Walton v Blann

[2003] NSWSC 897

CITATION:	Walton v Blann [2003] NSWSC 897
HEARING DATE(S):	19 September 2003
JUDGMENT DATE:	2 October 2003
JURISDICTION:	Equity Division
JUDGMENT OF:	Windeyer J at 1
DECISION:	Summons dismissed
CATCHWORDS:	MORTGAGES - priority - contract for sale of land provided for vendor finance secured by second mortgage - no requirement by purchaser for expected first mortgage on settlment - vendor's mortgage back registered as first mortgage - purchaser subsequently required finance from another lender to be secured on the property - whether vendor first mortgagee required to give priority to this mortgage over mortgage back
LEGISLATION CITED:	Real Property Act 1900 s56A
PARTIES :	Gillian Mary Walton (Plaintiff) Robert Frederick Blann (Defendant)
FILE NUMBER(S):	SC 4869 of 2003
COUNSEL:	Mr V R Gray (Plaintiff) Mr BA Coles QC with him Mr P B Walsh (Defendant)
SOLICITORS:	Abbott Tout (Plaintiff) Kosmin & Associates (Defendant)

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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

THURSDAY 2 OCTOBER 2003.

4869/03 GILLIAN MARY WALTON V ROBERT FREDERICK BLANN

JUDGMENT

Outline

1 The question is whether the defendant is bound to execute documents which would postpone his mortgage over property 9 Coolong Road, Vaucluse, so as to give priority to a mortgage with National Australia Bank securing a principal sum of up to $7 million.

Facts

2 By contract of sale dated 16 August 2002, the plaintiff Mrs Walton agreed to purchase the property from the defendant, Mr Blann, for a sum of $14,725,000.00. Special Condition 50 of the contract was as follows:

Vendor Finance
50.1 On completion the Vendor shall lend to the Purchaser the sum of $5,225,000.00 on the terms and conditions set out in the copy of the Mortgage attached hereto.

50.2 The Mortgage granted by the Purchaser to the Vendor shall be a second Mortgage on the title of the subject property and the first Mortgage may secure a sum not exceeding $7, 000,000.00.
50.3 The Mortgage shall be registered as a second Mortgage and. the Purchaser shall obtain the consent of the first Mortgagee and the production of the Certificate of Title at the Land and Property Information office to permit registration of the second Mortgage on completion, at the Purchaser's cost.

50.4 The Purchaser shall pay the Vendor's Solicitor their professional costs of acting on behalf of the Vendor in respect of the Mortgage including all stamp duty, registration fees and other disbursements.

50.5 The Purchaser

(i) undertakes to comply with all requisitions made by the Land and Property Information office in connection with the Mortgage;
(ii) authorises the Solicitors for the Vendor to complete any blanks in the Mortgage;
(iii) shall sign all documents and do all such things as may be reasonably required to perfect the Mortgage and if the Purchaser does not comply with this sub-paragraph the Purchaser hereby irrevocably appoints the Vendor as his attorney for such purpose.

50.6 The Purchaser shall deliver to the Vendor's Solicitors the Mortgage duly executed by the Purchaser (n duplicate) and stamped together with all other documents as may be reasonably required by the Vendor's Solicitor pursuant to this Clause not less than twenty one (21) days prior to the date for completion.

3 Printed clause 20.12 was as follows:

20.12 Each party must do whatever is necessary after completion to carry out the party’s obligations under this contract.

4 The draft mortgage attached to the contract included the following clause 13:

13. The parties acknowledge that the within Mortgage shall be registered as a second Mortgage security and it is noted that a first Mortgage security is to be registered to secure a Principal Sum not exceeding $7,000,000.00 (hereinafter called "the First Mortgage"). The Mortgagor agrees that a default in the observance or performance by the Mortgagor under the First Mortgage shall be deemed to constitute a default under the within Mortgage and shall entitle the Mortgagee to exercise its rights, powers and remedies herein provided for in the event of a default hereunder. The Mortgagor covenants to provide to the Mortgagee, from time to time, upon request, evidence satisfactory to the Mortgagee that the Mortgagor is not in default under the First Mortgage. The Mortgagor covenants with the Mortgagee that the Mortgagor s hall not increase the Principal Sum secured by the First Mortgage without the written consent of the Mortgagee hereunder which consent may be granted or refused in the absolute discretion of the Mortgagee

