Property – Mortgage – Possession order – Second defendant owning house subject to mortgage with claimant bank – Son taking on liability to pay mortgage – House being remortgaged to raise funds for son’s business – Claimant applying for possession of house – Whether claimant’s position adversely affected by relationship of defendants – Application granted.
The claimant bank was a mortgage lender. The first defendant was the son of the second defendant who owned a house in Swindon. In 1999, the house was remortgaged to provide the first defendant with funds from which to run his business. At that time, the first defendant took on the responsibility of making the mortgage payments. Two further charges were subsequently placed on the house. The first defendant fell into in financial difficulties and took out a number of different loans and the claimant advanced the defendants the sum of £146,000, secured by a charge over the house. When the first defendant fell behind with the mortgage instalments due to the claimant, the bank applied for possession of the house.
The second defendant argued that her obligations under the mortgage to the claimant had been procured by the undue influence of the first defendant. She contended that the claimant’s rights under the mortgage were affected by that undue influence and that she was entitled to have the mortgage set aside as against her. It was not suggested that the claimant had actual or imputed notice of any undue influence but that it had imputed notice of a fact which put it on inquiry so that it thereby had constructive notice of undue influence. Furthermore, the first defendant had no beneficial interest in the property so that, even if the charge was not set aside against him, it was not effective to create any equitable charge over any interest in the property. The first defendant took no part in the proceedings.
Held: The application was granted.
(1) It was not necessary to decide the question of undue influence in order to decide the case since, even if there had been undue influence, the claimant’s position had not been adversely affected by it. In the present case it was clear that, as regards constructive notice of undue influence, it was not necessary for the bank to follow up any clue, however slightly, that might indicate that the information provided had not been scrupulously accurate. From its own point of view, the claimant could be as prudent as it liked to protect its own interests and avoid taking on a borrower who might not be able to repay the indebtedness but, in the present context, where one was dealing with constructive notice of undue influence, there was no requirement that it adopted a high level of prudence and scepticism. The test laid down by Lord Nicholls in Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773 in relation to undue influence involved the bank being put on inquiry where it was aware that the advance was for the purposes of one borrower so that the other borrower was effectively only a surety: Halifax Mortgage Services v Skepsky [1996] Ch 207, Yorkshire Bank plc v Hall [1999] 1 WLR 173, Mortgage Agency Services (No 2) Ltd v Chater [2003] EWCA Civ 490 and Abbey National plc v Stringer [2006] EWCA Civ 338 considered.
(2) On the evidence in this case, there had been nothing to make the claimant aware that the second defendant had been wholly or even substantially a surety. The claimant had not been put on inquiry as to undue influence by anything that came to its attention. Taking into account the information provided to the claimant about further advances, and taking into account all the information in the claimant’s possession in relation to the principal advance, it had not been put on inquiry in relation to the further advance. It had not been aware the second defendant had been acting wholly or substantially as surety for a debt incurred by the first defendant. Accordingly, the claimant’s position had not been adversely affected by whatever had happened between the defendants. The house was worth about £200,000 and the debt was around £240,000 so that the equity in the property was negative. Given the value of the property and the amount of the debt it would be inappropriate for the court to do anything other than make an order for possession: Cheltenham & Gloucester Building Society v Krausz [1997] 1 WLR 1558 and Toor v State Bank of India [2010] EWHC 1097 (Ch) considered.
Daniel Gatty (instructed by Eversheds, of Cardiff) appeared for the claimant; Ken Rogers (instructed by Shearer & Co, of Chippenham) appeared for the second defendant; The first defendant did not appear and was not represented.
Eileen O’Grady, barrister
