This was a priority dispute. The security was a resort development gone wrong. The second mortgagee has poured $657k since default into keeping the resort open. It now faced a complete loss of capital. Unable to bear the thought of losing everything, its director raised an ingenius argument to claim priority over the first mortgagee:
… by reason of the Deed of Release the first mortgagees mortgage has been released and my company’s mortgage has therefore been elevated to first registered mortgagee ranking ahead in priority to all other dealings.
He was talking about the fact that the holder of the first mortgage received it by transfer. The original holder of the first mortgage had signed a Deed of Release with the borrower.
The Judge commented that the director’s interpretation of the Deed was preposterous and would have amounted to the first mortgagee paying $10.5 million for an empty husk. As such he found that there was no serious question to be tried and the first mortgagee remained the first mortgagee.
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