Small & Ors v Tomassetti & Ors

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CAMPBELL J 26 NOVEMBER 2001 4912/01 - SMALL v TOMASSETTI JUDGMENT 1 HIS HONOUR: This is a case in which the second defendant seeks a continuation of an injunction against the plaintiffs restraining the plaintiffs from disposing of certain proceeds of sale of real estate. The second defendant, Mrs Tomassetti, was a joint registered proprietor with her husband of land at 8 Dixon St, Abbotsbury. 2 Some mortgages over that land came to be registered in favour of the plaintiffs, who are respectively first and second mortgagees of the property. There come to be so many plaintiffs because the first mortgage was a contributory mortgage between three mortgagees, while the second mortgage is one to which Mr and Mrs Tutton were parties as second mortgagees. 3 It is common ground that this present application can be dealt with on the basis that Mrs Tomassetti's signature was forged on each of those first and second mortgages. 4 An arrangement was entered into whereby the plaintiffs would exercise their power of sale over the property, and give Mrs Tomassetti the opportunity to make a claim to half of the proceeds. At present, pursuant to an order granted by Hamilton J on 5 November 2001, the plaintiffs have been restrained from disposing of half the proceeds of sale of the property, an amount in the order of $218,000. 5 The proposition which Mrs Tomassetti advances is a simple one. The Real Property Act 1900 provides, in s 56, that: "(1) Whenever any land or estate or interest in land under the provisions of this Act is intended to be charged with, or made security for, the payment of a debt, the proprietor shall execute a mortgage in the approved form." 6 The proposition that is put forward here is that there never was any debt owing by Mrs Tomassetti to any of the mortgagees. In those circumstances, it is said, the requirements of s 56 Real Property Act 1900 have not been fulfilled, and consequently the indefeasibility provisions of the Real Property Act 1900 cannot begin to operate. 7 It is convenient here to recall the wording of the relevant indefeasibility of the provisions of the Real Property Act 1900, namely, s 42(1): "Notwithstanding the existence in any other person of any estate or interest which, but for this Act, might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in the folio of the Register shall, except in cases of fraud, hold the same subject to such other estates and interest and such entries, if any, as are recorded in the folio, but absolutely free from all other estates and interests that are not so recorded except [various exceptions not presently relevant]." 8 It is clearly established that, personal equities aside, registration of a mortgage gives to the mortgagee an indefeasible title (see Mayer v Coe [1968] 2 NSW R 747, especially at 754; Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSW LR 32; PT Limited v Maradona Pty Limited (1992) 25 NSW LR 643; Garofano v Reliance Finance Corporation Pty Ltd (1992) NSW ConvR 55-640; Pyramid Building Society (In Liquidation) v Scorpion Hotels Pty Ltd (1998) 1 VR 188, especially at 196 per Hayne JA (with whom Brooking and Tadgell JJA agreed); Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313. 9 Notwithstanding that registration confers indefeasibility on a mortgagee, there is still a question "indefeasibility for what?". 10 In PT Limited v Maradona (Supra) Giles J considered a mortgage which is a mortgage which secured (inter alia) sums of money which were owing to the mortgagee by the mortgagor and any other indebted person or either or any of them. The particular problem in that case arose from the fact that a Mrs Thompson, who was a mortgagor, had executed a guarantee at a time when she lacked capacity. She also executed the mortgage at the time she lacked capacity. In consequence, Giles J held that a defence of non est factum would succeed. 11 In relation to the mortgage, his Honour needed to consider what the effect was of the registered mortgage being given indefeasible status. His Honour stated the relevant legal principle as follows (679B): "That which is attained by registration is, in the words of s 42, an estate or interest in the land. Registration does not validate all the terms and conditions of the interest which is registered. It validates those which delimit or qualify the estate or interest or are otherwise necessary to assure that estate or interest to the registered proprietor". 12 In the case before him, Giles J held that the failure of the guarantee to create any obligation on the part of Mrs Thompson meant that the mortgagee in that case was indefeasibly entitled to a mortgage, but a mortgage which secured nothing. On the face of the registered mortgage, one could not tell what was the extent of the estate or interest of the mortgagee - one was, instead, referred to other documents which were not themselves registered, and which were void because of Mrs Thompson's lack of capacity. That case illustrates the way that one needs to look at the terms of the particular mortgage that is the subject of litigation to work out the scope of any estate or interest in the land which is created indefeasibly by the registration of that mortgage. 13 The first mortgage in the present case is one which contains the following term: "The mortgagee has agreed to lend to the mortgagor and the mortgagor has agreed to borrow from the mortgagee the sum of $325,000 (hereinafter called the principal sum)... (3) The mortgagor covenants to pay to the mortgagee the principal sum or so much thereof as shall remain unpaid on the 12th day of May 2001. (4) The mortgagor will pay interest on the principal sum or on so much of it for the time being as shall remain unpaid...at the rate of $11.75 (Eleven dollars seventy five cents) percentage per annum as follows". 14 The terms of the second mortgage are identical in the respects just quoted, save that the principal sum is $65,000 and the rate of interest is 18.5 percent per annum. 15 In these circumstances, it is, in my view, clear that the estate or interest in the land which is created by the registration is a charge which secures at the least (so far as the first mortgage is concerned) the sum of $325,000, together with interest which accrues on it and is unpaid, and (so far as the second mortgage is concerned) the sum of $65,000, together with interest which accrues on it and is unpaid. 16 There are certain other covenants in the mortgage which make provision for payment of various costs and expenses but, as I understand it, the claim for principal and interest will exhaust the funds available, and so it is not necessary to decide whether there is an indefeasible title in relation to those additional covenants. 17 This conclusion is consistent with the obiter remarks of Hayne JA (with whom Brooking and Tadgell JJA agreed) in Pyramid Building Society (In Liquidation) v. Scorpion Hotels Pty Ltd (Supra) at 196: "It has not been contended that indefeasibility of a mortgage does not extend to the covenant for payment and it is plain that it does so extend: Mercantile Credits Ltd v Shell Company of Australia Ltd (1976) 136 CLR 326 at 343 per Gibbs J; PT Limited v Maradona Pty Ltd (1992) 25 NSW LR 643 at 681." 18 In those circumstances, in my view, there is no basis for continuing the injunction granted by Hamilton J on 5 November 2001. I should say that that injunction was originally granted by his Honour for the purpose of enabling Mrs Tomassetti to muster such arguments as she could in favour of her entitlement to the money. I therefore decline to extend the injunction. 19 I order the second defendant to pay the plaintiff's costs of the application for an injunction, those costs being costs both before Hamilton J on 5 November 2001 and before me today. *********

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