Make in her defence to convince the court

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Reference no: EM133854979

QUESTION

Jem is a 65-year-old retired nurse who is very fond of her grandson, Pete. Pete owns a manufacturing company which is currently making a loss every month. His business is currently $3,000,000 in debt and Pete requires a loan of $7,000,000 from Lucky Money Bank (LMB) to cover the debt and invest in new equipment and machinery. The manager of LMB, Mr Smarty, advises Pete that he will qualify for the loan but will require real estate for the security of the loan.

Mr Smarty has been Jem's banker for over four decades and Mr Smarty assisted Jem with a loan to purchase her home at 10 Midnight Drive which has only an outstanding mortgage balance of $150,000. Jem's house is valued at approximately $8,000,000.

Pete invites Mr Smarty to Jem's home and Mr Smarty provides her with documents already completed and asks her to sign them. Mr Smarty observes Pete pressuring Jem to sign and making comments such as "If you do not help me, you do not truly love me and I cannot guarantee what will happen to you when you get older." Feeling overwhelmed and because of her faith in Mr Smarty, Jem signs the documents even though she does not know the extent of the loan and the likelihood of Pete's business returning to profitability. LMB eventually provides the loan to Pete which is secured against Jem's home by a first legal mortgage.

Pete defaulted on his loan payments and LMB now wishes to exercise power of sale in respect of Jem's home. LMB brings a claim for recovery of possession and specific performance of the contracts Jem signed agreeing to use her home to secure Pete's loan. Jem is distressed. She is also frustrated because she had hired Andy to paint 4 bedrooms in the home at a cost of $30,000 per room. He only painted 2 rooms and is unable to complete the job. He is however demanding payment in respect of the rooms he has painted but Jem wishes to use those funds to pay her legal fees.

Advise Jem. Your legal opinion should include a critical discussion of:

1. The likely argument(s) Jem will make in her defence to convince the Court that the mortgage contracts should not be enforced.

2. Two potential safeguards and/or considerations which Mr Smarty should have employed or borne in mind in order to protect the interest of LMB; and

3. Whether she is entitled to withhold payment from Andy since he did not complete the painting of the rooms.

Reference no: EM133854979

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