Question: equity australian law timothy wishes to borrow a significant sum...
Equity Australian Law
Timothy wishes to borrow a significant sum of money and has done the rounds of the banks, all of which have refused to lend him money. This is because Timothy has no assets to provide as security.
Timothy has a brother Frederick, who is the registered proprietor of a property. Timothy hatches a plan to get his loan.
Shonky Finance Ltd. is what one might describe as a lender of last resort, who lend money at exorbitant interest rates when more conventional banks would not.
Timothy approaches Shonky to ask them to lend him $550,000.00 and has a meeting with Shonky’s representative, Janice. Janice, on Shonky’s behalf agrees to do so on the basis that Timothy provide a mortgage, in registrable form, over real property whose nett value is in excess of $900,000.00.
Timothy replies that he does not own such a property but wait a minute, I might ask my brother.
There and then, Timothy picks up his mobile phone, and appears to speak to someone called Frederick. He mentions that he is at the financiers and that he wants to take a loan of $550,000 and asks if ‘Frederick’ would be prepared to provide a mortgage to secure his loan. Within 20 seconds Timothy is heard to say ‘Great, Fred, owe you one for this’.
The entire conversation takes 20 seconds. Timothy then says ‘no problem with the mortgage, my brother Fred will put up his house as security’. He then advises the address of the Frederick’s property.
In truth Timothy did not speak to ‘Frederick’ or anyone over the phone. The entire conversation was a charade. There was no one on the other side of the line, and the pretence was intended to provide an appearance of authenticity to Janice that he was able to procure a registrable mortgage to secure his intended loan.
There and then Janice undertakes some searches and confirms that Frederick’s property is appropriate as security.
Quite serendipitously, Fred has had numerous dealings with Shonky recently and has in the past himself borrowed significant sums of money from Shonky and there are numerous documents which he has in the past executed, copies of which are in Shonky’s office. Janice however makes no enquiry and seems blissfully unaware of any of this.
Both Janice and Timothy are keen to finalise everything that very day – Janice because for Shonky this would be a nice earner, at the exorbitant rates of interest that Shonky would charge, from which she would get a nice commission, and Timothy, because he wants the money.
Janice there and then prepares the relevant documents, one of which is a registrable mortgage over Frederick’s property which she gives Timothy with a request that he should get Frederick to sign, as mortgagor whereupon she would take steps to ensure that the loan monies are advanced to Timothy.
Timothy returns within 30 minutes, bearing a completed mortgage in registrable form, showing Frederick’s details as mortgagor and the details of Frederick’s house as the mortgaged property. The signature of the mortgagor purports to be that of ‘Frederick Jones’ but is fact a forgery. It purports to be witnessed by someone – but the signature of the witness is also a forgery.
In fact, all the details have been forged by none other than Timothy himself. Janice makes no further enquiry into the authenticity of the various signatures and duly advances $550,000.00 to Timothy by bank cheque.
Shonky is duly registered as mortgagee over Frederick’s property to secure its loan to Timothy.
Frederick shortly after discovers the extent of Timothy’s fraud.
Now answer the following question, and discuss the legal reasoning and authorities to support your answer:
Is Frederick, the registered proprietor, bound by Shonky’s registered interest as mortgagee?