Legal charge — Undue influence — Appellant and son jointly applying for loan to be secured on appellant’s home to finance son’s business venture — True purpose of loan not indicated on application form — Whether undue influence by son — Whether respondent lender put on inquiry — Appeal dismissed
The appellant’s son wished to purchase a franchise in a laser-printing business. To raise the necessary finance, the appellant transferred her house into the joint names of herself and her son, and executed a legal charge in favour of the respondent’s predecessor as security for a loan by way of mortgage. The purpose of the loan was described on the application form as “purchase”, it being normal practice for a remortgage of the kind envisaged to be described in that way. The offer documents, for a higher sum than originally requested, referred to “other home improvements”. The relevant documents were executed in the presence of a solicitor retained jointly by the appellant and her son.
The loan fell into arrears, and the respondent sought possession of the property. The appellant brought proceedings to set aside the transfer of the property into joint names, resulting in a consent order under which the property was retransferred into her sole name, subject to the mortgage. The appellant also contested the possession proceedings, contending that she had been induced to enter into the mortgage by the undue influence of her son, and that the respondent had been on notice of that fact.
The judge decided the case on the basis of the legal position before the House of Lords decision in Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44; [2002] 2 AC 773. He accordingly held that the bank had been entitled to assume that the solicitor acting for the appellant and her son had considered whether it was necessary to advise the appellant to obtain independent legal advice. The judge made a possession order and gave judgment for the outstanding amount against the appellant and her son. The appellant appealed.
Held: The appeal was dismissed.
Applying the test in Etridge, the appellant had satisfied the first requirement of showing that she had been unduly influenced to enter into the mortgage. However, she failed at the next stage because the respondent had not been put on inquiry as to any equitable wrong. The application was a joint one, for a joint loan. The purpose was stated to be “purchase”; it was irrelevant that that was untrue if the respondent was unaware of that fact. There was nothing on the documents to suggest that the loan was exclusively for the son’s purposes, and a lender was not obliged, without more, to make further enquiries. It had no duty to investigate the purpose of the loan. Even if the respondent had been told that the son was purchasing part of the equity in his mother’s home, there was nothing in that to concern the respondent, since there could be many reasons why a mother might, perfectly justifiably, wish to help her son financially in that way. The mere fact that the application was made by a mother and son and that it was the mother’s house that constituted security for the loan was not sufficient to put the respondent on inquiry. The bank would have had to have been aware that the loan was being used for the son’s business, but there was nothing to tell it that that was the case. Accordingly, the third question in Etridge, namely whether the respondent had failed to take reasonable steps and was therefore fixed with notice of the undue influence, did not arise.
Mark Anderson (instructed by Morgan & Co, of Stourbridge) appeared for the appellant; Nicole Sandells (instructed by Addleshaw Booth & Co, of Leeds) appeared for the respondent.
Sally Dobson, barrister
