Midas Pty Ltd carries on an interstate trucking business. It has two directors: Peter, the managing director, and his wife Maria, who is also the company's secretary. Apart from its fleet of trucks, the company also owns the house where the directors live.
Peter and Maria's marriage has broken down and they have separated. Maria continues to live at the house and is not involved in the day-to-day operations of the company's business. Peter lives in the house of his son, Andrew.
Two months ago Peter, without telling his wife, borrowed $ 100,000 from the Honest Bank. The money was for his own use. The loan was secured by a mortgage over Midas' house occupied by Maria. The mortgage was executed under the company's seal, witnessed by Peter as a director and Andrew as a company secretary. However, contrary to the company's constitution, board of director approval had not been obtained for the mortgage. At the time the mortgage was executed, Peter told Honest Bank that Maria had resigned as a company secretary and that Andrew had been appointed to that position.
Maria has now been made aware that Peter mortgaged the house and she argues that Midas was not bound by the mortgage (2013 final exam questions)
a. Can the Honest Bank enforce the mortgage? Why or why not?
b. Identify and assess arguments that may be used by Midas Pty Ltd in defence of any action for enforcement of the contract by the Honest Bank.