Mortgages Cases

Barclays Bank v O'Brien (1992)

'(a) the transaction is on its face not to the financial advantage to the wife; and (b) there is a substantial risk in transactions of that kind that, in procuring the wife to act as surety, the husband has committed a legal or equitable wrong that entitles the wife to set aside the transaction'

1. Relationship of trust and confidence

'...parent and child, guardian and ward, trustee and beneficiary, solicitor and client, medical adviser and patient. In these cases the law presumes, irrefutably, that one party had influence over the other...' 'It is now well established that husband and wife is not one of the relationships to which this principle applies.' Etridge No.2

Etridge (No.2) (2002)

'a bank satisfies these requirements if it insists that the wife attend a private meeting with a representative of the bank at which she is told the extent of her liability as surety, warned of the risk she is running and urged to take independent legal advice'

MORTGAGES CASES

'a conveyance of land...as a security for the payment of a debt or the discharge of some other obligation for which it is given...' - fundamentally a contract - Mortgagee (lender) is given a proprietary interest in the land subject to the right to redemption - secured creditor - Mortgagor is the borrower - also has proprietary interest called Equity of redemption - if declared insolvent then the mortgagee gets priority over unsecured creditors + unless there is negative equity the mortgagee will get the money owed back - once a mortgage always a mortgage!

Samuel v Jarrah Timber and Wood Pavig Corp (1904)

'no contract between between a mortgagor and mortgagee...can be valid if it prevents the mortgagr from getting back his property on paying off what is due on his security'

Etridge (No.2) (2002)

'that a bank is put on inquiry whenever a wife offers to stand surety for her husband's debts'

CIBC Mortgages v Pitt (1993) wife executed a joint mortgage with husband of matrimonial home - husband wanted it to buy shares in the stock market - wife unhappy but agreed to avoid arguments - applied for £150,000 + said on form the loan was to be able to purchase a holiday home + to discharge remaining mortgage on house - bank gave them the loan

- HL said yes undue influence on the wife from the husband - But bank not put on inquiry because this was a joint venture with nothing to indicate to the bank that this loan was for anything other than their joint benefit

*Royal Bank of Scotland Plc v Etridge (No.2) (2002)* 'to ensure that the influence of one person over another is not abused' 'The evidence required to discharge the burden of proof depends on the nature of the alleged undue influence, the personality of the parties, their relationship, the extent to which the transaction cannot readily be accounted for by ordinary motives of ordinary persons in that relationship, and all the circumstances of the case'

- where there is a relationship of trust and confidence between two individuals - where there is that relationship one may have enjoyed such influence over the other so to persuade them into the transaction - if yes mortgage could be set aside

Krieglinger v New Patagonia Meat and Cold Storage Co (1914) Meat company were mortgagors + mortgagees firm of woolbrokers - mortgage contained a provision that for the next 5 years the company should not sell any sheepskins to any other person without first offering them to woolbrokers at best price possible - idea was to guarantee woolbrokers sheepskins for next 5 years - mortgagor repaid after only 2 years - HL held sheepskin clause remain valid for 5 years

A collateral advantage appearing in a mortgage deed may sometimes be treated as an independent agreement separate from the mortgage 'two distinct contracts' - right of preemption was an independent part of the loan that was freely entered into - valid

POSSESSION

A mortgagee is entitled to possession - a mortgage confers upon the lender the right to possess a house

Ropaigealack v Barclays Bank Plc (1999)

Bank which has lent mortgagor money to buy a property can take possession of it the next day - does not happen as the borrower has the right to repay the loan but legally the lender has the right to possess until it's repaid - nothing in equity that says it cannot be done but would be useless for the bank to possess a house that it cannot live in as not a person

OPTION TO PURCHASE

Can never have an option to purchase - once a mortgage always a mortgage

Lloyds Bank v Bundy (1975) the defendant was an elderly farmer who had come to rely on the plaintiff's advice in respect of his financial affairs - the son of the farmer also banked with the plaintiff - he owned a business that was in trouble - on the advice of the bank the father executed a charge over his house which was his sole asset in order to guarantee an overdraft for son's business - no benefit to the father + not told to see legal advice

Court held that the charge could be set aside because of undue influence from the mortgagee to the mortgagor

Abbey National Bank Plc v Stringer (2006) mother and son joint owners of a house - the son was on the title only as a formality as it allowed the mother to obtain a mortgage - then they jointly executed a further mortgage for the son's business - court had to ask if there was undue influence - son had total influence on the mother's financial affairs - she had signed document even though could not read English and he had not explained it

Court held undue influence as it went beyond the mother's generosity - 'new business of which she knew nothing and from which she would obtain no benefit...'

