Bankers Trust Company v Namdar and another

Mortgagee giving bank guarantee to procure funds to discharge mortgage – Subsequent mortgage invalidated by forged signatures – Whether first mortgage enforceable under doctrine of subrogation – Whether one mortgagor’s agreement to refinancing created mortgage over his equitable interest On January 30 1987 the defendants, a married couple, bought a family house for £475,000 with the aid of a £350.000 mortgage loan from the plaintiffs. On the same day the husband procured a £161,000 loan from the plaintiffs secured on another property. In March 1988 the husband made a restructuring proposal whereby, upon the plaintiffs giving a guarantee to a German bank, that bank would remit sufficient moneys to discharge both mortgages. The plaintiffs agreed and furnished the German bank with a one-year guarantee to cover certain liabilities of the husband. The 1987 mortgages were then discharged and fresh mortgages purportedly created over the same properties to secure any future indebtedness of the defendants. By letter of April 12 1989, a copy of which was signed by the husband on the same day, the plaintiffs offered to renew the facility. The guarantee was subsequently extended. In March 1994 the plaintiffs, having been called on their guarantee, made a final demand on the husband to indemnify them for £586,139. By that time, however, the husband had gone to live abroad leaving his wife and children in the house. In proceedings against the defendants for possession of the family home, the bank accepted that the husband’s signature had been forged on various counter indemnities, and that the signatures of both defendants had been forged on the1988 mortgage which was therefore a nullity. The wife did not challenge her husband’s signature on the facility letter of 12 April 1989. The plaintiff contended either that, having provided the money to pay off the 1987 mortgage, they could continue to exercise its rights thereunder by way of subrogation, or that the husband’s acceptance of the facility letter of April 12 1989 created an equitable mortgage of his beneficial share entitling the plaintiffs to an order for sale under section 30 of the Law of Property Act 1925. The judge rejected the first contention but accepted the second. The plaintiff appealed and the wife cross-appealed. Held The appeal and the cross-appeal were dismissed. 1. The plaintiffs could not invoke the doctrine of subrogation because the wife had no knowledge of the refinancing and because the plaintiffs had at no time provided their own money towards the discharge of the mortgage. 2. The letter of April 12 1989 was effective to pass the husband’s beneficial interest even though it purported to deal with an interest greater than he had. Although the doctrine would not be applied to the prejudice of a third party, there was no such prejudice where, as here, the only objection was the plaintiff’s opportunity to seek an order for sale under section 30 of the Law of Property Act 1925: see Thames Guaranty Ltd v Campbell [1985] QB 210. 3. In exercising its discretion under section 30, the court was bound by its own decision in Re Domenico Citro (A bankrupt) [1990] 3 All ER 952 to subordinate the wishes of the family to those of a creditor unless the circumstances were quite exceptional. John McGhee (instructed by Clifford Chance) appeared for the plaintiff company; Kim Lewison QC and Mark Warwick (instructed by Blank Swerner Grant) appeared for the second defendant, Susan Namdar.