Thompson v Foy; The Mortgage Business v Foy and another

Transfer of property – Undue influence – Claimant transferring property to defendant informally and without security – Defendant promising to pay part of mortgage to claimant – Defendant refusing to pay – Whether claimant entitled to set aside transfer on ground of undue influence – Whether defendant having beneficial interest by proprietary estoppel – Whether claimant’s position binding on mortgage company – Claim dismissedThe claimant widow owned a house that she had shared with her husband, her daughter (the defendant) and the latter’s family for some years. She had allowed the defendant to build, at her own expense, a self-contained extension in which the defendant lived with her family. The claimant acknowledged that the defendant owned the extension. Following the husband’s death, the claimant and defendant planned to move to Spain. However, the defendant could not afford a Spanish property unless her share of the house was realised. The claimant agreed, informally and without security, to transfer the property by way of gift to the defendant, who would then raise a £400,000 mortgage on the house and let it to cover the payments. She would give £200,000 to the claimant and use the excess to buy a Spanish property. The claimant later decided not to move to Spain.The mortgage went ahead and the mortgage company (TMB) released the mortgage moneys to the defendant. However, complications then arose and the defendant did not pay the promised £200,000 to the claimant. The house was not rented out, the mortgage payments fell into arrears and TMB repossessed the house and obtained a money judgment against the defendant. The claimant contended that she was entitled to set aside the deeds by which the defendant had been registered as the proprietor of the property on the ground of undue influence. She argued that her right to do so took priority over the registered charge in TMB’s favour as an overriding interest. The defendant contended that she was entitled to a beneficial interest in the property by proprietary estoppel by virtue of improvements that she had carried out. TMB claimed that the claimant was estopped from denying its charge, having consented to the mortgage. Held: The claim was dismissed.(1) The legal burden of proving undue influence rested on the party alleging it. If the claimant donor proved that she had placed trust and confidence in the defendant donee, or that the defendant had acquired ascendancy over her, and that the transaction required explanation, she would have discharged an evidential burden that would also enable an inference of undue influence to be drawn, thereby satisfying the legal burden unless the defendant produced evidence to the contrary.On the evidence, the relationship of trust between the claimant and defendant was not total. The claimant had known that she was taking a risk, although the defendant had promised to repay £200,000. The claimant had simply trusted that a daughter would keep a promise to her mother. Accordingly, no presumption of undue influence arose and the claimant had failed to prove that the defendant had used undue influence to procure the transaction. (2) Had the claimant been entitled to set aside the transaction on the ground of undue influence, TMB’s position would not have been affected. The claim of undue influence depended on what happened to the mortgage moneys after they were released and would not crystallise until the defendant had misappropriated those moneys; the equity did not arise until that time. Thus, it would not have affected the registered estate as at the date of the charge in favour of TMB.In any event, the claimant had agreed that the defendant could raise money on the security of a legal charge and could not thereafter assert her overriding interest in priority to the charge.(3) The defendant was entitled to a beneficial interest in the house based on proprietary estoppel. A mutual understanding had arisen when the claimant told the defendant that, if built, the extension would belong to her. The defendant had built the extension, thereby establishing her claim to its ownership. The claimant had not shown that the defendant had not relied on her representation.(4) The remedy to give effect to the equity established by proprietary estoppel was discretionary and was the minimum necessary to do justice. Had the defendant lived in the property for a long time, it might have been appropriate to satisfy the equity by a licence, or even to hold that long occupation had already satisfied the equity so that nothing more was required. However, where the defendant had lived in the extension only for five years, an indefinite licence would not do justice; instead, the court would give effect to the expectation underlying the estoppel and rule that the defendant owned the extension.Soofi Din (instructed by Bryan & Armstrong, of Mansfield) appeared for the claimant in the first action; Benjamin Wood (instructed by Drydens, of Bradford) appeared for the claimant in the second action (TMB); the first defendant appeared in person.Eileen O’Grady, barrister