Goodchild v Bradbury (2006) vulnerable elderly gentleman transferred land adjacent to his to his great nephew as a wedding present - nephew then sold the land to a developer - went to court - the uncle did give the land freely but the court said that he did not realise the development potential - not a transaction anyone would enter into without considerable amount of thought + nephew did not show him his plans

Court of Appeal found relationship of trust and confidence + transaction called for explanation

Knightsbridge Estates Trust v Byrne (1939) a London property company mortgaged land to an insurance company - both parties of equal bargaining strength - postponement of redemption for 40 years held to be valid - long term investment for the insurance company + mortgagors only wanted to redeem it early as interest rates had fallen

Court of Appeal held that it was nothing other than proper business

Cheltenham & Gloucester V Krauz (1997) defendants defaulted on a loan of £58300 from the claimant building society which was secured by a mortgage on their home - negotiated sale of property for £65000 - but by this time mortgage amounted to £83000 - claimant refused to agree to the sale on the ground that a higher price could be obtained - defendants applied for order to suspend possession on grounds they had found a purchaser - district judge dismissed application for an order for sale - county court allowed the defendant's appeal for suspension of possession - claimants appealed

Court of Appeal held that the Country Court had no power under s36 to suspend a warrant for possession of mortgaged property in order to enable mortgagor to make an application for sale under s91 LPA 1925 - where the proceeds of the sale would not discharge the mortgage debt fully - 's.36 does not empower the court to suspend possession in order to permit the mortgagor to sell the mortgaged premises where the proceeds of the sale will not suffice to discharge the mortgage debt...' - limits Palk for situations involving negative equity - where there is negative equity, an application for an order of sale under s.91(2) LPA 1925 by a mortgagor will be refused + mortgagee can take possession

Ropaigealach v Barclays Bank Plc (1999) claiments were in default of mortgage payments + mortgagee demanded repayment of £64000 - the house was empty at the time as it was undergoing refurbishment - mortgagee took peaceful possession of the empty house + sold it at auction with vacant possession - claiments took the bank to court that under s36 AJA 1970 the bank can only take possession by court order so they did not have the proper authority - question of whether the mortgagee needed permission of the court to take possession

Court of Appeal wanted to say could only be done by court order but did not Section 36 only applies if the bank goes through the court in the first place to seek possession - normally the bank would need to go through the court as would normally be unable to take peaceful possession

- Postponement to enable sale

Postponement of the order would normally achieve a better price for the sale if house is still lived in - if there is positive equity in the house better for the mortgagor to sell it rather than mortgagee

Palk v Mortgage Services Funding Plc (1993) the Palks owned a house with a debt amounting to £358000 - had found a prospective purchaser willing to pay just £283000 - wanted to sell the property and make up the difference from personal resources - mortgagee said no + took proceedings for possession - mortgagee did not want to sell the house until the market improved + instead to let to tenant - rent would be less than interest accruing - amount owed + negative equity would steadily increase for Palks - Palks applied for and obtained an order for sale under s91(2) LPA 1925

Court said that they had the power to order a sale at the request of the mortgagor even if it would not pay off the whole loan - mortgagee's right of possession is not absolute - mortgagee must act in good faith - the purpose of possession must purely be to get the money owed back

Cheltenham & Gloucester Building Society v Norgan (1996) Instalment mortgage created in 1986 and repayable over 22 years

Court said the reasonable period could in theory be the full remaining period of the mortgage - must take into account the circumstances + reasons for the arrears in the first place - mainly consider why they are in the financial crisis they are in - e.g. will they get another job if job loss in the reason behind it 'would it be possible for the mortgagor to maintain payment off of the arrears by installments over that period' - shifted the law in favour of mortgagors when had previously only been around 1-3 years for a reasonable period

ACTUAL UNDUE INFLUENCE

Difficult to prove so not very common

THE RIGHT TO PAYMENT

Expectation of the banks is that the mortgage + taking of the property will only be needed as a very last resort

2. What must a mortgagee do to avoid being fixed with constructive notice of the undue influence?

It is not a case as of whether the wife has been wronged by the husband but with what steps the bank can take to minimise the risks - all the bank must do to avoid constructive notice is to tell the wife to have a meeting with the bank and to take independent legal advice

