Simpson v Forrester [1973] HCA 4; (1973) 132 CLR 499 (9 March 1973)

HIGH COURT OF AUSTRALIA

SIMPSON v. FORRESTER [1973] HCA 4; (1973) 132 CLR 499

Mortgages

High Court of Australia
Barwick C.J.(1), Gibbs(2) and Stephen(3) JJ.

CATCHWORDS

Mortgages - Default by mortgagor - Action by mortgagee on personal covenant in mortgage - Judgment - Issue of writ of fieri facias - Sheriff's sale - Mortgagor's interest in property purchased by mortgagee - Right of mortgagor to indemnity from purchaser - Applicability to mortgage of leasehold under The Land Acts 1962 to 1970 (Q.) - Whether mortgagor or mortgagee entitled to proceeds of sale.

HEARING

Brisbane, 1972, June 6;
Melbourne, 1973, March 9. 9:3:1973
APPEAL from the Supreme Court of Queensland.

DECISION

1973, March 9.
The following written judgments were delivered:-
BARWICK C.J. On 4th December 1969 Peter John Forrester (the respondent) Alexander Simpson, over a Crown leashold property in the State of Queensland. The respondent's title to the land was held under The Land Acts, 1962 to 1970 of that State (The Land Acts). Section 275 provides for the mortgaging of land to which the title is held under those Acts. The mortgage was given to secure the sum of $55,165 which was the outstanding balance of the price paid by the respondent when purchasing the property from the appellant some five months earlier. The purchase price for the leasehold was $74,910. The mortgage was duly registered under the provisions of The Land Acts, see ss. 275, 276, 279. (at p502)

2. The respondent did not meet his commitments according to the terms of the memorandum of mortgage and was sued by the appellant on the personal covenant contained in that memorandum to pay the principal and interest secured thereby. No defence was entered by the respondent to the appellant's action: the appellant, in consequence, obtained judgment at law on 16th November 1970 for the amount for which he had sued. On 4th January 1971, at the instance of the appellant, a writ of fieri facias was issued out of the Supreme Court of Queensland for the sum of $59,970.47. That writ required the sheriff of Queensland to realize so much of "the lands, tenements, goods, chattels, choses in action, and other property" of the respondent within the State of Queensland as would produce the amount of the judgment debt. The sheriff was authorized to sell by auction the property of the judgment debtor. He was, therefore, empowered to sell the respondent's leasehold subject to existing encumbrances thereon and interests therein. By his warrant issued upon the said writ, the acting sheriff required his bailiff to realise the lands etc. of the respondent. Finding no goods or chattels whereon to levy, the bailiff duly notified the sale of the leasehold property by auction upon a specified date. On that date, 22nd March 1971, the estate, right, title and interest of the respondent in the property (known as Grazing Farm 7614, Roma District) was offered for sale by public auction at Roma. The property was said to be for sale subject to the memorandum of mortgage in favour of the appellant. The appellant was the only bidder at the auction and became the purchaser of the equity of redemption in the leasehold for the price of $20,000. The appellant paid that sum to the sheriff and received in exchange a memorandum of transfer of the leasehold in the prescribed form subject to the mortgage to himself. (at p503)

3. Before the transfer was lodged for registration the respondent brought the present action to which the sheriff as well as the appellant was a defendant. The respondent's claim and the appellant's counterclaim were set out in his reasons for judgment by the learned judge who constituted the Supreme Court for the disposal of the action as follows:

"In his statement of claim the plaintiff claimed the following
relief:
'(i) A declaration that he is entitled to a sum of TWENTY
THOUSAND DOLLARS ($20,000.00) less certain Court Fees
at present held by the Defendant Sheriff in respect of the
sale of the said property;
(ii) A declaration that the Plaintiff is entitled to be indemnified
by the Defendant Mortgagee in respect of all monies
secured (as at the Twentysecond day of March 1971) by the
said Memorandum of Mortgage.
(iii) Alternatively to the declarations hereinbefore sought and
in the event of the Court's declining to make such
declarations, an order that the said sale be set aside with all
enquiries and directions necessary for that purpose.'

By way of counterclaim the defendant mortgagee claimed:

'(i) A declaration that he validly purchased on 22nd March
1971 all the right title and interest then held by the Plaintiff
in and to the property described in the Statement of Claim.
(ii) A declaration that his Judgment against the Plaintiff
referred to in the Statement of Claims remains unsatisfied.
(iii) A declaration that he is entitled to have paid to him in
partial satisfaction of such Judgment the amount paid by
the Defendant Sheriff into this Honourable Court and
invested by the Treasurer of Queensland pending the
determination of this action.'"

The Supreme Court of Queensland found for the respondent on his first and second claims and declared him to be entitled to the moneys held by the sheriff in respect of the sale of the equity of redemption and that the mortgage debt formerly due to the appellant had been extinguished. This appeal has been brought against that decision, the appellant seeking orders in terms of his counter-claim. (at p504)

4. No expert evidence was presented to the Supreme Court as to the value of the property at the time of the sale by the sheriff, although about 21 months earlier it had been sold for nearly $75,000. However, it appeared from the correspondence between the sheriff and his bailiff that prior to the auction the sheriff was advised by the solicitors for the appellant of the price paid for the leasehold and that the appellant was willing to bid $15,000 to $16,000 at the sale. On this information the sheriff apparently assessed the value of the equity of redemption in the leasehold at around $15,000 to $16,000. The outstanding charge on the leasehold at this time was approximately $60,000. It may be taken, therefore, for the purposes of this appeal, that the leasehold land now in the ownership of the appellant is worth considerably more than the amount of the mortgage debt. (at p504)

5. There seems to have been some confusion at the auction in the minds of some persons there present as to what was being sold. Due to what then occurred, as evidenced before the Supreme Court, the parties by their counsel agreed that, if the respondent was not entitled to succeed on his first and second claims, the sale by the sheriff should be set aside thus leaving the sheriff free to continue the execution of the writ of fieri facias. However, having regard to the conclusion I have reached, the occasion to act on this agreement of the parties does not arise. (at p504)

6. The respective contentions of the parties before this Court are, on the part of the appellant, that as he was the judgment creditor on whose behalf the writ of fieri facias was executed and not-withstanding that he was also the mortgagee of the land and that the judgment debt was the amount which was charged on the land, he was entitled to the proceeds of the sheriff's sale pursuant to the writ; and on the part of the respondent that, although the sheriff was entitled to take the respondent's interest in the land and sell it under the writ of fieri facias issued on the appellant's judgment for the amount due under the mortgage, the appellant upon becoming the purchaser of the equity of redemption must be taken to have indemnified the respondent against all liability under the mortgage, so that thereafter the appellant was not entitled to retain the entire interest in the land and the price he had paid for the equity of redemption. (at p504)

7. If the appellant's argument is accepted, the appellant will own the leasehold absolutely, a property worth much more than the amount of the appellant's debt, without having foreclosed the respondent's equity of redemption by process of law, though such a procedure would appear not to be available in respect of such a leasehold (Tannock v. North Queensland Securities Ltd. (1932) QSR 285, at p 298 ), and will have paid for the entire interest in the leasehold only the outstanding amount of money loaned thereon together with such amount of interest as was in arrear at the date judgment was signed in the action. As well, he will be entitled to issue further execution upon that judgment. (at p505)

