English v English and others

Ratification – Loan agreements and legal charge – Claimant’s signature forged on documents for secured loan to herself and son – Son and wife retaining loan moneys – Claimant selling house on which loan secured and repaying loan amount to obtain release of charge – Whether entitled to repayment of that sum by lender – Whether ratifying loans and charge by conduct rendering her bound – Claim dismissedThe claimant, a 75-year-old widow, was the sole owner of a bungalow that she had held mortgage-free since 2001. In 2002, her signature was forged on an application form for a joint loan of £50,000 to her and one of her sons and his wife, the first defendants, and on a form of an all-moneys legal charge over the bungalow as security for the third defendant lender. At that time, the claimant attended the offices of the second defendant solicitor and signed a form confirming that she had been advised on the consequences of entering into such a transaction. Later in 2002, her signature was again forged on further documents that increased the loan to £106,000.The first defendants retained all the loan moneys and made no repayments. In January 2003, possession proceedings were served at the property and the claimant made certain payments to the third defendant in order to avert a possession order. In April 2003, she put her bungalow on the market. By then, she was aware of the fraud perpetrated against her but did not inform the third defendant. Instead, in September 2003, she repaid the loan from the proceeds of sale of her bungalow and obtained a release of the charge.The first defendants subsequently disappeared. In 2008, the claimant obtained a default judgment against them for more than £190,000. She also claimed against the second defendant for negligence, alleging that it had not given her the advice indicated by the signed form. Against the third defendant, she claimed the return of the moneys paid to redeem the charge on the grounds of constructive trust or payment by mistake, the relevant mistake being her liability to pay. The third defendant submitted that the claimant was now bound by the loan and charge since, by her actions, she had either ratified the actions of the first defendants in obtaining them, adopted them, or represented to the third defendant that they were valid, such that she was estopped from challenging that validity. It further submitted that she had voluntarily redeemed the charge and had not been under any mistake as to her liability at the time or that the payment established a settled account between the claimant and the third defendant.Held: The claims against the second and third defendants were dismissed.(1) The evidence did not establish that the second defendant had breached its duty of care to the claimant or that it had failed to give the advice indicated on the certificate signed by her.(2) Since the claimant had neither signed the loan agreements or legal charge, nor authorised their signature on her behalf, those documents had not initially created any obligations on her part. However, she had subsequently ratified the first defendants’ actions in entering into those documents on her behalf. A transaction was capable of being ratified if one person had entered into it purportedly on behalf of another as principal, but without any authority from that other to do so, and the transaction was one that the principal could have made on his own behalf at that time. The transaction would be ratified if the principal, with full knowledge of the facts and by clear voluntary conduct (or in certain cases by acquiescence), later accepted the transaction as binding on him. The claimant’s son had purported to act on her behalf as well as his own in entering into the joint loan and the charge; it was irrelevant that the claimant’s signature had been forged rather than the son affixing a “pp” signature that he had no authority to make. The transactions were ones that the claimant could have entered into on her own behalf. Her conduct in making payments of the loan arrears and in instructing her conveyancing solicitor to pay the amount necessary to redeem the charge on the sale of her bungalow, without protesting or seeking her solicitor’s advice as to whether she was liable, amounted to a positive acceptance that the loan agreements and charge were binding on her. Those acts were undertaken when the claimant had been aware of all the material facts, including the existence of the loans, the fact that she was regarded as liable for them and the existence of a charge over her property. They were not acts that the claimant had had no choice but to perform; she could have objected at any time that she had not signed the documents and that they were nothing to do with her. Accordingly, the third defendant’s defence based on ratification was made out.(3) The matters relied on as ratification could equally be treated as amounting to a representation by the claimant that the loan agreements and charge were in order, on which the third defendant had relied to its detriment by releasing the charge in circumstances where, had it retained the charge, it might have been able to apply to the Land Registrar for an indemnity on any rectification of the register to remove it: Greenwood v Martins Bank Ltd [1933] AC 51 considered. Accordingly, the defence based on estoppel was also well founded.(4) Had the third defendant not succeeded on its other defences, it would have had no defence based on adoption. Adoption was a separate process by which a person not originally bound by a contract became bound in addition to, or in substitution for, an existing party. Adoption amounted to the formation of a new contract, to which all the normal rules of contract formation applied, including the requirement for consideration. The third defendant had provided no consideration to the claimant for her to become a party to the contract. Nor could the defence based on a settled account succeed. With regard to the creation of the forged documents, the claimant had been under no contractual liability to the third defendant; therefore, in the absence of ratification, no account would have existed between the claimant and the third defendant that could have been regarded as settled by the payment made. Nigel Clayton (instructed by Armstrong Luty) appeared for the claimant; the first defendants did not appear and were not represented; Graham Chapman (instructed by Mills & Reeve LLP) appeared for the second defendant; Damian Falkowski (instructed by Swift Group Legal Services) appeared for the third defendant.Sally Dobson, barrister