Fitzgerald v Watson [2011] NSWSC 736

A lender sought to enforce a judgment debt against other property owned by the borrower on the basis of a clause in the second mortgage which provided that the mortgagee shall be entitled by way of further security to lodge a caveat over any other real property of the borrower until the principal sum and all interest and costs have been paid to the lender. The loan was granted to permit the borrower to refinance her existing loan, which had been taken out to enable her adopted daughter and husband purchase a pizza shop. The lender had been approached by the mortgage brokers acting for the borrower. The borrower argued that she had not read the documents and had not received any advice from her solicitor about them. However she signed a declaration that she had received independent advice and that she was able to repay the loan and also a Consumer Credit Code declaration that the credit was provided for business purposes. Further, she said that she understood that mortgages were serious legal transactions that could have potentially serious legal consequences if there was default.

The court found that by signing the mortgage documents without reading them, the borrower represented to the lender that she had approved the contents or was willing to take the chance of being bound by those contents. The court also found that the borrower was not in a special position of disadvantage having a sophisticated knowledge of mortgages.

The court also found that the lender, having made no independent enquireies, was entitled to rely on the letter from the borrower’s accountants that confirmed her ability to meet interest payments notwithstanding the borrower denied engaging the accountants. The lender was not put on notice that the borrower claimed that she had not engaged the accountants – his solicitor received the letter from the borrower’s solicitor. The lender was not put on notice that the husband had urged he to sign the documents. The lender was not on notice that the borrower relied solely on Centrelink payments. Further the lender’s solicitor advised the lender that he could rely on the certificate, non-detailed thought it was.

The court also held that the lender was entitled to lodge a caveat over property acquired by the borrower after the mortgage had been executed pursuant to the mortgage terms while the mortgage remained unpaid. The borrower impliedly granted an equitable charge over future acquired property by signing the mortgage given it terms as to additional security. The borrower also argued that the additional security clause was unjust in terms of the Contract Review Act 1980 because she was in a position of disadvantage and because the additional security was purchased from moneys raised by the community when her husband died at work. Both arguments failed. Likewsie the loan itself was not unjust. Its purpose was to refinance an existing loan.

The court also held the Consumer Credit Code declaration effective because the purpose of the loan was not predominantly for personal purposes. The court found that the loan was provided for business purposes to refinance the loan required to purchase the pizza shop.

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