8. As I have indicated, the sheriff was entitled under the writ of fieri facias to sell the respondent's interest in land. By s. 292 of The Land Acts the interest of the respondent was liable to seizure and sale under the writ of fieri facias. The sheriff or the bailiff was entitled with the written permission of the Minister for Lands to transfer the respondent's interest in the lease to a person qualified under the Land Acts to hold that interest. I assume that the appellant was such a person. It would appear that the appellant was entitled to bid at the auction and to become the purchaser of the respondent's interest in the leasehold. (at p505)

9. There is no provision in the law of Queensland preventing a mortgagor's equity of redemption in land being taken in execution under a writ of fieri facias or preventing the mortgagee purchasing that equity at the sheriff's sale. Section 102 of the Conveyancing Act, 1919 (N.S.W.) provides that the mortgagor's interest in the mortgaged land cannot be taken in execution under a judgment for the debt secured by the mortgage. That provision, which has a great deal to commend it, has no counterpart in the laws of any of the other States or, for that matter, in the law of England. Apparently it was taken from a law of the State of New York in the United States of America, namely, s. 1432 of the New York Civil Code. (at p505)

10. There does not appear to be any decision of the Courts of the United Kingdom, of Canada, of New Zealand or of this country which deals with the precise situation which has arisen in this case: we were not referred to, and I have not found, any such decisions. However, in Union Bank of Australia v. Harrison, Jones and Devlin Ltd. [1910] HCA 44; (1910) 11 CLR 492 , the bank obtained a judgment against one of two executors to recover the amount of a mortgage debt due by the deceased to the bank. The equity of redemption in the mortgaged property was taken in execution. The bank became the purchaser at the sheriff's sale for the sum of $10. Thereafter a deed of bargain and sale in due form was executed by the sheriff in favour of the bank. (at p505)

11. The only question raised for determination in the suit brought against the bank by an assignee of the share of a beneficiary under the will of the deceased, was whether that deed of bargain and sale was effectual to pass the equity of redemption in the real estate as well as in the personal estate of the testator. Much learning was devoted to this question which was answered favourably to the bank. But no submissions were made, nor any views expressed, as to the destination of the $10 paid by the bank to the sheriff. Further, there was no evidence as to the value of the land in relation to the amount of the mortgage debt plus $10. Thus, no assistance in connection with the present problem is to be gained from this decision. (at p506)

12. In Gordon Grant & Co. Ltd. v. F. L. Boos (1926) AC 781 , a mortgagee had been permitted by the court to bid at a judicial sale of the mortgaged property, which was subject to a prior encumbrance. The mortgagee purchased the mortgagor's equity of redemption, that is to say, his right to redeem the prior mortgage as well as his right to redeem the equitable mortgage. The amount realized by the sale was insufficient to satisfy the prior encumbrance and the mortgagee's debt. The mortgagee subsequently sued for the unpaid balance of his mortgage debt, having meantime resold the property at a profit. The Privy Council held that he was entitled to sue for that balance. The basic considerations leading to this result, it seems to me, were that the property had been sold under a judicial sale, the amount realized, duly accounted for, leaving a balance of the mortgage debt unpaid. Further, the equity of redemption which was purchased was not only an equity to redeem arising out of the mortgage transaction itself. In my opinion, no assistance for the resolution of the instant case is to be gained from the reasons for decision in Gordon Grant & Co. Ltd. v. F.L. Boos. (at p506)

13. It seems to me that the rights of the parties may be determined by examining the consequences of the transfer by the sheriff to the appellant. Though restrained by the suit from registering it, that transfer places the appellant in the position by his own endeavour to become the registered transferee of the leasehold. (at p506)

14. A sale by a mortgagor of land of his equity of redemption attracts an indemnity from the purchaser to the vendor mortgagor against all liability for the future arising under the mortgage. The principle of importing such an indemnity into such a transaction is well established: see Waring v. Ward [1802] EngR 288; (1802) 7 Ves Jun 332 (32 ER 136) and Dodson v. Downey (1901) 2 Ch 620 . This Court, in Fink v. Robertson [1907] HCA 7; (1907) 4 CLR 864, at p 877 , acted on the basis of both these cases. In the case of land held under The Real Property Acts, 1861 to 1963 (Q.), s. 68 of those Acts implies a covenant on the part of the transferee of land under the Acts subject to a mortgage to indemnify the transferor against all liability in respect of the express or implied covenants of the mortgage. There is no express power given by The Land Acts to a leaseholder to transfer his interest in the leasehold subject to an existing mortgage thereon; but those Acts contain no prohibition of such a transfer. Thus, the respondent's equity of redemption in the subject leasehold was susceptible of transfer. The Land Acts contain no provision equivalent to s. 68 of The Real Property Acts. But the principles of equity would apply to such a transfer and would import into the transaction the indemnity by the purchaser to the transferor-mortgagor. (at p507)

15. Section 292 of The Land Acts authorizes the officer appointed to sell a lease or interest under, amongst other provisions, a writ of fieri facias issued out of the Supreme Court, to transfer the lease or interest with the written permission of the Minister to a person qualified under The Land Acts to hold the same. That section then provides that:

"The transferee shall, with respect to the performance of all
the conditions of the lease, license or purchase, including any
conditions for the development or improvement of the land
comprised in the lease, license or purchase, be bound and liable
as if he were the original lessee, licensee or purchaser." (at p507)

16. Section 35 of The Real Property Act of 1877 (Q.) provides for the execution by the sheriff of a transfer in scheduled form to the purchaser of land under the Act which has been sold by the sheriff pursuant to a writ of fieri facias which has been registered under the provisions of s. 91 of The Real Property Acts. Section 35 further provides that, upon the entry of such a transfer in the register book, the purchaser shall be deemed the transferee of the land. There is no equivalent provision in The Land Acts but, none the less, as I have indicated, the purchaser from the sheriff is regarded by s. 35 of the Act of 1877 as a "transferee". (at p507)

17. The question thus arises whether the indemnity by the transferee of the mortgagor against liability under the mortgage will be imported into a transfer by the sheriff made pursuant to a sale under a writ of fieri facias of a mortgagor's equity of redemption. Though there is no transfer by the mortgagor, the transfer by the sheriff is effective to divest the mortgagor of his equity of redemption and to make the purchaser a transferee of the mortgagor's interest in the leasehold. (at p507)

18. In Fink v. Robertson [1907] HCA 7; (1907) 4 CLR 864 , this Court had to consider the effect of an order for foreclosure made by the Commissioner of Titles under the Transfer of Land Act 1890 (Vict.) and duly registered by the registrar under that Act. In reaching the conclusion that such an order extinguished the mortgage debt though the land may not have produced or be capable of producing the amount due under the mortgage, the Court concluded that the order of foreclosure attracted an indemnity to the mortgagor against all liability under the covenants of the mortgage. The basis of this opinion was the terms of s. 130 of the Transfer of Land Act. That section was in the following terms:

"Every such order for foreclosure under the hand of the
Registrar when entered in the register book shall have the effect
of vesting in the mortgagee or his transferree the land
mentioned in such order, free from all right and equity of
redemption on the part of the mortgagor or of any person claiming
through or under him subsequently to the mortgage: and such
mortgagee or his transferree shall upon such entry being made
be deemed a transferree of the mortgaged land, and become the
proprietor thereof, and be entitled to receive a certificate of title
to the same." (at p508)

