Australia: Husband Forges Wife’s Signature on Mortgage: Is My Mortgage Still Enforceable?
Financial Services Recovery Update

Readers may recall Tsai's case.¹

In this case Justice Young found that a mortgage was void, where the mortgage was forged and the mortgagor did not receive the benefit of the loan. This was despite the mortgage being registered. Further, the mortgage did not record the debt, rather, it referred to money due under an underlying loan agreement.

Tsai's case involved a sole borrower/mortgagor.

Last month Justice Young (now a NSW Court of Appeal judge) considered a similar case in Van den Heuvel v Perpetual Trustees Victoria Limited.

The difference though was that in Van den Heuvel there were two mortgagors – a husband and wife and the husband had forged the wife's signature.

Background in Van den Heuvel - definition of 'Secured Agreement' in the mortgage

In Van den Heuvel the wife argued that there was no Secured Agreement for the purposes of the mortgage because:

• both "borrowers" had to sign to satisfy the definition of Secured Agreement in the mortgage; and further and in any event
• all parties to a loan contract must sign in order for there to be a binding agreement.

The mortgage defined a 'Secured Agreement' as 'any present or future agreement between me or us, or any one of us.'

The court distinguished Van den Heuvel from the recent decision of Perpetual Trustees Victoria Limited v English.

In English, the loan offer contained the following clause:

In English, the court held that the effect of the above clause was that the offer was made to both husband and wife and was capable of acceptance only by both the husband and wife. Given Ms English's signature on the loan agreement and mortgage had been forged, the clause stating that the offer was capable of acceptance only if all persons to whom the offer was made signed the acceptance was never complied with.

In Van den Heuvel on the other hand, there was no such clause that required the offer to be accepted by both parties.

Accordingly, in Van den Heuvel the mortgage worked as intended and secured debts owing under a Secured Agreement by either debtor.

All parties must sign in order for there to be a binding agreement

Mrs Van den Heuvel argued that because the loan agreement was prepared for both husband and wife to sign and only the husband signed, it never came into effect.

To succeed with her argument, Mrs Van den Heuvel needed to show that the parties (i.e. Perpetual and Mr Van den Heuvel) did not intend to take on an obligation unless Mrs Van den Heuvel was also bound.

A majority of the appeal court were able to draw sufficient inferences to conclude that both Perpetual and Mr Van den Heuvel intended that they be bound to the loan agreement, even if Mrs Van den Heuvel did not sign. Regard was had to the following.

• In light of past history in the mortgage industry, the possibility that the wife's signature was forged or that the loan was unenforceable against the wife would have occurred to Perpetual. Perpetual would more likely than not accept that in this situation, so long as the husband was bound, it was commercially appropriate to advance the money.
• On the husband's side, he knew he had forged his wife's signature to the documents and wanted the documents to be operative so as to receive the money he wanted.

The decision was not unanimous.

Justice Basten was of the view that Perpetual would not have intended to lend unless both borrowers obtained a financial benefit from the loan. The loan was, after all, in both names. Further, according to Justice Basten such an agreement did not fall within the definition of Secured Agreement found in the mortgage.

Good decision for lenders

While the decision is good for lenders, it is disturbing that despite the Torrens system of title by registration – the lender's ability to enforce its mortgage was dependent upon the court finding an implied agreement. Implied agreements are often difficult to prove and enforce. The lender in this case was fortunate to have as a back up the benefit title insurance².

Compensation payable by the Torrens Assurance Fund

The other notable feature of the case was that Mrs Van den Heuvel was able to recover compensation from the Torrens Assurance Fund. This is one of the few cases where recovery from the Fund has been successful.

Mrs Van den Heuvel was able to recover her loss occasioned by the forged mortgage. She owned the property jointly with her husband. In the absence of evidence to the contrary, the court found that her interest was effectively a half share. It followed that her compensation was half the value of the unencumbered property.

The Registrar General filed an application for special leave to appeal to the High Court on 20 August 2010.

1. Perpetual Trustees Victoria Ltd v Tsai [2004] NSWSC 745

2. The title insurer in this case was First Title, Australia.

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