02/09/2016, 09:09:PM
02/09/2016, 09:09:PM
When a borrower or guarantor signs a mortgage document and in the absence of fraud or misrepresentation, the party is bound and it is wholly immaterial whether they read the document or not. However, the law does recognise instances of injustice where the person has signed the document but did not have a consenting mind at the time of signing.
Where a borrower or guarantor has laboured under a disability or is unaware of the legal consequences, that party may argue the defence, non est factum, which will void the contract totally, but there is a heavy onus on proving this point. This argument usually only succeeds where there is some infirmity and not careless or inadvertence.
In Cansdell V O”Donnell (1924) the court held that a person signing a legal document is bound to take some steps to be satisfied of its contents. So in other words, take time to understand the mortgage contract before you sign it!
In Lissa v Cianci (1993) the mortgage was void on the basis that one of the mortgagors was intellectually disabled, and the other was non-English speaking, and as a consequence, neither could understand what they were signing.
Then in Ford by his tutor Watkinson V Perpetual Trustees Victoria Ltd (2009) the mortgage was void on the basis that the borrower had a congenital intellectual impairment, as the signer’s mind did not go with the writing of his pen.
A mortgage may be set aside where one party lacked mental capacity and the fact was known to the other party. The mortgage may also be set aside if the lack of mental capacity was unknown to the other party where there is conduct of unfairness amounting to equitable fraud.
Where the mortgagee is innocent of the fraud the registered mortgage will stand even though there are forged signatures of the mortgagor. However, where the mortgagee is party to that fraud, knowingly or recklessly, the mortgage will be set aside.
In National Commercial Banking Corp of Aust Ltd v Headley (1984) the bank falsely certified that the mortgage was signed in the presence of the mortgagor when it did not actually occur, and the mortgage was not binding on the defrauded borrower.
In Australian Guarantee Corporation Ltd v De-Jager [1984] the husband forged the wife’s signature on the mortgage document, the lender staff new the attestation (signing) by the wife was not done properly, but continued to register the mortgage, which this act amounted to fraud by the lender, and the mortgage was set aside.
There are many examples of recklessness or carelessness by the lender to follow proper procedure, which may assist the borrower or guarantor in arguing that the mortgage should not be enforced against them.
Where a borrower or guarantor as a result of undue influence, unconscionable dealing, economic duress, misrepresentation, mistake and forgery just to name a few defence arguments, is faced with defending an enforcement claim against them, should not hesitate and immediately call a lawyer. Though keep in mind the court will not give relief to a borrower or guarantor if the court is satisfied that despite undue influence, misrepresentation or the like, the party would have still entered into the transaction.
One of the most important aspects that can be raised about signing a mortgage document, or any document for that matter of fact, is to stop for a moment, and ask yourself, whether you really understand what you are signing. Then if there is any doubt in your mind or you just totally do not comprehend the agreement, just don’t sign that document.
The most common mortgage in Australia is the home loan, and one of the major issues of these loans is trust on the other partners that they are acting in the best interest of each other. However, what does happen frequently in relationships is that one party is not fully informed of what the mortgage entails, such as the loan amount, frequency of payments, the terms and conditions and so on. Where a party to a relationship is deliberately kept in the dark about the truth of the mortgage, this is relationship fraud between them, but if one party just does not want to know and has the proper mental capacity of a reasonable person in the same position, who should inquire, then that party will have a difficult challenge to raise a defence if the mortgage is being enforced against them.
The most prudent method for any party when it comes to being required to sign a mortgage document, whether as a borrower or guarantor, is to take a step back, read the mortgage document, ask questions as to how will the mortgage be paid, and what will happen if it is not. Then seek that legal advice on the mortgage document, and make sure that the legal advice is also followed up in writing to you before you sign. Once you are completely satisfied that you understand all the risks associated with signing that mortgage document, then formalise that loan contract with your lawyer, knowing that you have made a fully informed decision about signing that agreement.
So don’t cut the corners and do it right to protect your legal rights & interests.
The comments in the aforementioned do not constitute legal advice and are general in nature, and if legal advice is required please contact: John Melis at Legal AU Pty Ltd (03) 9999 7799
Legal AU Pty Ltd Lawyers are “Liability limited by a Scheme approved under Professional Standards Legislation.”