19. The majority of the Court said (1907) 4 CLR, at pp 878-879 :

"We are of opinion that when the statute says in express
terms that a person with respect to whom certain facts can be
predicated shall be deemed to be the transferree of land the
meaning is that he shall be the transferree to the same intent and
with the same consequences as if he had become a transferree by
registration of an instrument called an instrument of transfer,
and executed by the person whose interest is transferred." (at p508)

20. Section 230 of the Transfer of Land Act provided:

"Without lessening or prejudicing any of the other rights
powers and remedies hereby given and conferred, every
proprietor and every transferree when registered of any land lease
mortgage or charge shall whilst continuing so registered have
the same estates rights powers and remedies and be subject to
the same engagements obligations and liabilities and may sue
and be sued in his own name at law and in equity in respect
thereof or thereupon, in like manner as if he had been the
original proprietor of the land by or with whom the engagement
obligation or liability sued upon was entered into or incurred, or
the original lessee mortgagee or annuitant." (at p508)

21. Of this provision the majority said (1907) 4 CLR, at p 879 :

"In our opinion the effect of s. 230 is that, when a person
voluntarily takes advantage of the provisions of the Act to
become a transferree of land, he undertakes, upon becoming
transferree, all the obligations attached to the ownership of the
land in the hands of the person from whom it is transferred, and
we think that the statutory charge created by a registered
mortgage is such an obligation, at least as between him and the
person from whom the land is transferred.

We think, therefore, that, when a mortgagee becomes
transferree of the mortgaged land under an order for foreclosure, the
same consequences follow as if he had taken a transfer from the
mortgagor under the provisions of s. 95. It follows that, as the
mortgagor would be entitled to be indemnified by the mortgagee
from any claims under the mortgage, the latter cannot enforce it
by action against the former. The further rule that when
property and the benefit of a charge upon it are vested in the same
person the charge is extinguished unless a contrary intention is
shown, which may be called a rule of commonsense, would also
of itself dispose of the question." (at p509)

22. To return to s. 292 of The Land Acts, it will be seen that a somewhat similar situation to that to which the Court adverted in the passages I have quoted is created by the transfer by the sheriff to the purchaser at the auction sale. When the transfer is made to him of the judgment debtor's interest in the leasehold, in this case the respondent's equity of redemption therein, the purchaser is a transferree and becomes bound and liable as if he were the original lessee. Thus, by parity of reasoning to that employed in Fink v. Robertson [1907] HCA 7; (1907) 4 CLR 864 although the transfer to the appellant was not a transfer by the mortgagor but by the sheriff, it attracted, in my opinion, the same indemnity to the mortgagor as would have been imported into a transfer by the mortgagor of his equity of redemption: or, put another way, as it was pointed out in Fink v. Robertson, the appellant became the owner of the leasehold, subject to the mortgage to himself. It is as if the mortgagor himself had transferred the leasehold, subject to the mortgage, to the mortgagee. Neither the mortgage nor the mortgage debt can from that moment be regarded as extant: both must be regarded as extinguished. The dictum of Buckley J. in In re George Routledge & Sons Ltd.; Hummel v. George Routledge & Sons Ltd. (1904) 2 Ch 474, at p 479 is as apposite in this connexion, though the transfer was by the sheriff, as it was in Fink v. Robertson [1907] HCA 7; (1907) 4 CLR 864 . (at p509)

23. In Robertson v. Bank of Victoria (1867) 4 WW & a'B (E) 85 Molesworth J. was unwilling to accept the proposition "that the purchaser of an equity of redemption is bound to indemnify the mortgagee (sic) in all cases, even in that of a sheriff's sale". Accordingly, he said he could not "extend the principle of an implied contract for indemnity, to the purchaser of an equity of redemption at a sale under an execution". However, in my opinion, the obligation to indemnify does not rest in contract but is implied by equity as a matter of conscience. Also the equitable principle in general is well established and, in my opinion, Molesworth J. was in error in not treating the purchaser at the sheriff's sale as bound to indemnify the mortgagor. (at p509)

24. Therefore, I have reached the conclusion that the Supreme Court of Queensland was right to decide that, upon the delivery of a transfer of the respondent's equity of redemption to the appellant, the mortgage debt was extinguished. The land in this case is to be taken, on the material before us, as more than equal to the total amount of the sum advanced and of all interest thereon to the date of execution of the writ of fieri facias. Thus, the extinction of the morgagor's right of redemption by the transfer by the sheriff to the mortgagee of the mortgagor's interest in the leasehold left the mortgagee in this case with a complete recovery of his advance and interest. (at p510)

25. Of course, in point of law as contrasted with equity moneys produced by execution of the judgment at law should be paid by the sheriff to the judgment creditor. The judgment, however, was for the amount due under the mortgage according to the mortgagor's covenant to repay the sum advanced and interest thereon: Although at law that covenant might merge in the judgment and the appellant be the judgment creditor, the proceeds of the execution would, in my opinion, come to the hands of that creditor as mortgagee. They would be moneys for which as mortgagee he was accountable to the mortgagor. Had a stranger, for example, made the purchase at the sheriff's sale, clearly the sum received from the sheriff by the mortgagee would go in reduction of the mortgagor's debt: that is to say, it would be placed to the credit of the mortgagor in account between mortgagor and mortgagee. (at p510)

26. The Supreme Court of Queensland in this suit was bound to apply equitable principles and, in accordance with them, determine the ultimate destination of the proceeds of the sheriff's sale. In my opinion, in doing so it correctly concluded that the proceeds of the execution should be paid to the respondent. Whether they should be paid directly by the sheriff to the respondent or by the appellant on his receipt of them is of no moment. (at p510)

27. By the fact of the transfer of the equity of redemption to the mortgagee, the appellant had become entitled to be registered as the transferee of the leasehold: he became its beneficial owner. By that circumstance, the whole mortgage debt as represented by the judgment was extinguished. The appellant, as mortgagee, none the less was bound, in my opinion, to apply the moneys received from the sheriff for the credit of the mortgagor: it constituted a part of his realization under the mortgage. The appellant could not isolate himself from his character as mortgagee in relation to that money or from his obligations to the mortgagor by having obtained judgment at law. However, as the mortgage debt and not merely the balance thereof after crediting the money in the hands of the sheriff had been extinguished, there was no debt to the reduction of which the money could be applied. The appellant, therefore, was, in my opinion, in the same situation in relation to that money as he would have been in relation to an excess on realization by sale over the mortgage debt: he was bound to pay that excess to the mortgagor. (at p510)

28. In this case, as I have already mentioned, the appellant becomes the beneficial owner by legal process based on the covenants of the mortgage of land of greater value than the total amount due at the date of the execution under the mortgage. There is little difficulty, in my opinion, in regarding the money which would come to the appellant's hands from the sheriff as moneys received on realization of the mortgage in excess of the mortgage debt. I say on realization of the mortgage rather than on realization of the mortgaged property because the mortgagee must be answerable for all he receives by virtue of his security, that is to say, whether received by the exercise of his powers as mortgagee in relation to the mortgaged property or by enforcement of the covenant of the mortgage. It is basic in the law of mortgages that, if there be neither foreclosure nor purchase by the mortgagee with the court's permission of the mortgagor's equity of redemption, the mortgagee shall take no more from his security than the amount of his mortgage debt including interest thereon. Thus, to require the money in the hands of the sheriff to be paid, in the circumstances of this case, to the respondent is in accord with the principles of equity. (at p511)

