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Do you have the authority to execute a mortgage?

By Tony Johnson Kay Keam and Alden Ho - 25 Aug 2017

It is not uncommon for credit application forms to include a clause that charges in favour of the creditor all property held by the debtor. This is typically accompanied with a clause whereby the debtor appoints the creditor as its attorney for the purposes of executing a mortgage over the charged property (if the debtor does not do so).

Section 157 of the Land Transfer Act provides that such a power of attorney has to be in the form of a deed. Section 9 of the Property Law Act sets out a number of requirements to qualify a document as a deed. Those requirements include that the document must be in writing and that an individual's signature must be witnessed by another person.

In Thorn v United Steel Limited, the power of attorney was in writing, was signed by the debtor and was witnessed. The problem however was that the witness was a manager of the creditor company. This is not permitted under section 7(a) of the Property Law Act which states that a witness must not be a party to the deed. Eventually, the creditor accepted that because the witness was its own manager, the document did not qualify as a deed. As a result, the power of attorney could not be relied upon to execute a mortgage on behalf of the debtor.

This decision serves as a reminder that with deeds, the witness must not be a party to the deed (including a manager or other employee). The witness must be someone not associated with either party.

It may also impact other contracts which purport to grant a power of attorney relating to real property rights such as building contracts and agreements for sale and purchase.

A copy of the decision can be found here.

If you wish to discuss any matters raised in this article contact Tony Johnson, Kay Keam or Alden Ho.

 

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