Van der Kooij v Mystate Financial [2014] FCA 350

The borrower purported to discharge the mortgage by tendering a promissory note. The lender refused the tender and sold the security. The borrower sued alleging the lender should have accepted the promissory note and failed to obtain “the best price reasonably obtainable” when selling the property.

Promissory note

The court rejected the promissory note argument, with the Judge commenting:

What was required to satisfy the borrowers’ obligations was that they “pay” to the respondent the amount owing. The promissory note did not promise immediate payment on presentation. Rather it provided for payment upon presentation in another State and then not for over two years. The note may be likened to a post-dated cheque.

It is well established that payment by a post-dated cheque does not constitute “payment of a cheque which is capable of being honoured immediately on presentation”. The language and context of the loan contracts make it clear that the respondent was entitled to put in funds immediately.

Even if a promissory note had been acceptable to the respondent, despite its earlier intimation that it required payment by bank cheque, the promissory note did not satisfy the requirement of immediate payment. It would, indeed, have been “fanciful” to expect the lender to accept a promise by borrower to make a payment at a precise time and a precise place over two years on from the date of the proposed settlement.

“Best price reasonably obtainable”

The borrower was not allowed to run the argument because the formula used in complaining about the sale was wrong. The Judge noted that lenders under the common law are not required to get “the best price reasonably obtainable” which would be akin to a negligence type test. Instead lenders are only required to act in good faith. The judge explained:

A duty to obtain a ‘best price reasonably obtainable’ would mean the lender is exposed to liability for negligence or mere carelessness.

In fact a lender under the common law only has a duty to act in good faith. This requires the lender to act without fraud and without wilfully or recklessly sacrificing the interests of the mortgagor but stops short of exposing the lender to liability for mere negligence or carelessness …”

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