29. The case illustrates, in my opinion, the wisdom and indeed the advisability of a provision such as s. 102 of the Conveyancing Act, 1919 (N.S.W.) to which I have already made reference. With such a provision in the law a mortgagee is clearly limited to foreclosure, where available, and sale of the mortgaged property, using the covenant to repay the amount advanced in order to gain access to assets of the mortgagor other than his interest in the mortgaged property. (at p511)

30. For these reasons, I would dismiss the appeal. (at p511)

GIBBS J. By an agreement made on 23rd July 1969 the first respondent, Peter John Forrester (whom I shall call the respondent), agreed to purchase from the appellant, Lawrence Alexander Simpson, for a price of $74,910 a property in the Roma Land Agent's District held under The Land Acts 1962 to 1968 (Q.) ("The Land Acts") as a Grazing Farm. On 4th December 1969 the respondent gave a mortgage over this property to secure the payment of $55,165, the unpaid balance of the purchase price, to the appellant. The memorandum of mortgage contained covenants for the payment of principal and interest. The respondent having defaulted in these payments, the appellant sued him in the Supreme Court of Queensland for breach of covenant and recovered judgment upon which there was issued on 4th January 1971 a writ of fieri facias whereby the sheriff of Queensland was commanded that he cause to be made out of the property of the respondent the amount of the judgment debt ($58,677.01), the taxed costs of the action ($241.87), interest on both sums and a further amount of $6.30 for costs of execution, and that he "have that money and interest before Us in Our said Court immediately after the execution hereof to be paid to the said Lawrence Alexander Simpson in pursuance of the said judgment". Pursuant to this writ, and a warrant issued thereon, the respondent's interest in the grazing farm was put up for sale by public auction on 22nd March 1971. The evidence reveals that at the sale a number of persons were present and that the sheriff's officer said that he had been instructed to offer for sale the equity of the respondent, subject to the successful purchaser taking over the mortgage. He said also that the amount owing under the mortgage as at the date of the sale was $59,970.47 and that he was instructed that the equity of the respondent was approximately $16,000 and that he would accept a reasonable bid in the vicinity of $15,000 or $16,000. The sheriff, who gave the officer his instructions, had made his estimate as to the value of the equity of redemption on the assumption that the property was still worth what the respondent had agreed to pay for it in 1969, but there was no evidence to show whether or not this assumption was well founded. When the bidding was opened the appellant was the only bidder and his bid of $20,000 was accepted. He paid this amount to the sheriff's officer and was given a signed transfer in exchange. The money received by the sheriff has been paid into court. (at p512)

2. The respondent commenced an action in the Supreme Court of Queensland against the appellant and the sheriff as defendants, claiming that he is entitled to the amount of $20,000 held by the sheriff (less court fees) and that he is entitled to be indemnified by the appellant in respect of all moneys secured by the mortgage as at 22nd March 1971 - the date of the sheriff's sale. Alternatively he sought an order that the sale be set aside. The appellant counterclaimed for declarations that he validly purchased on 22nd March 1971 all the interest of the respondent in the property, that the judgment which he obtained against the respondent remains unsatisfied and that the appellant is entitled to have paid to him in partial satisfaction of such judgment the moneys paid by the sheriff into court. At the trial it was conceded both by the appellant and the sheriff that if the respondent was not entitled to the primary relief which he sought the sale should be set aside. The reason why this concession was made appears to have been as follows. The persons who attended the sale may have been led to believe that the successful purchaser would acquire a property subject to a mortgage debt of $59,970.47. If, however, the appellant was entitled to receive the moneys raised by the sheriff's sale, and if the amount of the mortgage debt would thereupon have been reduced by the amount received, or part thereof, the property in the hands of the purchaser would have been subject to a mortgage debt reduced by the amount of the purchase price, or so much thereof as should not be appropriated to costs and interest thereon, and a prospective purchaser knowing these things might have been prepared to make a higher bid than $20,000. However, the learned trial judge was not called upon to give effect to this concession for he granted the respondent declarations (1) that he was entitled to $19,425.15 held by the sheriff in respect of the sale and (2) that the debt secured by the memorandum of mortgage "has become extinguished so far as it was created by and enforceable under such memorandum of mortgage". It is from this judgment that the present appeal is brought. (at p513)

3. A mortgage of a lease under The Land Acts, like a mortgage of land under The Real Property Acts 1861 (Q.) (as amended), has effect only as a security; it does not operate as a transfer or assignment of the lease: s. 276 of The Land Acts. The rights of a mortgagee upon default of payment of the money secured are defined, rather sketchily perhaps, by s. 279 of The Land Acts: he may enter upon and take and retain possession of the holding and he may sell the holding. However, in my opinion s. 279 speaks of the rights which the mortgagee has to avail himself of his security and does not affect his right to sue on the covenants. If, as the appellant did here, the mortgagee sues in the Supreme Court and obtains a judgment upon which execution is issued, the interest of the lessee is liable to be sold under the execution and the officer appointed to make the sale may, with the written permission of the Minister, transfer the lease to any person who is qualified under The Land Acts to hold it: s. 292. That section speaks of "the interest of any lessee, licensee or purchaser under Part VII in any holding or land" and it should be added, in deference to one of the arguments submitted, that the words "under Part VII" govern "purchaser" and not "lessee" or "licensee"; Pt VII deals, inter alia, with the sale of Crown land either as freehold or as a perpetual lease and it is obviously to the interest of a purchaser under such a sale that the words "under Part VII" in s. 292 refer; moreover, assuming that the words "lessee under Part VII" could be given an intelligible meaning, there is no such thing as a "licensee under Part VII", and this further shows that the words in question refer only to their immediate antecedent. The interest of the respondent in the grazing farm was therefore liable to be sold under the execution. It has long been established that a judgment creditor taking out execution may become the purchaser of property seized under it - Stratford v. Twynam [1822] EngR 202; (1822) Jac 418 (37 ER 908) ; Ex parte Villars; In re Rogers (1874) 9 Ch App 432, at p 437 - and in Union Bank of Australia v. Atkins (1900) 10 QLJ (NC) 11 , it appears to have been held that a mortgagee who has obtained judgment under the covenants in the mortgage is in no different position in this respect from any other judgment creditor and may therefore purchase the mortgaged property at a sheriff's sale. The decision of this Court in Union Bank of Australia v. Harrison, Jones & Devlin Ltd. [1910] HCA 44; (1910) 11 CLR 492 , tacitly accepts the correctness of this view, which, before us, it was not sought to challenge. It did not appear whether the Minister gave his written permission to the transfer to the appellant or whether the appellant was qualified to hold the lease, but no point was made of these matters in argument. (at p514)

4. The judgment of the learned trial judge rested on the proposition that the appellant, being the purchaser of an equity of redemption, was bound in conscience to indemnify the respondent, as mortgagor, against his personal obligation to pay the moneys due under the mortgage and that the indemnity to which the respondent was entitled extended to all moneys due immediately before the time of the sheriff's sale and not merely to the mortgage debt as reduced by the proceeds of the sale itself. (at p514)

5. The right of a mortgagor to be indemnified by the purchaser of the equity of redemption was first recognized in Waring v. Ward [1802] EngR 288; (1802) 7 Ves Jun 332 (32 ER 136) , where Lord Eldon said (1802) 7 Ves Jun, at p 337 (32 ER, at pp 137-138) :

