Peter is the registered proprietor of estate in fee simple of a property located on Spooner Street in Lithgow, NSW. In May 2019 Peter borrowed $45,000 from his best friend Cleveland in order to purchase a car big enough for his family as he had only recently started work at the local Brewery and was on probation so unable to obtain a loan from a commercial bank. In order to secure the loan, Peter executed a written mortgage over his property in favour of Cleveland. Given their longstanding and trusting relationship, Cleveland did not ask for the Certificate of Title and thus did not register the mortgage. Cleveland considered lodging a caveat but decided not to due to his high level of trust in Peter and their close relationship.

In February 2020, Peter discovers his wife Lois is pregnant with their third child. Their property was a three-bedroom home, just big enough for Peter and Lois and their two children Chris and Meg. The Spooner Street Property, however, did a have room to expand, so Peter decided to have an additional fourth bedroom added to the property. By this time his financial situation had begun to stabilise, so Peter sought a loan from their local credit union, Quahog Savings and Loans (QSL). QSL were willing to provide a loan of $120,000 which would cover the addition to the property and also allow for some renovations to be carried out, provided the Spooner Street property was given as security. Peter, despite knowing he still owed money to Cleveland, believed he was doing what was best for his family so granted a second mortgage to QSL. QSL immediately registered their mortgage interest.

The addition to the property was completed by April, but due to unforeseen costs in construction Peter was unable to pay for the other renovations and his family were becoming increasingly unhappy in the neighbourhood. By September 2020 Peter decided to sell his property to local media personality Joyce Kinney for $700,000 and the parties exchanged signed contracts. To settle the sale as quickly as possible, Peter decided to use the deposit Joyce had paid to immediately pay out the mortgage to QSL. Upon payment, QSL provided Peter with a signed Discharge of Mortgage. At settlement, Peter handed to Joyce the Certificate of Title for the Spooner Street property and the following two dealings which were both appropriately executed (and upon which the relevant stamp duty had been paid):

A Discharge of Mortgage by QSL in favour of Peter;

A signed Transfer from Peter to Joyce. Joyce, however, is refusing to settle because she is concerned that the Discharge of Mortgage by QSL in favour of Peter ought to be registered first.

1. Advise Joyce as to whether her concerns are justified: would her paramount interest in the property be protected if she settles the sale of the property immediately, prior to the discharge of the mortgage being registered?

2. If Joyce did proceed with settlement but was yet to register, what would your advice be to Cleveland? Could he take any action to protect his interest?

3. Would your advice to Cleveland be any different if he discovered the sale prior to settlement?