Perpetual Trustee v El-Bayeh [2010] NSWSC 1487

Half of the loan was used to discharge a previous mortgage and the other half was paid into an account in the borrower’s name. The borrower claimed his brother had engaged in fraud and taken the over borrowings. The brother claimed the property was held on trust for him and denied the fraud. The lender joined the originator claiming an indemnity pursuant to the origination deed in the event that it lost.

The Court found that the borrower did not sign the mortgage or authorise the signing of the mortgage. Similar findings were made in respect of the previous mortgage.

The mortgage was an all monies mortgage and therefore, as the loan agreement was a forgery, it secured no money. The lender therefore lost all its money because not only were there no funds owing under its mortgage, it could not claim that the borrower derived a benefit from the funds. This was because the previous mortgage was also a forgery. The lender was, however, entitled to judgment against the brother.

As for the originator, the Judge was not satisfied that they participated in the fraud and therefore was not satisfied the originator breached any duty to the lender either at common law or in the origination deed. The lender could therefore not recover from the originator.

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