"The same principle applies to the purchase of an equity of
redemption; for the party means at the time of the contract to
buy the estate subject to that mortgage; in relation to which
mortgage the personal contract was entered into; and that was
not his. If he enters into no obligation with the party, from
whom he purchases, neither by bond nor covenant of indemnity
to save him harmless from the mortgage, yet this Court, if he
receives possession, and has the profits, would, independent of
contract, raise upon his conscience an obligation to indemnify
the vendor against the personal obligation to pay the money due
upon the vendor's transaction of mortgage; for, being become
owner of the estate, he must be supposed to intend to indemnify
the vendor against the mortgage." (at p514)

6. Although the interest of the respondent in the present case was "a legal interest subject to a charge and therefore . . . not, in a strict sense, an equity of redemption or any other form of equitable interest" (Anderson v. Liddell [1968] HCA 12; (1968) 117 CLR 36, at p 48 ), there can be no doubt that the rule in Waring v. Ward [1802] EngR 288; (1802) 7 Ves Jun 332 (32 ER 136) applies when such an interest is purchased just as it would apply on the purchase of an equity of redemption. The settled rules of equity should be applied in cases arising under The Land Acts, except in so far as the provisions of those Acts reveal an intention to exclude or modify them, and in the comparatively meagre provisions made by The Land Acts with regard to mortgages of Crown leaseholds there is to be found no indication whatever of an intention to exclude the rule in Waring v. Ward. It is established that the rule may be applicable in the case of a mortgage registered under The Real Property Acts - see Fink v. Robertson (1907) 4 CLR at pp 877-879 - and in my opinion it may similarly apply to a mortgage under The Land Acts. The question that then falls for consideration in the present case is whether the rule applies where the interest of a mortgagor is bought at a sheriff's sale by a mortgagee who has obtained judgment on the covenants in the mortgage. (at p515)

7. It was said in Fink v. Robertson (1907) 4 CLR, at p 877 that the obligation of the assignee of an equity of redemption to indemnify the mortgagor against the mortgage debt "was generally regarded as arising from an implied contract". Although some support may be found for the view that the obligation of indemnity resting on the purchaser is based on an implied contract - see Mills v. United Counties Bank Ltd., per Fletcher Moulton L.J. (1912) 1 Ch 231, at p 241 , and cf. per Cozens-Hardy M.R. (1912) 1 Ch, at p 236 - that view was stated by Farwell L.J. in Mills v. United Counties Bank Ltd. (1912) 1 Ch 231 to be erroneous; that learned Lord Justice regarded the principle as founded in the doctrines of equity and independent of contract (1912) 1 Ch, at pp 242-243 . What Farwell L.J. said in that case is supported by the words which Lord Eldon himself used and by the remarks of Lord Wrenbury in Eastern Shipping Co. Ltd. v. Quah Beng Kee (1924) AC 177, at pp 182-183 , and seems to me to be a correct statement of the position. I do not think it is necessary to be able to imply a contract before the rule can apply. For instance, although it may be difficult to imply a contract where there has been a voluntary assignment, it appears that a person who takes the equity of redemption pursuant to a voluntary assignment will be obliged to indemnify the assignor provided that the assignment was subject to the mortgage debt: cf. In re Darby's Estate ; Rendall v. Darby (1907) 2 Ch 465, at p 470 , and In re Mainwaring; Mainwaring v. Verden (1937) Ch 96, at pp 101, 104-105 . In my opinion the fact that there was no contractual relation between the purchaser at a sheriff's sale and the mortgagor of the land sold does not prevent the application of the rule, which will apply if the circumstances were such as to raise an obligation on the conscience of the purchaser to indemnify the mortgagor against the debt charged on the land. In my opinion the circumstances that raise such an obligation in the present case are that the sale was of the leasehold subject to the mortgage (this was necessarily so, since the purchaser under the execution of a writ of fieri facias can acquire no greater interest than the judgment debtor had - Ghana Commercial Bank v. Chandiram (1960) AC 732, at pp 743-744 and that the persons present at the sale were expressly told that the sale was subject to the successful purchaser taking over the mortgage. It would seem to me "against conscience and honesty", to use the words of Farwell L.J. in Mills v. United Counties Bank Ltd. (1912) 1 Ch, at p 243 , for a person who at a sheriff's sale had purchased property on the footing that it was subject to a mortgage afterwards to set up that he had bought the property free from the mortgage and to endeavour to cast the burden of the mortgage back on to the mortgagor. Such a purchaser is therefore under an obligation to indemnify the mortgagor against his liability to pay the mortgage debt. The fact that the mortgagee has obtained judgment for the amount owing under the mortgage can make no difference. Although the mortgagee's cause of action for breach of covenant has merged in the judgment it is right to regard the obligation of the mortgagor to pay the amount of the judgment debt as an obligation which in substance springs from the mortgage. The purchaser in such a case ought in conscience to relieve the mortgagor of his liability to make payment under the judgment to the extent to which it represents the unpaid amount of the mortgage debt and ought therefore to indemnify the mortgagor against that liability. Although the rule in Waring v. Ward [1802] EngR 288; (1802) 7 Ves Jun 332 (32 ER 136) appears never to have been applied to a case such as the present, it seems to me that in principle it ought to be applied. In Robertson v. Bank of Victoria (1867) 4 WW & a'B (E) 85 , Molesworth J. declined to extend the rule so as to require the purchaser of an equity of redemption at a sheriff's sale to indemnify the mortgagor, but his judgment does not reveal his reasons for so deciding and I am unable to regard that case as sufficient authority to outweigh the conclusion which I have reached on principle. The fact that the purchaser is the mortgagee cannot provide any reason for allowing him to escape from the obligation to indemnify the mortgagor. In such a case the effect of the indemnity must be to extinguish the outstanding mortgage debt. (at p516)

8. In Mills v. United Counties Bank Ltd. (1911) 1 Ch 669 , Eve J., in reliance on the words of Lord Eldon who in Waring v. Ward [1802] EngR 288; (1802) 7 Ves Jun 332 (32 ER 136) , limited his statement to cases where the purchaser has received possession, held that any obligation imposed on the purchaser is conditional upon the interest purchased vesting in possession. On appeal (1912) 1 Ch 231 the judgment of Eve J. was affirmed, but on another ground and two of the members of the Court of Appeal expressly declined to assent to that view of the law (1912) 1 Ch, at pp 237, 243 . In the present case it is unnecessary to decide whether the rule applies to the case of a purchaser of a reversionary interest, but there is no reason why the purchaser of land subject to a mortgage, who is entitled to possession, should not be subject to the obligation to indemnify the mortgagor, simply because he has not in fact obtained possession. It was admitted that the sale of the land to the appellant was completed and that the transfer to the appellant, although lodged for registration, was not yet registered but it did not appear whether or not the appellant had obtained possession. However, it was not suggested that there was anything to prevent him from obtaining possession if he had not in fact already done so. In these circumstances the fact that the appellant has not taken possession, if it be a fact, does not exclude the operation of the rule. (at p517)

9. In my opinion, the purchase by the appellant of the respondent's interest in the land extinguished the outstanding mortgage debt and the respondent is entitled to the second of the declarations made by the learned trial judge, provided of course that the sale is allowed to stand. (at p517)

