Depositing the certificate of title with the lender’s solicitor can create an equitable mortgage…

In some instances, the Supreme Court can order the sale of a property to repay the debt. This was examined in the case of Hatala v Graglee Pastoral Company Pty Ltd [2017] NSWSC 155.
In May 2013 Mr Hatala and Mr Daniel lent Grag Group Pty Ltd the sum of $300,000 and a property at Sutton Forest was used as security for the loan.

At that time, the husband (Mr Coady) was the sole director, secretary and shareholder of the borrower company (Grag Group Pty Ltd) while his wife (Mrs Coady) was the sole director, secretary and shareholder of Graglee Pastoral Company Pty Ltd who was the registered proprietor of the Sutton Forest property.

Shortly before the loan was advanced, the husband delivered the loan agreement signed on behalf of the borrower company together with the certificate of title of the Sutton Forest property to his solicitor, Mr Silk. Mrs Coady did not sign the loan agreement. A day later, the lenders visited Mr Silk’s office and the latter showed each of them the certificate of title of the Sutton Forest Property. The lenders then signed the loan agreement and they each transferred $150,000 into the bank account of Grag Group Pty Ltd.

Grag Group Pty Ltd defaulted on the loan and the lenders commenced recovery proceedings. The lenders claimed that by depositing the certificate of title an equitable mortgage was created and they were entitled to ask the court to appoint a receiver to sell the property and recover the money owing to them.
The evidence was that Mr Silk, the solicitor, told the husband, Mr Coady that the certificate of title for the Suttons Forest property would be held as security for the loan. Furthermore, the loan agreement prepared by Mr Silk said that the certificate of title was to be held as security.

In his judgment, Justice R Darke referred to earlier cases and said that an equitable mortgage can be created by lodging the certificate of title even if there is no writing. The one difficulty that the lenders had was that the wife, never signed the loan document. However, based on the evidence before him, His Honour was satisfied that Mr Coady was acting with the knowledge and consent of his wife.
His Honour made a declaration that the lenders had an equitable mortgage over the Sutton Forest property and ordered that a receiver be appointed to sell the property in order to repay the debt.