Conditional agreement to mortgage not caveatable

In a recent case, the High Court has confirmed the importance of expressing an agreement to mortgage as a present interest in the relevant property.

Kuek owed Liang a debt and a document was signed by Kuek, which Liang alleged was an agreement to mortgage. In the document, Kuek promised as follows: "Now I failed to provide the goods or return the money. I am willing to put a house property of mine in pledge to guarantee the payment of the debt mentioned above".

An agreement to mortgage creates a caveatable interest, and Liang registered a caveat over Kuek's property after receiving legal advice.

On an application by Liang that the caveat should not lapse(1), the High Court found on the facts that the document did not constitute an agreement to mortgage. Kuek's promise was read to be a statement by Kuek that he owns a house, and therefore has capacity to meet the debt, and, if required, will provide security for the debt. The Court emphasised that the terms of an agreement to mortgage must be expressly stated so as to avoid the agreement amounting to a promise of future action.

The High Court also confirmed that, in order for an agreement to mortgage to create a caveatable interest, both the equitable mortgagee and the equitable mortgagor must be parties to and sign the agreement.

 

(1) Liang v Kuek (CIV 2005-404-001930, High Court Auckland, 22 June 2005)

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