Secured Residential Funding plc v Douglas Goldberg Hendeles & Co

Lender offering advance – Lender sending in error claimant mortgage company’s standard documents for completion by solicitors – Whether advance forwarded by lender as principal or as agent for claimant – Judge dismissing action – Appeal dismissed The claimant was a mortgage company which shared office premises with another mortgage company, Household Mortgage Corporation plc (HMC). The claimant and HMC were associated companies and were both owned by Abbey National plc. On 20 April 1989 a borrower applied to HMC for a mortgage advance of £82,000 in order to purchase a dwelling house in North London for £102,000. The application named the defendant firm of solicitors as the borrower’s solicitor. On 5 May 1989 HMC issued a formal offer of advance to the borrower. The offer was made on HMC’s paper and was signed “on behalf of Household Mortgage Corporation plc”. On the same day HMC sent a copy of the offer to the defendant with a covering letter inviting the defendant to “accept this letter as authority to act on our behalf . Attached is the appropriate documentation to enable you to proceed.” Unfortunately what was sent with the letter as “the appropriate documentation” was the claimant’s mortgage pack, not HMC’s. The mortgage pack included a copy of the offer of advance, “standard instructions” to solicitors, a form of Report on Title and a mortgage deed, which all named the lender as the claimant. On 6 June 1989 the borrower signed the offer document which was on HMC headed paper, thereby concluding a contract between the borrower and HMC as principal by which HMC was to advance £82,000 to the borrower upon the conditions set out in the offer documentation. On 20 June 1989 contracts were exchanged for the purchase of the property. On 27 June 1989 HMC telephoned the defendant and told it that the wrong documentation had been sent out. However, on 29 June 1989 the sum of £82,000 was transferred from HMC’s bank account into the defendant’s client account. Completion took place on 30 June 1989 prior to the defendant receiving the correct papers from HMC. Subsequently the borrower fell into arrears. In January 1990 the claimant was registered as the proprietor of the charge at the Land Registry. In July 1991 the claimant obtained a possession order and the property was sold for £65,000. The claimant issued proceedings against the defendant claiming that the defendant had owed it a duty of care since the advance to the borrower had been made by HMC on behalf of the claimant. A hearing was ordered of the preliminary issue of, inter alia, whether the advance was forwarded, provided and/or made by HMC on behalf of the claimant, or made by HMC as principal out of its own monies. The judge held that the true lender of the advance had been HMC and ordered that the action be dismissed. The claimant appealed. Held: The appeal was dismissed. The advance had been made on 29 June 1989 when the funds were transferred by the HMC acting as principal into the defendant’s client account. On 29 June 1989 HMC had performed its obligations under the contract into which it had entered with the borrower to make the advance. Once the transfer was effected, there was nothing further for HMC to do. That contract was constituted by the borrower’s acceptance on 6 June 1989 of HMC’s offer of 5 May 1989. The contract was wholly distinct from the mortgage which followed (see National Home Loans Corporation plc v Giffen Couch & Archer [1997] 3 All ER 808), and accordingly it could not be held that the advance had been forwarded, provided and/or made by HMC on behalf of the claimant. Thomas Putnam (instructed Davis & Co, of High Wycombe) appeared for the claimant; Daniel Gerrans (instructed by Ince & Co) appeared for the defendant.