TUTORIAL: PRIORITIES AND CAVEATS Question 1 James and Rachel have purchased an old dwelling which is in need of renovation. The title is free from encumbrance. The property is registered in their names on 1 December 2020. They settle upon a plan and eventually agree a price and timeline with Ace Building Services (Ace) to undertake the work. As the renovation will cost more than $100,000, (which may be varied under the agreement if extras are requested by the clients) Ace insists that they enter into a written building agreement which both parties sign and date 1 February. Under that agreement, Ace require a down payment of $20,000 in order to place orders for building materials before commencing work. The building agreement also contains the following clause: Clause 4 The clients (James and Rachel) hereby charge all their real and personal property with any amount outstanding from time to time under this agreement including interest at 5% per month on the balance owing until payment has been satisfied in full' James and Rachel pay $20,000 to Ace and building work commences. On 1 March, James and Rachel suddenly realise that they will not have sufficient funds to complete the renovations as Ace have signalled that some extras may be required. They approach Solid Bank Ltd for a loan of $100,000. This is granted on 15 March upon the condition that they sign a mortgage in the 'National Mortgage Form' in favour of the bank over the property before any funds are advanced. This occurs on 18 March. Solid Bank, advances the funds but, in error, holds the National Mortgage Form on their file. As the building work nears completion, Ace deliver an account for extras of $40,000 on 15 April. However, James and Rachel have already spent $80,000 of the proceeds of the bank loan on a new car. They inform Ace that they can only pay the balance owing off by instalments. Ace immediately on 20 April lodges a caveat claiming 'an interest in the land as chargee under Clause 4 of the building agreement of 15 March up to the sum of $50,000 plus interest." On 1 May, James and Rachel miss the payment of an instalment of loan repayment to Solid Bank who immediately on that day lodge the National Mortgage Form. The caveat prevents the registration of the mortgage. On 1 June, Solid Bank bring an application seeking an order for the removal of the caveat upon the grounds that Ace do not hold a mortgage in registrable form and could thus never be registered and which caveat in any case would lapse as under s 122(2) LTA, as an equitable mortgagee's caveat, it was not lodged with the consent of the registered owner under s 126(1)(b) LTA. Answer the following questions: a) Define the respective interest of Ace and Solid Bank.
b) Analyse the conduct of the respective parties in acting to protect their interests. c) What relevance is the timing of the creation of