Elderly parents mortgaged their home to secure their son’s borrowings. The mortgagee sued for possession upon the son’s default and the parents claimed undue influence and sought to have the loan and mortgage set aside under the Contracts Review Act 1980.
Contracts Review Act claim
The court did not believe the son. It made the following findings:
- the son did not tell the mortgagee that his parents were pensioners;
- the mortgagee made no inquiries because it did not care about the parent’s capacity to pay, only that there was adequate security; and
- the mortgagee knew of the son’s precarious position (needing Development Approval to pay off the loan), that there was a real likelihood that the son would default, and that it was an improvident transaction from the parents’ point of view.
The court found the above findings raised public interest considerations and noted that inquiries should have been made as to the parent’s capacity to meet the loan and a failure to do does not put the mortgagee in a better position that a lender who does make inquiries. The lender was not an innocent party.
The court also found:
- that the parents were disadvantaged by their limited education and did not have the capacity to understand the loan and mortgage, having only a basic grasp of English and no information about their son’s development;
- the interest rates were very onerous;
- material inequality between the lender and the parents;
- the parents were not legally represented (solicitor only translated the documents but did not advise );
- pressure was exerted by the son who gave his parents no opportunity for negotiating the terms of the loan and the court noted that pressure by any party, not necessarily the lender, is sufficient.
The court found the loan unjust and removed the parents from it, leaving the mortgage securing nothing and ordered it to be discharged.
The court found it unnecessary to consider the defence of undue influence.