GE Commercial v Bankrupt Estate of Lymn [2012] NSWSC 562

A guarantee signed by a party who was subsequently made bankrupt contained the following charging clause:

The Guarantor will grant to GE a legal mortgage in registrable form (containing such terms and conditions as GE may require) of any land held by the guarantor now or in the future, which mortgage must secure the amount owing.

The judge noted:

The only question which arises is whether or not specific performance of the agreement to give a legal mortgage is available in circumstances such as these, that is, where, after the contract of guarantee has been entered into, and indeed, after the trigger for the calling on the guarantee and indemnity has occurred, the parties, who have contracted to provide a legal mortgage if called on to do so, have been made bankrupt.

The judge found the bankruptcy made no difference to the enforceability of the clause and ordered the trustee in bankruptcy to execute the mortgages.

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