Van den Heuvel v Perpetual Trustees Victoria; Registrar General of NSW v Van den Heuvel [2010] NSWCA 171

In proceedings for possession of land brought by the lender, the wife whose husband had forged her signature on a mortgage over the family home argued that the mortgage was an “unjust credit contract” under the Consumer Credit Code (“the Code”) and ought to be set aside. The Judge at the first instance hearing found that s 70 of the Code did not apply to her as she was not a “mortgagor” because of the forgery. The Judge found in the lender’s favour and ordered possession of the home. The wife was granted relief under the Torrens Assurance Fund as against the Registrar General for loss suffered by registration of the forged mortgage. Her loss was calculated as the difference between the value of her half-share in the property and the net sum she would receive after repayment of the mortgage.

The wife appealed on the ground that she should have been compensated for the whole amount of the mortgage. Registrar General appealed on the ground that the wife was not liable to repay the loan, since the amount advanced to the husband under the loan was not secured by the forged mortgage over her half-share and therefore not a debt owing by the wife to the lender.  

The Court of Appeal held that there was a debt owed to the lender which was secured by an equitable mortgage between the lender and the husband. Young JA quoted an earlier decision setting out the legal principles in cases where a forged mortgage becomes registered:

  1. Registration of a mortgage does not transfer the fee simple estate, but the mortgage takes effect as a security over the land: RP Act, s 57(1). Upon registration, the land becomes liable as security in manner and subject to the covenants set forth in the mortgage: RP Act, s 41(1).
  2. Registration of a forged mortgage confers an indefeasible title on the mortgagee, provided that the mortgagee has not been party or privy to the fraud and no other exception to indefeasibility applies.
  3. Registration of the mortgage does not necessarily ensure the validity of every term of the mortgage, irrespective of the relationship between the term and the estate or interest created by the mortgage itself. Hence a personal right created by a covenant in a mortgage, such as a guarantee, is not rendered indefeasible by registration of the mortgage.
  4. In New South Wales, the view has been taken that a personal covenant in a registered but forged mortgage to pay the amount of the mortgage debt, where the debt exceeds the value of the property, is not protected by the indefeasibility provisions of the RP Act.
  5. The registration of a forged mortgage validates those terms of the mortgage which delimit or qualify the estate or interest of the mortgagee or are otherwise necessary to assure that estate or interest to the registered proprietor.
  6. It is necessary to construe the terms of a mortgage to determine the scope of the estate or interest in respect of which indefeasibility is conferred by registration of the mortgage. Thus whether registration of a forged mortgage allows the mortgagee to enforce its security interest in the land in relation to a debt or obligation arising under an agreement separate from the mortgage is a question of construction of the mortgage.
  7. Generally speaking, if the mortgagee specifies a sum of money (plus interest) as the amount secured by the mortgage, the charge created by the mortgage will secure the amount so specified even if the document creating the indebtedness is void under general law principles.
  8. However, if as a matter of construction, the mortgage does not take effect as a security over the land in relation to a claimed debt or obligation, registration of the mortgage will not entitle the mortgagee to exercise remedies, such as the power of sale, to enforce any such claimed debt or obligation. The question of construction may be particularly difficult where the registered mortgage refers to antecedent documentation which is not incorporated in the Torrens register and which may be invalid on general law principles.

[Citations omitted]

It was inferred that the lender’s industry experience would have lead it to accept that it was commercially appropriate to lend money as long as the husband was bound, despite the absence of the wife’s signature to the loan agreement. The debt was secured by the equitable mortgage over the wife’s part of the land held as joint tenant. 

The mortgage between the husband and lender was a “credit contract” within s 8 of the Code.  However, the Code did not apply because the husband declared that the loan was wholly or predominantly for business and investment purposes. Also, the Code did not apply because the wife had become a mortgagor upon registration of the security, by operation of the Real Property Act, and not by her entering into a mortgage contract.    
 
The wife’s compensation was measured by comparing her position if the mortgage was not registered with her position as a result of registration. The lender could have enforced the unregistered mortgage by way of an order for sale of the property. The measure was not the amount required to pay out the mortgage. Her loss was the difference between the value of her half-interest and the amount she received after the mortgage was repaid.

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