Indefeasibility Under Attack, Part 1: Unforeseen Agency Invalidates Security

In the recent case of Dollars & Sense Finance Limited v Rerekohu Nathan [2008] 2 NZLR 557, the Supreme Court sent a warning to lenders and their solicitors – tread carefully to ensure that you do not inadvertently appoint an agent whose actions you may be responsible for.

Dollars & Sense Finance Limited (DSFL) advanced money to Rodney Nathan (Borrower) to assist him to purchase shares in a business. A condition of the loan was that the Borrower's parents provide security for the repayment of the loan by executing a memorandum of mortgage in favour of DSFL over the parents' jointly owned residential home. However, DSFL and their lawyers did not realise that the Borrower had forged his mother's signature on the mortgage document (by survivorship she was now the sole owner of the property).