Leggatt and another v National Westminster Bank

Husband and wife granting unlimited charge over matrimonial home – Wife subsequently signing unlimited guarantee in favour of bank guaranteeing liabilities of husband’s partnership – Original charge replaced with new charge – Wife claiming undue influence – Whether charge disadvantageous – Whether bank having constructive notice – Judge rejecting defence – Appeal dismissed In 1972 the appellants, a husband and wife, purchased 7 Woodlands Park, Boxhill Road, Tadworth, Surrey, with the aid of a mortgage from a third party. The property was registered in their joint names. In the same year, they granted an unlimited second charge over the property in favour of the respondent bank. In 1974 the husband formed a partnership with J. In 1976 the wife signed an unlimited guarantee in favour of the bank, guaranteeing all liabilities of the partnership to the bank. At no time was the wife either a partner of, or employed by, the partnership. Subsequently, the partnership’s borrowing exceeded its overdraft facility. In 1990 the bank, concerned that the 1972 charge was unsuitable for the purposes of securing the liabilities of the partnership, sought a replacement mortgage over the property. The bank wrote to a firm of solicitors to arrange for the wife to receive independent advice in relation to the proposed new charge. The letter to the solicitors from the bank mistakenly referred to the proposed charge as securing an advance “to be made” to the partnership, whereas the true purpose of the charge was to replace the 1972 charge and thus secure existing, as well as future, borrowings of the partnership. In September 1990 the appellants attended the solicitors, where the wife was advised about the proposed charge and the charge was executed. In 1992 the partnership became insolvent and demands were made upon the appellants. The demands were not met. The bank sought to enforce the 1990 charge and applied for a possession order. The wife claimed she had a right to have the charge set aside on the ground of undue influence. The county court rejected her defence and made an order for possession. The wife appealed, contending that the judge should have found that it had been to her manifest disadvantage to enter into the 1990 charge and that, by reason of the misrepresentations in the bank’s letter to the solicitors, the bank had not taken reasonable steps to satisfy itself that her agreement to the 1990 charge had been properly obtained. Held: The appeal was dismissed. 1. Even on the basis that the 1972 charge was ineffective to secure the husband’s partnership liabilities, it was plainly to the wife’s advantage to replace it with the 1990 charge, since, unless the 1990 charge was signed, the partnership business would have collapsed and the bank would have taken steps to enforce the 1976 guarantee. Therefore the 1990 charge was not on its face disadvantageous to the wife: see Barclays Bank plc v O’Brien [1993] EGCS 169 and Royal Bank of Scotland plc v Etridge [1998] PLSCS 239. 2. In any event, there was no basis in principle or authority for the proposition that the immaterial inaccuracy in the letter of instruction to the solicitors could have had the effect of saddling the bank with constructive notice. On the contrary, there was every reason why it should not have that effect. Furthermore, it could not be accepted that the inaccuracy had the effect of somehow circumscribing the scope of the inquiries that the solicitors were required to make. The solicitors would have had to inquire into the financial history of the partnership in order to form a view as to the risks of the charge being enforced. The fact that they might have failed to discharge their duty to the wife could not be said to be the fault of the bank. Roland Higgs (instructed by Georgiou Nicholas) appeared for the appellant; David Wolfson (instructed by Denton Wilde Sapte) appeared for the respondent. Thomas Elliott, barrister