not a system of registration of title but a system of title by registration. ... It is the title which registration itself has vested in the proprietor. Consequently, a registration which results from a void instrument is effective according to the terms of the registration.”
Because registration of the forged mortgage gave indefeasible title to Perpetual (since Perpetual was not itself guilty of, or implicated in, any fraud), it fell to the Court to determine whether or not Perpetual’s indefeasible title ‘validated’ all of the terms of the mortgage document, which was otherwise void for the forgery.
The trial judge had held that Perpetual’s claim failed against both Mr. English and Mrs. English. It was said that there was no validly ‘secured agreement’ under the mortgage for Mrs. English to pay out the loan. Because the mortgage secured a jointly owned property, and Perpetual had elected not to pursue Mr. English on grounds separate from the mortgage, its claims failed in their entirety.
It may be noted that, under the Real Property Act 1900, s 41(1), once a mortgage is registered, the security property is subject to the covenants contained within the terms of the mortgage. That is not to say that every term of a registered mortgage will be valid and enforceable. The law in NSW generally considers that a ‘personal covenant’, contained in a registered mortgage marked by forgery, to pay the value of the mortgage advance where such advance is greater than the value of the security property, will not attract indefeasibility. The actual terms of the forged mortgage must be considered and construed before it can be said whether or not the mortgagee can enforce its interest in respect of a particular debt or obligation under an agreement that is separate from or ancillary to the mortgage.
The Court of Appeal ultimately held that the mortgage here did not, on its proper construction, secure a sum of ‘secured money’. The mortgage could not be said to secure any monies due under the loan made by Perpetual to Mr. English. Perpetual was therefore barred from enforcing a power of sale against Mrs. English. The same could not be said with regard to Mr. English. The Court declined to allow Mr. English to escape liability on the basis that the mortgage contained a forged signature, since it was Mr. English who was responsible for this forgery. Perpetual were held to hold an equitable mortgage enforceable against Mr. English.
The Court has reaffirmed that prior negotiations and discussions before a lease is signed cannot be admitted as evidence of the parties intentions when interpreting a mere contractual term of a lease.
Phoenix Commercial Enterprises Pty. Ltd. v City of Canada Bay Council[2010] NSWCA 64
Here, the Council was Phoenix’s landlord, and served a Notice of Termination of the Lease. Phoenix sought to resist this termination, on the grounds that it was not in breach of the Lease agreement.
Since 1996, Phoenix had leased two lots from the Council for the erection and display of large billboard advertisements. The relevant clause of the Lease in question, Clause 15(d), stated that:
“(s)hould the Lessor in its capacity as consent authority approve the erection of a general advertising structure on other land within the Lessor’s Local Government Area or control then within one (1) month of such approval the Lessor will pay the Lessee an amount equivalent to 25% of the Rental corresponding to the amount of time remaining within the Term.”
In June 2003, the Council moved to terminate the Phoenix leases on the basis that Phoenix had failed to pay rent. Phoenix argued that it had not been obliged to pay the rent in question, since the Council had defaulted under Clause 15(d), the Council having recently approved three new bus shelters fitted with advertising panels. Phoenix contended that these shelters constituted ‘general advertising structures’. Phoenix suggested that, under Clause 15(d), the Council was liable to pay three separate amounts to Phoenix, one for each of the shelters, along with interest. Phoenix alleged that it was entitled, under an implied term of the contract between the parties, to set-off the amounts owed to it by the Council under Clause 15(d) against rent owing under the Lease. Because Phoenix had paid the difference between the amount of rent owing and the monies said to be owed by the Council under Clause 15(d), it argued that it was not in default of the Lease, and the Council’s purported termination of the Lease was invalid.
The trial judge held that Clause 15(d) only operates once, and therefore gave rise an obligation in the Council to pay only one amount. As a result, a considerable portion of the rent owed by Phoenix remained unpaid even after the amount payable by Council under Clause 15(d) was offset, and Council’s termination of the Lease was validly done. Phoenix was refused leave to reopen the case to admit further evidence to support their case.
The Court of Appeal upheld the refusal of leave to Phoenix to adduce further evidence, holding that Clause 15(d) was a mere contractual right not createing an interest in land, so evidence of the parties’ intentions prior to entry into the Lease were inadmissible in construing the Lease. The Court of Appeal ultimately held that the Council had not been acting in its capacity as a ‘consent authority’ when it approved the bus shelters, such that Clause 15(d) was not enlivened.
Forum Law can assist and advise you on all commercial and retail leasing matters. Call us to discuss your lease or proposed lease.