10. It is then necessary to consider the fate of the moneys paid by the appellant to the sheriff's officer. The writ of fieri facias commanded that the moneys made by the execution should be brought into court to be paid to the appellant, as judgment creditor, and it is abundantly clear that in law the appellant was entitled to those moneys: see Bluston & Bramley Ltd. v. Leigh (1950) 2 KB 548 , and cases there cited. This legal title was not in my opinion affected by the operation of the rule in Waring v. Ward [1802] EngR 288; (1802) 7 Ves Jun 332 (32 ER 136) . It may be observed that the purchaser of an equity of redemption, or of an interest in land subject to a mortgage, does not become personally liable to the mortgagee under the covenants of the mortgage: In re Errington ; Ex parte Mason (1894) 1 QB 11 . In other words, the liability under the covenants of the mortgage does not run with the land and the obligation of the purchaser, when it exists, is not to pay the mortgagee but to indemnify the mortgagor. The indemnity is against the mortgage subject to which the purchaser acquired the equity or interest of the mortgagor. It does not extend to require the purchaser to make good payments previously made by the mortgagor in reduction of the mortgage debt. Similarly the purchaser is not required to indemnify the mortgagor against the consequences of an execution made before the date of the purchase to enforce a judgment obtained by the mortgagee. The purchaser in such cases has to indemnify the mortgagor not against the mortgage debt as it originally was, but against the debt subsisting at the date of the purchase and of course against any other payments such as interest which the mortgagor is required to make in future under the mortgage. In the present case once the appellant became the purchaser of the interest of the respondent subject to the mortgage, he was obliged to indemnify the respondent against any payment which the respondent was thereafter required to make under the mortgage, and since any such payment had then to be made to the appellant himself the debt was in effect extinguished. But the purchase price of $20,000 was paid to enable the appellant to become the purchaser, and so much of it as did not represent costs and fees was applicable in reduction of the mortgage debt. It was not disputed that if the purchaser at the sheriff's sale had been a stranger his obligation would have been to indemnify the mortgagor against the mortgage debt as reduced by the nett proceeds of the execution, i.e. by so much of the proceeds as were not applicable to costs and fees. In other words, if in the present case the purchaser had been a stranger his obligation would have been to indemnify the respondent against a mortgage debt of approximately $40,000. In my opinion the fact that the mortgagee was the purchaser does not make any difference. The mortgage debt charged on the property at the time that the appellant acquired it had been reduced by the net proceeds of execution to about $40,000 and the appellant, on becoming the owner of the leasehold subject to a mortgage which secured the debt as so reduced, was obliged to indemnify the respondent against his liability to pay that reduced amount. Accordingly the equitable rule in question does not operate to affect the title of the appellant to the moneys which were received by the sheriff to his use. Indeed, it would seem to me an extraordinary result if a judgment creditor were held liable to indemnify his judgment debtor against the consequences of an execution on the judgment, when the very object of the execution was to raise from the property of the judgment debtor money with which to pay the judgment creditor. (at p518)

11. It is true that if it be right to assume that the grazing farm was at the date of the sheriff's sale of a value equal to the price which in 1969 the respondent had agreed to pay for it, the appellant will have obtained land of considerably greater value than the mortgage debt. But he obtained the land, not in enforcement of his security, but by purchase at a public sale conducted under the writ of execution, and if the price paid was in fact too low, the respondent, who was at liberty to procure a higher bid, cannot complain on that account - cf. Gordon Grant & Co. Ltd. v. P. L. Boos (1926) AC 781, at p 787 . (at p518)

12. For the reasons given, I have reached the conclusion that the appellant was required to indemnify the respondent only against the mortgage debt that remained after the moneys received as a result of the execution had been applied in reduction of it, and that the appellant remains entitled in law and in equity to payment of the moneys received by the sheriff, unless the sheriff's sale is set aside. The first declaration made by the learned trial judge was in my opinion erroneous. (at p518)

13. It follows that if the concession made at the trial is to be given effect the sale should be set aside. It appears fair to conclude that the sheriff thought, and that the persons who attended at the sale may also have thought, that the purchaser would acquire the grazing farm subject to a mortgage debt of $59,970.47. Of course, if the interest of the respondent had been sold to satisfy a judgment debt due to some person other than the appellant, the proceeds of the sale would have gone to that judgment creditor and would not have been applied in reduction of the mortgage debt. In the present case, however, the receipt by the appellant of the proceeds of the sale would, as I have said, serve to reduce the mortgage debt subject to which the leasehold was to be taken. A prospective purchaser, if aware that he would acquire the interest of the respondent subject to a mortgage debt which would be reduced by the nett proceeds of the execution, might possibly have made a substantially larger bid than $20,000. No doubt a higher bid would have benefited the respondent only if it had exceeded $59,970.47, and the appellant could have afforded to bid up to that figure, for any proceeds up to that amount would have gone to the appellant. At the hearing before us, counsel for the respondent, when asked whether the sale should be set aside if he obtained one of the two declarations which he primarily sought, but not both, replied that he did not think that in that event he could ask that the sale should be set aside. However, he said that he had no instructions on the point, and it seems to me that the terms in which the concession was made, and the reason for it, justify us in setting the sale aside notwithstanding that if the sale is allowed to stand the second declaration made by the learned trial judge will not be disturbed. However, if upon a consideration of these reasons the respondent does not wish to have the sale set aside, an order to that effect should not be forced on the parties. (at p519)

14. I would allow the appeal. If the respondent desires us to act on the concession made at the trial, I would vacate the declarations made by the learned trial judge and would order that the sale be set aside. If the respondent does not wish us to take that course, I would vacate only the first of the two declarations made by the learned trial judge, but would further declare that the appellant is entitled to the moneys in court. (at p519)

STEPHEN J. This case concerns the purchase by a mortgagee, Simpson, of the interest of his mortgagor, Forrester, in the mortgaged property, a grazing farm lease, at a sheriff's auction following judgment for the mortgage debt and the issue of a writ of fieri facias at the instance of the mortgagee. The facts are stated in detail in the other judgments of the Court. (at p519)

2. In essence the matters in issue in this trial were whether the mortgagee and execution creditor, Simpson, having bought the mortgaged property at the sheriff's sale, was entitled to the net proceeds of that sale and also to seek to recover the remaining balance of his judgment debt from the mortgagor, Forrester; or whether, on the contrary, because it was the mortgagee who became the purchaser at the sheriff's sale, the net proceeds of sale went to the mortgagor and the mortgage debt was extinguished. The learned trial judge, Skerman J., concluded that it was, in all the circumstances, these latter consequences which ensued and it is from his judgment and order that the mortgagee appeals. (at p520)

3. It will be covenient if I state first what I regard as the result in law of a mortgagee purchasing his mortgagor's interest in the mortgaged property at an execution sale following judgment for the mortgage debt, give my reasons for those conclusions and then seek to apply them to the facts of the present case. (at p520)

4. In my view, when a mortgagee makes such a purchase at a sheriff's auction the price bid by him, up to the amount of the judgment debt plus expenses of the execution, is payable by the sheriff to him, after deduction of those expenses, and will go in reduction or extinction of the judgment debt, any surplus proceeds over and above the judgment debt plus expenses going to the mortgagor. (at p520)

5. If the net proceeds of sale are insufficient to satisfy the judgment debt nevertheless the mortgagee will not, thereafter, be entitled to enforce payment of the balance; by purchasing the mortgaged property he becomes liable to indemnify the mortgagor against any portion of the mortgage debt not satisfied out of the proceeds of sale and the consequence of this liability to indemnify, assumed when the mortgagee buys the mortgaged property, is that the balance of the mortgage debt is satisfied, so that the mortgagee can no longer recover it; at the same time he of course holds the property, as purchaser, free of the mortgage. (at p520)

