Friday, April 26, 2013 - Posted by Philip Harvey
case of Southwell v Roberts (1940) 63 CLR 581 determined principles
that a mortgagee in possession should consider when considering property
improvements. In this case the mortgagee in possession made a judgment
that the properties were in such poor repair it was not economically
possible to repair them. They subsequently demolished and rebuilt the
properties. The court considered whether the mortgagor was able to
redeem the property without paying for the money spent by the mortgagee
to improve the property by building the new buildings.
The judgment is detailed below;
In my opinion the amount expended was neither reasonable in amount nor reasonable having regard to the nature of the property.
The mortgagee expended double the amount of the principal debt and
changed the character of the buildings upon the land, and indeed on the
vacant portion of the land she erected a building where none had been
before. The case is an example of a mortgagee in possession effecting
improvements without regard to the mortgagor’s interest and calculated
to improve him out of his property. In these circumstances the
expenditure cannot be allowed, unfortunate though it be for the
mortgagee. But she could have protected herself by obtaining the consent
or acquiescence of the mortgagor or possible by fore-closing.
Upon the facts
in the present case there can, I think, be only one conclusion when
these matters are regarded. The disproportionate amount of the
expenditure and the alteration in the nature of the premises produced by
demolishing the old buildings and erecting new semi-detached cottages
on the vacant portion of the land and a single cottage on the site of
the former building combine to make it impossible to allow the mortgagee
to add the cost to the mortgage moneys.
It is no doubt
very unfortunate for the mortgagee, and at the same time there can be
almost as little doubt that the result to the mortgagor is a windfall.
But the loss to the mortgagee arises altogether from her ignoring the
mortgagor’s position and proceeding to build upon the tacit assumption
that she was an absolute owner and not simply a mortgagee in possession
of a security for a debt.