Mortgage deed — Husband forging wife’s signature — Whether mortgage a nullity — Whether enforceable against husband — Whether bank’s caution should be vacated — Whether order for sale appropriate — Claim dismissed — Bank’s counterclaim allowed
The claimant and her husband were the joint registered owners of a house that had been purchased with the help of a first mortgage. The husband obtained an overdraft facility from the defendant bank for a company that he owned, on terms that he grant a second mortgage to the bank to secure his liability. At that time, the bank was under the impression that the husband was the sole owner of the house. Although the mortgage deed had been signed, in the presence of a solicitor, by the husband and by someone purporting to be the claimant, the latter’s signature was in fact a forgery and the claimant remained unaware of the transaction. The bank failed to make enquiries upon seeing two signatures on the deed. It did not register its mortgage, but subsequently placed a caution on the register.
The claimant and her husband subsequently divorced. In the divorce proceedings, an order was made requiring the husband to transfer to the claimant all his legal estate and beneficial interest in the house, in default of which the district judge would sign a transfer in his place. The husband disappeared, leaving outstanding debts. No transfer deed was signed.
The claimant sought an order to vacate the bank’s caution. The bank maintained that it had an equitable charge over a 50% undivided share in the house as security for the debt owed by the husband, and it counterclaimed for an order for sale. It contended that although the mortgage deed was not effective in respect of the entire ownership of the house, it was effective in respect of the husband’s 50% beneficial interest. The claimant argued that because the deed was a forgery, it was a nullity and therefore not binding.
Held: The claim was dismissed and the counterclaim allowed.
1. The bank’s argument was correct in principle and supported by authority. The deed could not bind anyone whose signature to it had been forged, but it continued to bind the person who had forged it, in so far as it affected any property interest that that person owned. The forger could not, by relying upon the illegality of his own conduct, escape the liability that he had, by his own deed, purported to impose upon himself: First National Securities Ltd v Hegerty [1985] QB 850 applied; Penn v Bristol & West Building Society [1995] 2 FLR 938 distinguished. The bank’s failure to make enquiries when it noticed that the mortgage deed bore the claimant’s purported signature did not disqualify it from obtaining an equitable charge over the husband’s equitable interest.
That position was not altered by the court order in the divorce proceedings. Once the order had been made, the claimant became entitled in equity to the beneficial interest that her husband had previously owned. That beneficial interest represented a 50% interest subject to the bank’s equitable charge. The court order could not, and did not, cause the husband’s interest to cease to be subject to the charge when it was transferred to the claimant. The overreaching provisions of section 2(1)(iv) of the Law of Property Act 1925 did not apply to such a case
2. The bank was “a person who… had an interest in a property subject to a trust of land” within the meaning of section 14 of the Trusts of Land and Appointment of Trustees Act 1996. Accordingly, it was entitled to apply for an order for sale. The order would be granted, but the sale would be postponed for five years, with leave to apply for a variation of that period, in recognition of the claimant’s difficulty in affording another home for her and her children.
Steven Woolf (instructed by Ashley Bean & Co) appeared for the claimant; Neil Levy (instructed by CMS Cameron McKenna, of Bristol) appeared for the defendant.
Sally Dobson, barrister