5 Shortly before the settlement took place on 15 January 2003 the solicitor for the purchaser informed the conveyancing clerk attending to the matter at the office of vendor’s solicitor that there would be no mortgage other the mortgage back to the vendor. On completion on 15 January 2002 no mortgage was given to National Australia Bank or any other lender other than the vendor. Apparently the purchaser did not require to borrow funds from any other lender other than the vendor to enable the purchase to be completed. A mortgage back in accordance with the draft was executed and registered No 9345302 as a first mortgage.

6 The plaintiff now wishes to grant a first mortgage to National Australia Bank to secure at the present time $2.5 million but allowing for an advance up to $7 million and to have it rank in priority above the mortgage to the defendant. The defendant has refused to sign a memorandum postponing her mortgage to the proposed mortgage or to execute a proposed deed of priority.

7 Section 56A of the Real Property Act 1900 is as follows:

56A. Postponement of mortgages
(1) If two or more mortgages registered under this Act affect the same land, the mortgage which for the time being has priority over the other or others may, by a memorandum in the approved form registered under this Act, be postponed to the other or others in so far as the whole or a disposable part of that same land is concerned.
…

(3) The Registrar-General shall register a memorandum under this section by making such recording in the Register with respect to the memorandum as the Registrar-General thinks fit.

(4) After registration of a memorandum under this section, the mortgages affected by the postponement shall be entitled in priority the one over the other as if they had been registered in the order in which by the memorandum they are expressed to have priority.

8 The mortgage back to the vendor was for the sum of $5,225,000.00 repayable on an unspecified day in January 2007. The date which should have been included was presumably 15 January 2007.

9 Clause 3 of the mortgage is as follows:

3. The Mortgagor will pay interest on the Principal Sum or so much thereof as for the time being shall remain unpaid, and upon any judgment or order in which this or the preceding covenant may become merged, at the rate of twelve dollars ($12.00) per centum per annum HOWEVER should the Mortgagor repay the Principal Sum in full on or before the Due Date the Mortgagee shall waive the requirement for payment of interest.

The purpose of a clause of this type is obvious enough so that if the mortgage is discharged early, there is a substantial benefit to the mortgagee.

10 The argument of the plaintiff is that the contract envisaged that the vendor’s mortgage would be a second mortgagee, that clause 13 of the mortgage acknowledges that the mortgage will be registered as a second mortgage and that the defendant is bound to do what it is necessary to do to bring this into effect.

11 The argument of the defendant is that the contract clause dealt with the payment of purchase money on settlement; that if the plaintiff chose to settle without the first mortgage finance, he was not obliged to delay registration of his mortgage; that it was registered as, and is a first mortgage and that it could not have been registered as a second mortgage; and that there was no contractual obligation to agree to postponement at any time up to 2007, which the argument of the purchaser requires.

12 I conclude that the words “is to be registered” do not give rise to some continuing obligation. The clause in the contract and in the mortgage are predicated on the expected circumstances on completion. Had a mortgage been granted and registered in priority to that of the defendant and had that mortgage been discharged it could not be thought that the defendant would be bound to let another mortgage take priority over his mortgage. The whole arrangement concerned the means by which payment of the purchase price would be effected. Once that price was paid the need for clause 13 disappeared. The mortgage, if it was to be registered could not be registered as a second mortgage. The words “it is noted that a first mortgage security is to be registered” can only reasonably refer to one lodged prior to the intended second mortgage. Mr Gray, for the plaintiff, submitted that this was not consistent with that intention because the defendant had settled knowing that no first mortgage was to be given on settlement, but nevertheless took a mortgage including clause 13. When the contract and mortgage are read together I do not think the construction put forward by Mr Gray is available, that construction requiring agreement to postponement at any time up to 2007 irrespective of circumstances at the time.

13 When one considers the obvious benefit which would flow to the vendor if as a result of his stand his mortgage is discharged early, then this result may seem unfortunate. Nevertheless I consider it to be a result which is required on the documents.

14 Orders

1. The summons be dismissed with costs.

2. The exhibits be returned.

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Last Modified: 10/03/2003