In the recent case of Dollars & Sense Finance Limited v
Rerekohu Nathan  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).
DSFL attempted to exercise its power of sale under its
registered mortgage over the property. Mrs Nathan sought to prevent
this from happening by relying on the fraud exception to the
indefeasibility provisions contained in the Land Transfer Act
The issues for consideration were:
Whether DSFL expressly or impliedly appointed the Borrower as
its agent to procure execution of the mortgage.
Whether the forgery was committed within the scope of that
The Supreme Court unanimously answered 'yes' on both
counts. In coming to this conclusion, the Court noted the
The solicitor for DSFL did not insist that the Borrower's
parents get legal advice and he made no attempt to communicate with
them directly. He left it to the Borrower to make the necessary
Credit Contracts Act disclosures to his parents and to get their
signatures on the acknowledgment of the disclosure. When the
solicitor noticed that the parents' signatures were not
witnessed, he returned the documents to the Borrower to remedy this
defect, rather than sending them directly to the Borrower's
parents. These factors contributed to the finding that the Borrower
had been appointed the agent of DSFL.
Regarding the scope of the agency, the Court noted that there
are two stages of enquiry. First, what act had DSFL authorised, and
secondly, was the Borrower's act so connected with the
authorised act that it can be regarded as a mode of performing the
authorised act. The Court found that the Borrower was charged with
obtaining his parents' signatures and that his forgery can be
considered an improper mode of fulfilling this task. The forgery
was therefore considered to be within the scope of the agency.
As a result of these findings, the Supreme Court held that DSFL
did not have an indefeasible title to the mortgage and the mortgage
should be removed from the Land Transfer Register.
This case reinforces the need for lenders and their solicitors
to take care not to inadvertently appoint a third party as the
agent of the lender by, for example, failing to actively facilitate
the execution of loan and security documentation and compliance
with relevant laws (such as in relation to disclosures).
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and should not be relied on as a substitute for professional
advice. Specialist legal advice should always be sought in relation
to any particular circumstances and no liability will be accepted
for any losses incurred by those relying solely on this
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