The Court of Appeal has overturned a possession order granted to Yorkshire Bank in respect of a Stockton Heath home.
Three appeal judges have held that a charge over the property was rendered voidable because the owner, Pamela Tinsley, had taken it to replace a mortgage over her former home, which her then husband had unduly influenced her to agree to.
According to the court, this is the first appeal case to consider the issue of whether a replacement mortgage can be voided on the basis that the earlier mortgage was unenforceable.
The decision extends the obligation on lenders to ensure that spouses receive “independent advice” before they agree to a mortgage transaction.
In earlier county court proceedings, Judge Moseley QC held that Tinsley’s husband had “abused his position of trust and confidence” by persuading her to agree to two mortgages, in 1988 and 1991, over a jointly-owned Grappenhall property, in order to secure his business debts.
The judge also found that Yorkshire Bank had taken no steps to satisfy itself that Tinsley had entered freely into either mortgage transaction.
However, he found that a replacement mortgage over a new property in London Road, Stockton Heath, entered into by Tinsley following her divorce in 1994, could not be voidable for undue influence.
On appeal, Tinsley claimed that the London Road charge should also be unenforceable because she had entered into it without knowing that she could have set aside the earlier charge that it was replacing.
Conversely, Alex Hall Taylor, counsel for Yorkshire Bank, maintained that the “proposition of substitution” was an “unjustifiable over-extension of equitable principles” and that mortgagors should not be obliged to look at prior transactions relating to different properties.
The barrister argued: “To require banks on inquiry not only to take reasonable steps to satisfy themselves that the transaction with which they are immediately concerned is being entered into freely, but also to seek to determine whether prior transactions could possibly be attacked in a similar vein, would be to present them with an almost impossible task.”
However, the Court of Appeal has disagreed, holding that if a mortgage or guarantee is voidable for undue influence, a replacement mortgage will also be voidable even if undue influence is not operative at the time of the replacement.
Lord Justice Longmore said: “Of course, if the replacement or substitute mortgage is made with a different lender, that different lender cannot be deemed to be aware of matters of which the first lender is deemed to be aware.
“But if the lender is the same, there is no reason why the constructive notice should invariably be deemed to have disappeared when the earlier mortgage is discharged.”
Lord Justice Peter Gibson added that he was “not persuaded” that the court’s decision would cause “significant practical difficulties for lenders in property transactions”.
Yorkshire Bank plc v Tinsley Court of Appeal (Peter Gibson, Rix and Longmore LJJ) 25 June 2004.
Alex Hall Taylor (instructed by Addleshaw Goddard, of Leeds) appeared for the claimant; Peter Knox (instructed by Freemans) appeared for the defendant.
References: EGi Legal News 25/06/04
