ON APPEAL FROM THE SUPREME COURT OF Financial Emergency / Mortgage - Foreclosure - Restriction of mortgagee's right
-Interest paid to a date within twelve months-Mortgaged in possession--Receipt of rents-Right of mortgagor to an accountFinancial Emergency Act 1931-1934 (Vict.) (No. 3961-No. 4249), sec. 28.
When payments are received generally on account of a debt, which is in part interest and in part principal and no specific appropriation is made, they are treated as applicable to interest in priority to principal. The rule applies to the net rents and profits received by a mortgagee in possession.
Sec. 28 of the Financial Emergency Act 1931-1934 (Vict.) makes it one alternative condition of a mortgagor's title to apply for relief that interest has been paid to a date within a prescribed period immediately preceding the date of application.
Held that this does not require actual payment by or on behalf of the mortgagor himself, but is satisfied if the interest is obtained by the mortgagee so that either at law or in equity the mortgagor's obligation to pay it would be discharged.
Another condition requires that the mortgagor's covenants shall have been performed.
Held that punctual exact and faithful performance by the mortgagor himself is not necessary, but such performance as would be an answer to an action for breach, except as to nominal damages.
A mortgagor applied under the inancial Emergency Acts 1931-1934 (Vict.) for an order that the mortgagee should not exercise his power of foreclosure, and alleged that interest had been paid to a date within the immediately preceding period prescribed. There had been no actual payment of interest by the mortgagor during that period, but the mortgagee had entered into posses- sion of the mortgaged property and was in receipt of the rents and profits.
Held that the mortgagor was entitled to have an account taken for the purpose of showing that interest had been satisfied to a date within the prescribed period.
Decision of the Supreme Court of Victoria (Mann J.) reversed.
APPEAL from the Supreme Court of Victoria.
By an instrument of mortgage dated 15th May 1929 Harry Falk mortgaged to Edwin Haugh, to secure the repayment of £5,500, certain land upon which was a mansion which had been divided into flats. Payment of interest under the mortgage fell into arrears, and the mortgagee went into possession of the property on 20th October 1930. He employed an estate agent to manage the property and to collect the rents. From the rents received the agent, from time to time, deducted rates and taxes which were in arrear at the date of going into possession, current rates and taxes, amounts for repairs, expenses incidental to the management of the property, expenses of minor alterations and improvements, advertising and auction expenses incurred in connection with an attempted sale of the property, and amounts for agent's commission, and remitted the balance of such rents to the mortgagee.
On 19th September 1933 the mortgagor…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
Continue reading Falk v Haugh
Sign in free to access the full text
Details
AGLC
Falk v Haugh [1935] HCA 35
Case
[1935] HCA 35
Decision Date
CaseChat Overview and Summary
This case concerned an appeal to the High Court of Australia from a decision of the Supreme Court of Victoria. The appellant, Mr. Falk (the mortgagor), sought an order under section 28 of the Financial Emergency Act 1931-1934 (Vict.) to prevent the respondent, Mr. Haugh (the mortgagee), from exercising his power of foreclosure. The central dispute revolved around whether the mortgagor had satisfied the statutory condition that interest payable under the mortgage had been paid to a date within the twelve months preceding his application. The mortgagee had taken possession of the mortgaged property and was receiving rents and profits, but no actual payments of interest had been made by the mortgagor during the relevant period.
The High Court was required to determine two primary legal issues. Firstly, whether the condition that "interest has been paid" under section 28 of the Act required actual payment by the mortgagor or on his behalf, or if it could be satisfied by the mortgagee receiving sufficient rents and profits from the mortgaged property to cover the interest. Secondly, the Court had to consider the nature of the mortgagor's performance of covenants under the Act, specifically whether punctual and exact performance was necessary, or if substantial performance that would answer a claim for breach (barring nominal damages) was sufficient.
The Court reasoned that the purpose of section 28 was to balance the interests of mortgagors and mortgagees, providing relief to mortgagors while safeguarding mortgagees' security. It held that the condition of "interest has been paid" was satisfied if the mortgagee received sufficient rents and profits from the mortgaged property to discharge the interest obligation, thereby discharging the mortgagor's debt, even without direct payment from the mortgagor. This interpretation was supported by the fact that the Act contemplated mortgagees remaining in possession and receiving rents. Similarly, the Court found that the requirement for the mortgagor's covenants to be performed did not necessitate absolute punctuality but rather such performance as would prevent a claim for substantial damages. The Court also affirmed that a mortgagor seeking relief under the Act was entitled to have an account taken to determine if the interest had been satisfied by the mortgagee's receipts, without necessarily offering to redeem the mortgage.
Consequently, the High Court allowed the appeal, reversing the decision of the Supreme Court of Victoria. The matter was remitted to the Supreme Court for a hearing or rehearing, with the direction that an account should be taken to ascertain whether the rents and profits received by the mortgagee were sufficient to satisfy the interest payments as required by the Financial Emergency Act.