Mortgagor putting up property to secure borrowings by another who gave express covenant to repay – Whether such covenant impliedly given by mortgagor
In 1990 a bank afforded a loan facility to a partnership formed by A and others. The facility was secured by a legal charge over leasehold property, title to which was registered in the name of A and B, the latter being a person of some celebrity. The deed of charge, which contained no separate guarantee, described A and B together as the “mortgagor” and referred to the partnership as the “borrower”. There was an express covenant by the partners to repay the loan. In 1995 the plaintiff was considering the purchase of a portfolio of secured loans from the bank and engaged the defendant firm to carry out a due diligence exercise. The defendant advised the plaintiff that B bore personal liability for the repayment of advances to the partnership, regardless of whether or not B was a partner. Having proceeded with the purchase, the plaintiff, now having reasons for believing that B had never been a partner, alleged that the advice had been negligently given and claimed damages in the region of £24,000 based on the difference between the £366,000 that the plaintiff had paid for the debt and its value without personal recourse against B.
The defendant, contending that its advice was correct, argued that, even though no express repayment covenant had been given by B, such a covenant on the part of the proprietor of the mortgaged land was implied by section 28(1) of the Land Registration Act 1925 unless there was an entry on the register negating such implication. For the purposes of the interlocutory hearing the facts above were assumed to be correct (although the defendants denied the allegations of negligence) and the sole issue before the court was whether, as a matter of construction, the very description of B as someone other than the borrower, was, as the plaintiff claimed, sufficient to negate the implication relied upon. The judge observed that there was no authority on the point.
Held No implied covenant had been given by B.
It was accepted that if the charge did negate the provisions of section 28, then its registration would, by virtue of r 140 of the Land Registration Rules 1925, be deemed to operate as a negative entry on the register. As a matter of contract, while a mortgage implied an obligation by the mortgagor to repay the debt (see Sutton v Sutton (1883) 22 ChD 511), such an implication was readily rebutted where the mortgagor had put up his property as security for another. To find a contrary intention in section 28 and r 140 would not only run counter to the policy behind the statutory formalities required for guarantees but would also give rise to anomalous distinctions between mortgages of registered and unregistered land: cf section 117(2) of the Law of Property Act 1925. Construed in accordance with the general law, the mortgage deed was sufficiently incompatible with the provisions of section 28 to have the negative effect contemplated by r 140.
David Unwin QC (instructed by Clintons) appeared for the plaintiff; Andrew Sutcliffe (instructed by Reynolds Porter Chamberlain) appeared for the defendant.
Alan Cooklin, barrister
