Credit & Mercantile plc v Marks

Principal legal charge over property securing loan to appellant — Sub-charge granted to bank — Whether grant of sub-charge removing entitlement to possession for default under principal charge — Appeal dismissed The appellant purchased a house with the assistance of a loan from the respondent, secured by a first legal charge on the property. The terms of the loan were contained in a facility letter and in the legal charge itself. The facility letter provided for the repayment of all moneys due on demand in the event of the appellant’s default. The legal charge contained a covenant to pay, which was to become enforceable if any of the moneys secured were not paid in accordance with that covenant. On the same day as the principal charge, the respondent enterted into a sub-charge in favour of a bank to secure moneys it had lent. This was expressed to charge “by way of legal mortgage all of the Borrower’s right, title, interest and benefit… as beneficiary under and in respect of the Principal Charge”. Both the principal charge and the sub-charge were duly registered. The appellant fell into arrears with her mortgage payments and the respondent obtained a possession order. On appeal against that order, the appellant submitted that, as a result of the sub-charge, the respondent had no right to possession. The appeal was dismissed in the court below, and the appellant appealed further. Held: The appeal was dismissed. On the true construction of the facility letter and the principal charge, once the charge became enforceable by a failure to pay themoneys due under it, the respondent had a right of possession of the property. The law contained no general proposition, wherever there was a sub-mortgage, the principal mortgagee’s rights against the mortgagor would be transferred to the sub-mortgagee and thus lost by the principal mortgagee, or in some way suspended, otherwise than as provided by the sub-charge. The mere existence of a sub-charge did not divest a principal chargee of its right of possession: Owen v Cornell (1967) 203 EG 29 applied. Although a sub-charge could have that effect, it did not do so in the present case. The wording of the sub-charge did not suggest an intention that there should be any transfer of the respondent’s rights against the appellant should be transferred under the principal charge once the sub-charge had been entered into, and absent any demand in respect of a debt due under the sub-charge. The provisions of the Law of Property Act 1925 relating to mortgages did not require a contrary conclusion. Katherine Olley (instructed by Shah Solicitors, of Harrow) appeared for the appellant; Geraint Jones QC and Philip Rainey (instructed by Glovers) appeared for the respondent. Sally Dobson, barrister