CIBC Mortgages plc v Pitt

Husband and wife charging matrimonial home to secure joint loan — Arrears — Mortgagee seeking possession — Whether special equity applicable so that creditor unable to enforce security against wife — Whether manifest disadvantage to wife — Whether mortgagee acting as husband’s agent — Possession granted below — House of Lords dismissing wife’s appealThe appellant, Mrs P, sought to resist an application by the respondent, CIBC, claiming possession of 26 Alexander Avenue, London NW10, under a legal charge of July 1986. Mr and Mrs P had charged the property to secure a loan of £150,000 made to them jointly by CIBC. The house had been their matrimonial home since 1970 and was in their joint names. Mr P wished to borrow the money to buy shares on the stock market and had put pressure on his wife to agree. The loan form was expressed to be for “the proposed purchase of holiday home”. Mrs P saw only the first and last pages of the application form which they both signed. At the trial for possession, CIBC contended, inter alia that the transaction was not manifestly to her disadvantage (see National Westminster Bank v Morgan [1985] AC 686) and that Mr P had not acted as its agent. The trial judge found for CIBC on the ground that the special equity — whereby the security obligation entered into by the wife was unenforceable by the creditor — was only applicable where a wife stood as surety for her husband’s debt and did not apply to a case such as the present where there was a joint advance to both husband and wife by way of loan: cf Barclays Bank plc v O’Brien [1993] EGCS 173. Court of Appeal upheld possession order. Mrs P appealed. Held The appeal was dismissed. 1. A claimant who proved actual undue influence was not under the further burden of proving that the transaction induced by undue influence was manifestly disadvantageous, but was entitled as of right to have it set aside. 2. Thus, Mrs P was entitled to set aside the transaction as against Mr P. However, she had to establish that in some way CIBC was affected by her husband’s wrongdoing so as to be entitled to set their legal charge aside. 3. CIBC would not be affected by such undue influence unless Mr P was in a real sense acting as its agent in procuring Mrs P’s agreement or had actual or constructive notice of the undue influence. 4. So far as CIBC had been aware, the transaction consisted of a joint loan to husband and wife to discharge the existing mortgage and to apply the balance to buying a holiday home. The loan was advanced to them jointly and there was nothing to indicate that it was otherwise than for their joint benefit. 5. What distinguished the case of the joint advance from the surety case was that in the latter, there was not only the possibility of undue influence having been exercised but also the increased risk that, at least on its face, the guarantee by a wife of her husband’s debts was not for her financial benefit. It was the combination of those two factors that put the creditor on inquiry and called for a meeting of the wife separately from her husband and to take legal advice. To establish the law in that sense on every purchase of a home in the joint names of husband and wife would not benefit the average married couple and would discourage financial institutions from making advances. Leolin Price QC and David Schmitz (instructed by Brian Hillman Trivedi & Co) appeared for the appellant, Mrs Pitt; Gavin Lightman QC and Nigel Clayton (instructed by Fox Brooks Marshall Hale, of Manchester) appeared for the respondent, CIBC