ABSTRACT
OVERVIEW Where there has been undue inÀ uence or a misrepresentation exercised by a mortgagor over a signatory to a mortgage contract, or over a surety of a mortgage transaction, and if the mortgagee has not taken reasonable steps to ensure that that signatory or surety has received independent legal advice as to the nature of the transaction, the mortgagee will be taken to have had constructive notice of the undue inÀ uence or misrepresentation. In such a situation, the signatory/surety can set the mortgage aside against the mortgagee. 1 Whereas previously it was necessary to demonstrate that there was some manifest disadvantage to the signatory/surety in the transaction, such that the mortgagee would be ¿ xed with notice of the undue inÀ uence or misrepresentation, that is no
longer a requirement. 2 However, there must be something about the transaction which would cause the mortgagee to be put on notice. 3 An example of a situation in which there will generally be something about the transaction which ought to put the mortgagee on notice is where the claimant was acting as a surety. 4
There are two categories of undue inÀ uence: actual undue inÀ uence and presumed undue inÀ uence. Actual undue inÀ uence requires evidence of some inÀ uence exercised over the claimant. Notice of presumed undue inÀ uence will arise (seemingly) in situations in which there is a manifest disadvantage to the claimant, or where there is a special relationship between the claimant and the mortgagor which ought to put the mortgagee on notice. 5 In circumstances in which the transaction is ostensibly unremarkable and to the ¿ nancial advantage of the claimant, no claim would stand against the defendant third party. 6
The mortgagee will not be bound by any undue inÀ uence or misrepresentation where the mortgagee has taken ‘reasonable steps’ to ¿ nd out the signatory’s rights. 7 ’Reasonable steps’ will be said to exist in circumstances in which the claimant has received, or even just signed a certi¿ cate asserting that she has received, independent legal advice as to the effect of the mortgage or surety she is signing. 8
In circumstances in which the claimant had knowledge of a part of the mortgage or surety but did not know the full amount of the liability, the claimant will nevertheless be entitled to have the mortgage set aside in toto. 9 The only exception to that principle will be where the claimant has nevertheless taken some bene¿ t from the transaction – in which case, the claimant will be required to account to the defendant for that bene¿ t. 10
The doctrines of undue inÀ uence and misrepresentation have long formed part of the equitable doctrine of constructive fraud. The scope of these doctrines has been enlarged by recent decisions relating to the creation of mortgages, in which some person is forced into signing a mortgage contract or agreeing to act as a surety for a mortgage contract as a result of undue inÀ uence or misrepresentation as to its terms. In this chapter the discussion will focus on the application of the general doctrines of constructive fraud and the doctrine of notice to the particular context of the law of mortgages: the lesser here stands for the greater.