6. It is, no doubt, only infrequently that a mortgagee, having obtained judgment against the mortgagor for the mortgage debt in an action on the personal covenant and having caused a writ of fieri facias to issue by way of execution, will then bid at the execution sale and purchase the mortgagor's interest in the mortgaged property. However, in the absence of any statutory provisions to the contrary, and none such exist in Queensland, the mortgagee is free to do so. (at p520)

7. An ordinary execution creditor may buy at the resultant sheriff's sale, he "cannot be in a worse position than any other purchaser" - per Mellish L.J. in Ex parte Villars; In re Rogers (1874) 9 Ch App 432, at p 437 , whose view in this respect was not contraverted by the outcome of the subsequent re-argument of that case before the full Court, and see generally Halsbury's Laws of England, 3rd ed., vol. 16, p. 57, par. 88. (at p521)

8. What then of the special case where the execution creditor is the mortgagee whose judgment is for the mortgage debt, the property being sold by the sheriff being the mortgaged property? In Robertson v. Bank of Victoria (1867) 4 WW & a'B (E) 85 , it was assumed both by counsel and by Molesworth J. that there was no objection to such a purchase; Union Bank of Australia v. Atkins (1900) 10 QLJ (NC) 11 , seems to be an authority to the same effect; and in the later case of Union Bank of Australia v. Harrison Jones & Devlin Ltd. [1910] HCA 44; (1910) 11 CLR 492 , although the Court was not concerned with any issue on this point, the Chief Justice, in the course of his judgment (1910) 11 CLR, at p 499 referred without comment to the purchase by the mortgagee at the sheriff's sale, as did Barton J. (1910) 11 CLR, at p 507 and Higgins J. (1910) 11 CLR, at p 524 ; Simpson C.J. in Eq. at first instance (1910) 10 SR (NSW) 266, at p 271 did likewise. In the United States reference to the annotations in American Law Reports, vol. 95, at p. 89, and to American Jurisprudence, 2nd ed., par. 1225, discloses that instances abound of such purchases without there being raised any question of their propriety; accordingly I think it clear that there is no principle upon which a judgment creditor-mortgagee is debarred from buying the mortgaged property at such a sheriff's sale. (at p521)

9. However the notion of the mortgagee becoming the purchaser at such an execution sale raises what may, at first sight, appear to be certain difficulties when it is sought to apply to the resultant situation the well established equitable doctrine, enunciated by Lord Eldon in Waring v. Ward [1802] EngR 288; (1802) 7 Ves Jun 332 (32 ER 136) , that the purchaser of an equity of redemption must indemnify the mortgagor against liability for the mortgage debt secured on the mortgaged property. (at p521)

10. This doctrine applies equally to the purchase of an equity of redemption in the case of a mortgage at general law and to the purchase of the mortgagor's interest in property subject to a mortgage which takes the form of an hypothecation, as does the familiar Torrens System mortgage: Fink v. Robertson [1907] HCA 7; (1907) 4 CLR 864 . The mortgage in the present case contemplated by s. 275 of The Land Acts 1962 to 1968 (Q.) is of this latter character. The origin of the doctrine appears to lie in the obligation which is placed upon the conscience of the buyer of an equity of redemption to indemnify the vendor when he buys subject to the existing mortgage and takes subject to the encumbrance, the existence of which will be reflected in a reduction of the purchase price; having done so it would be against conscience that he, not being liable to the mortgagee on the personal covenant, should be permitted to profit from the mortgagor being compelled to pay under the personal covenant, thus discharging the encumbrance the existence of which operated to reduce the price the buyer had to pay for the property. (at p522)

11. In Waring v. Ward (1802) 7 Ves Jun, at p 337 (32 ER, at p 137) Lord Eldon said, in explaining equity's insistence upon the imposition of such an indemnity, that the buyer of the equity of redemption, "means at the time of the contract to buy the estate subject to that mortgage". In the American case of Stevenson v. Black (1831) 1 NJ Eq (Saxt) 338 , Chancellor Vroom said of the doctrine (1831) 1 NJ Eq (Saxt), at p 342 :

"As between the mortgagor and the purchaser of a simple
equity of redemption, where the mortgage money constitutes, in
fact, a part of the actual consideration of the purchase, the
mortgagor has a just right to be indemnified by the purchaser
against all personal liability on the bond . . . ; for having become
owner of the estate, he must be supposed to intend to indemnify
the vendor against the mortgage."

In Adair v. Carden (1892) 29 LR Ir (Ch D) 469 , the Master of the Rolls considered in detail the doctrine of Waring v. Ward [1802] EngR 288; (1802) 7 Ves Jun 332 (32 ER 136) and said (1892) 29 LR Ir (Ch D), at pp 485-487 , that a man, buying subject to a mortgage and not otherwise evincing an intention to transfer the mortgage debt to himself buy paying a less price for the property in consequence of that mortgage, must indemnify the vendor, that is the mortgagor, against the mortgage debt although he does not take the debt upon himself personally. His Lordship thus regarded the indemnity as flowing from the payment by the purchaser of a less price in consequence of the burden of the mortgage existing on the land which was bought. In Mills v. United Counties Bank Ltd. (1912) 1 Ch 231, at p 237 , the matter was put thus by Cozens-Hardy M.R.:

"If a property is worth $20,000 and is subject to a mortgage
of $10,000 and the purchaser only pays the vendor $10,000 and
gets the property, it would be almost shocking to say that in that
case the vendor would be liable on the covenant to pay the full
sum of $10,000 to the first mortgagee and that the purchaser was
under no obligation to indemnify him."

and Farwell L.J. said (1912) 1 Ch, at p 243 :

"Generally speaking, when A. sells and B. buys an equity of
redemption, i.e., in other words property subject to a charge, it
is against conscience and honesty for B. to set up that he has
bought the property free from the charge at A.'s expense."

In In re Mainwaring; Mainwaring v. Verdon (1937) 1 Ch 96, at p 103 , Romer L.J. said that the doctrine depended upon the sale being expressed to be a sale subject to the mortgage in question and in Conlon v. Biggs (1943) SASR 103, at p 121 , Mayo J. spoke of the doctrine as arising because "the purchaser is presumed to take the property cum onere". (at p523)

12. These passages are I think consistent with the view that the indemnity obligation arises to overcome what would otherwise be the unconscionable advantage gained by a purchaser who, having bought a property at a discounted price reflecting the amount of the charge to which it is subject, thereafter profits at the mortgagor's expense from the enforced payment off of the charge by the mortgagor at the suit of the mortgagee. (at p523)

13. An execution sale held in order to satisfy the mortgagee's judgment debt for the mortgage moneys gives rise to quite special considerations which affect the extent of the obligation to indemnify which equity otherwise casts upon the purchaser of an equity of redemption. In such a case the special character of the judgment debt is critical; the purpose of such a sale is to enable the net proceeds to go to the execution creditor-mortgagee in reduction, or if sufficient, in extinction of the mortgage debt. To the extent that the mortgage debt is thus reduced the mortgagor needs no indemnity from the buyer; the burden on the property is diminished in a manner in no way inequitable to the mortgagor, the purchase price is applied in reduction of his liability to the mortgagee and at the same time potential buyers, knowing, as they should, that whatever they bid, up to the amount of the mortgage debt, will go in reduction of the mortgage, will be encouraged to bid up to the full market value of the property so that any margin between mortgage debt and market value, representing his equity in the property, will be available to the mortgagor. Only to the extent, if any, to which the mortgage debt remains unsatisfied by the net proceeds of the sale will it then be inequitable that the buyer should not indemnify the mortgagor and the indemnity will be limited accordingly. (at p523)

