Subrogation — Vendor’s lien — Property purchased with aid of loan subsequently repaid with advance from second lender — Whether second lender entitled by subrogation to benefit of lien to which vendor would have been entitled pending payment of purchase price in full — Appeal allowed in part
The appellant and her husband jointly owned a property that was mortgaged to the respondent under a legal charge that secured all moneys at any time owed jointly or by either of them. The property was one of several purchased by the couple, and its purchase had initially being financed by a bridging loan from Barclays, secured by a first charge. That loan had been repaid with funds advanced by the respondent, and Barclays had executed a deed of release.
The respondent later obtained a possession order against both joint owners. The appellant claimed that she had been induced to enter into the charge by undue influence, but a recorder concluded that she had failed to discharge the burden of proof in respect of that claim. She appealed, arguing that neither the Barclays charge nor that of the respondent were binding upon her. The respondent argued, inter alia, that, irrespective of whether the charges were binding, it was none the less entitled by subrogation to the rights of Barclays as the funder of part of the purchase price of the properties. It submitted that Barclays, in providing the bridging loan, had become entitled by subrogation to the lien to which the vendor of the properties would have been entitled pending payment of the purchase price in full, and that, in so far as the respondent’s advance had been used to repay the bridging loan, the respondent was, in turn, so entitled.
Held: The appeal was allowed in part.
The recorder’s judgment was so superficial and perfunctory that his conclusion on the undue influence issue could not stand. However, the respondent was none the less entitled to an order for possession. Assuming both the Barclays charge and the respondent’s charge to have been voidable, it followed that Barclays, having received an ineffective security for its loan, was entitled to the lien over the property to which the vendor would have been entitled had that much of the purchase price remained unpaid. Having repaid that sum to Barclays, UCB was entitled, by “sub-subrogation”, to stand in Barclays’ shoes and thus enforce the lien. There was no conceptual difficulty in so finding. The applicable principle was that where a third party paid off a mortgage, that party was presumed, unless the contrary appeared, to intend that the mortgage should be kept alive for his own benefit. The finding in the present case was not an unwarranted extension of that principle: Ghana Commerical Bank v Chandiram [1960] AC 732, Butler v Rice [1910] Ch 277 and Castle Phillips Finance Co Ltd v Piddington [1995] 1 FLR 783 applied.
Accordingly, the respondent was entitled to an equitable charge on the property to secure the outstanding debt, together with interest and costs. Appropriate relief to enforce that security, including an order for possession, would be granted.
The appellant appeared in person; Mark Wonnacott (instructed by Shammah Nicholls, of Manchester) appeared for the respondent.
Sally Dobson, barrister
