Singapore - “All-Moneys” Mortgage – Obligations Of A Co-Mortgagor.
Legal News & Analysis - Asia Pacific - Singapore - Banking & Finance
19 June 2020
The Singapore High Court recently held a mortgagor liable under the mortgage for the debt incurred by the co-mortgagor arising from a separate guarantee given by that co-mortgagor to the mortgagee bank.
Oversea-Chinese Banking Corp Ltd (“Bank”) extended a loan facility of S$2.7m to the defendant and her husband for the purpose of purchasing a property. The defendant and her husband executed a mortgage (“the Mortgage”) over the said property to secure the loan facility.
As drafted, the Mortgage creates a payment obligation on the mortgagor to pay “all such sums of money which are now ....... owing or remain unpaid to the Mortgagee by the Mortgagor either as principal or as surety and either solely or jointly... whether on the said Accounts or otherwise in any manner whatsoever or for all other liabilities...” (“the Payment Obligation”).
Subsequently, the defendant’s husband entered into a guarantee to secure loans made by the Bank to two companies. The Bank commenced a suit in respect of sums due by the defendant’s husband under the guarantee and obtained a default judgment for the sum of US$131,512,173.91 (“the Judgment Debt”). Thereafter, the Bank commenced an action against the defendant mortgagor, who argued that she was not jointly and severally liablefor the Judgment Debt based on a proper construction of the Mortgage.
High Court Decision
The sole issue was whether the language of the Mortgage was broad enough to include the Judgment Debt. TheCourt held that a plain reading of the Payment Obligation encompassed a range of liabilities that included the Judgment Debt.
The Court reiterated the primacy and centrality of the text in the construction of contractual terms. The defendant’s reliance on a purposive and contextual approach to interpreting the Payment Obligation was misplaced due to the unambiguously clear language. In addition, the fact that the defendant’s husband entered into the aforesaid guarantee independently did not bring it outside of the scope of the Payment Obligation as there was a clause in the Mortgage that provided that “[w]here two or more persons are included in the expression ‘the Mortgagor’ all covenants stipulations and provisions contained herein shall be deemed to be made by and to apply to and be binding upon all such persons jointly and severally”.
The Court did acknowledge that it is possible to deviate from a literal interpretation of a contractual clause if the literal interpretation contradicts the intentions of the parties or leads to an absurd result.
Conclusion and Learning Points
This case was decided upon the strongly established rules of contractual interpretation which emphasised the primacy of the plain reading of the text. It also reaffirmed the wide-ranging and broad scope of an all-moneys mortgage clause. However, it is also a timely reminder to banks to ensure that nothing is done to jeopardise the coverage and effectiveness of such wide clauses by way of contrary or contradicting acts, documentation or communication. Courts have in the past disallowed a literal interpretation of clauses in documentation if it contradicted with the intentions of the parties or led to an absurd result.
For further information, please contact:
Liew Kai Zee, Partner, Shook Lin & Bok