14. This appears to me to be the principle upon which, when an execution sale takes place to satisfy a judgment for the mortgage moneys, the buyer, be he mortgagee or stranger, should be held liable to indemnify the mortgagor, the liability being limited to the amount of the mortgage debt remaining after the net proceeds of the sale have been applied in reduction of the judgment debt for the mortgage moneys. It is, I think, equally applicable whether the successful bidder at the sheriff's sale be the mortgagee or a stranger. If the principle of indemnity operates as I think it does neither will have any inherent advantage over the other in bidding and the resultant competition can only redound to the advantage of the mortgagor in producing a price more closely approximating to the market value of the property. (at p523)

15. So far as I am aware, with only one exception, neither the Australian nor the English courts have had occasion to consider the application of this indemnity doctrine to the case of a purchaser at a sheriff's sale held in execution of a mortgagee's judgment debt. The exception is the decision of Molesworth J. in Robertson v. Bank of Victoria (1867) 4 WW & a'B (E) 85 to which I have already referred; however it is by no means clear from the short judgment which is reported what were the grounds upon which the decision was based. None of the recognized texts on the subject appear to deal with the matter. The view I have formed is, I think, consistent with what was said by Lord Eldon in Waring v. Ward [1802] EngR 288; (1802) 7 Ves Jun 332 (32 ER 136) concerning the grounds upon which the Court would impose upon a purchaser the obligation to indemnify the mortgagor. It is clear both from the words of Lord Eldon and from what was said in Mills v. United Counties Bank Ltd. (1912) 1 Ch 231 that the principle of Waring v. Ward [1802] EngR 288; (1802) 7 Ves Jun 332 (32 ER 136) is, like other principles in equity, not inflexible but "must of course bend to the circumstances of the particular case" - per Cozens-Hardy M.R. (1912) 1 Ch, at p 237 . The circumstance that the net proceeds of a sale will go in reduction of the mortgage debt and thus, for the reasons already stated, remove the need for equity's intervention to the extent of that reduction provides an instance of a situation in which the flexibility to which the Master of the Rolls referred must be availed of. As both he and Fletcher Moulton L.J. said in that case (1912) 1 Ch, at pp 237, 241 the whole doctrine is based on good sense and when, as here, good sense calls for a limited application of the doctrine then it will only be in that limited form that it will apply. Accordingly I conclude that when land subject to a mortgage is sold at a sheriff's sale and the net proceeds to to the mortgagee in reduction of the mortgage debt the occasion for an indemnity disappears, whether the buyer be the mortgagee or a stranger, to the extent to which the mortgage debt is diminished by the net proceeds of the sale. (at p524)

16. If what I believe to be the applicable principles are applied in the present case the consequence would be that an obligation to indemnify would arise only in respect of the diminished liability of the mortgagor, Forrester, after the net proceeds of sale are paid to the mortgagee, Simpson, by the sheriff and satisfy, in part, the judgment debt. Accordingly Simpson would, as execution creditor, be entitled to the net proceeds of the execution sale and the effect of the indemnity would be to then extinguish Forrester's liability to him for the balance of the judgment debt. The registered memorandum of mortgage would remain on title but would be of no effect, the proprietorship of the leasehold title and of the registered mortgage being identical and it being open to Simpson to adopt the course referred to in the joint judgment of Dixon, Evatt and McTiernan JJ. in English Scottish and Australian Bank Ltd. v. Phillips [1937] HCA 6; (1937) 57 CLR 302, at pp 322-323 , where their Honours said:

"When a mortgage comes into the same proprietorship as the
fee simple a discharge may be executed by the proprietor in his
two capacities and registered." (at p525)

17. The financial consequences to the parties of the foregoing are not easy to assess since the market value of the property at the date of the auction is not known. However if it be assumed, as the sheriff appears to have done, that the property was still worth about what Forrester had paid when he bought from Simpson some eighteen months earlier, about $75,000, it is apparent that Forrester has suffered substantially as a result of the sheriff's sale. He has lost his property, in which he had an equity of some $15,000 over and above the amount due to his mortgagee, Simpson. A like result would have ensued whatever amount was bid at the sale unless it exceeded the amount due to Simpson, almost $60,000, plus expenses of sale. (at p525)

18. The reason for this is, I think, to be found in the conduct of the sheriff's sale. The sheriff's officer failed to explain at the auction that the amount of the successful bid would go in reduction of the amount charged on the property; on the contrary, by stating the amount of the charge, declaring the mortgagor's equity to be about $16,000 and saying that he would accept a bid in the vicinity of $15,000 or $16,000, he clearly conveyed to bidders that the buyer would acquire a property subject to a charge undiminished by the proceeds of the sale. It was no doubt this which resulted in there being only one bidder, the mortgagee. If the property was, as the sheriff apparently thought, worth in the vicinity of $70,000 bids of up to something approaching that amount should have been anticipated instead of the mortgagee's lone bid of $20,000. But what did in fact occur was precisely what might have been anticipated from the erroneous impression created by the statements of the sheriff's officer. (at p525)

19. This raises the question whether the sale itself should be set aside at the instance of the respondent. The respondent originally sought that relief in the alternative should he fail to obtain declarations that he was entitled to the proceeds of sale and to an indemnity against liability for the mortgage moneys. In my view, the only declaration which the respondent may have is one declaring him to be entitled to an indemnity from the appellant in respect of the mortgage moneys outstanding after payment to the appellant of the net proceeds of sale of the property; there should also be a declaration in favour of the appellant that he is entitled to those net proceeds of sale and an order for their payment to him. In these circumstances, having had the advantage of reading the reasons for judgment of my brother Gibbs, I agree, for the reasons there stated by him, that the respondent should be afforded an opportunity of determining whether he desires an order that the declarations made by the learned trial judge be vacated and the sale be set aside in accordance with the concession made at the trial by the appellant and the sheriff. If the respondent does not seek such an order then, in allowing the appeal, I would order in the terms referred to above. (at p526)

ORDER

Appeal allowed.

Order that the sale effected by the sheriff to the appellant on 22nd March 1971 be set aside unless within 21 days of the date hereof the first respondent elects to affirm such sale by notice given within that time to the appellant and to the sheriff.

If the first respondent elects as aforesaid to affirm such sale -
1. Order that the first declaration of the Supreme Court be set aside;
2. Declare that the appellant is entitled to $19,425.15 paid into Court with accretions if any;
3. Declare that there is no sum due by the first respondent to the appellant either under the memorandum of mortgage or the judgment obtained in the action at law.

If the first respondent does not elect as aforesaid to affirm such sale -
1. Order that the two declarations of the Supreme Court be set aside;
2. Grant liberty to apply to the Supreme Court for any orders or directions necessary to give effect to the order setting aside the sale.

In either event, set aside orders of the Supreme Court, except order that the sum of $34 be paid out to the solicitors for the appellant. Liberty to apply to the Supreme Court as to the latter order.

Order that the first respondent pay the appellant's costs of the action and the appeal to be taxed.