Palk v Mortgage Services Funding Plc (1993) Mortgagee seeking to take possession of mortgagor's house - in the meantime they were still liable to make the payments due

If the mortgagee bank enforce a mortgage and possesses the house and enforces it through sale of the house - if there is negative equity (when the amount of value in the land is less than the amount borrowed) then the mortgagor is still liable to pay off the rest of the loan

UNDUE INFLUENCE BY MORTGAGEE AGAINST MORTGAGOR

Incredibly rare

MORTGAGOR'S RIGHTS - THE EQUITY OF REDEMPTION

Law sees the interest of a mortgage = a long lease - mortgagee has the same rights as a long lease holder - if the mortgagor defaults the mortgagee wants the house - mortgagor remains the owner however - mortgagee only really has the rights to security

Faircloth v Swan Brewery Ltd (1912) a lease of a hotel with 17 years to run was mortgaged to a brewery - redemption was postponed until there was just 6 weeks left on the lease - mortgage included a tie to the brewery (brewery would want the tie to last as long as possible) - Privy council found postponement invalid as if the lease was redeemed on date of redemption it would be valueless

Lord Macnaghten 'a mortgage cannot be made irredeemable'

Etridge (No.2) (2002)

Lord Nicholls' specific guidance - 4 points

Four Maids Ltd v Dudley Marshall Properties Ltd (1957) 'The mortgagee may go into possession before the ink is dry on the mortgage unless there is something in the contract, express or by implication, whereby he has contracted himself out of that right'

Mortgagee has a charge by way of legal mortgage - gives the mortgagee rights equivalent to an estate - can assert those rights at any time

Barclays Bank v O'Brien (1994) Mrs O'Brien was a surety for a loan made by the bank to her husband - Mr O'Brien's business had been struggling and the loan was taken out to resolve some of its financial issues - loan was secured by mortgage on the matrimonial home in which Mrs B had an equitable interest - no one at the bank explained the mortgage documents to her or advised her to seek legal advice - Mrs B signed documents without reading them or getting legal advice - Mr B defaulted on repayment of the loan and the bank sought to enforce its security by taking possession of home - Mrs B claimed mortgage should be set aside - question of whether the bank had notice of wife's interest + if she entered into mortgage under undue influence

No question that the bank had no used undue influence could the mortgage be set aside due to undue influence from third party? - HL said the mortgage was void against the wife - the bank had notice of the wife's equitable interest + could not enforce its later equity by taking possession - 'given that there are two innocent parties, each enjoying rights, the earlier right prevails against the later right if the acquirer of the later right knows of the earlier right or would have discovered it had he taken proper steps' - 'therefore where a wife has agreed to stand surety for her husband's debts as a result of undue influence...the creditor will take subject to the wife's equity to set aside transaction...'

Etridge (No.2) (2002) house purchased in the name of Mrs Etridge in 1987 using money provided by her husband - subsequently granted the bank a mortgage of £100,000 against the house to secure overdraft facility in husband's company - a year later the house was sold and bought more expensive house again subject to a mortgage of £100,000 - the business went bust and the bank sought possession of the house - Mrs Etridge alleged that the mortgage should be set aside on the grounds of undue influence from her husband - House of Lords said no

No undue influence on the facts of the case from the husband on Mrs Etridge - 'a relationship of trust and confidence by her to him. But there was no evidence of abuse by Mr Etridge of that relationship...'

RIGHT TO REDEEM MUST NOT BE ILLUSORY

Occasionally a mortgage is created that deliberately postpones the legal date of redemption from the traditional 6 months A postponement of redemption is only valid if on all the facts the postponement is not 'unconscionable or oppressive' to the mortgagor - if void the mortgagor can redeem at any time

1. Jurisdiction to postpone a possession order

The court can say no to a possession order under Administration of Justice Act 1970 s36

REBUTTING THE PRESUMPTION OF UNDUE INFLUENCE

The party that enjoyed the relationship of trust and confidence must show, on the facts, that they did not assert undue influence

Abbey National v Cann (1991) If the bank has a charge and is seeking possession before Mrs Cann's actual occupation - the mortgage has priority over her equitable interest

There is no Scintilla Temporis between transfer to mortgagor and the mortgage beginning - any potential equitable interest that a person has will always rank second to the registered mortgage - it cannot take priority over the lender

UNDUE INFLUENCE BY A THIRD PARTY AGAINST THE MORTGAGOR

Typically a close family member

UNDUE INFLUENCE

Whether or not a transaction can be set aside on the grounds of undue influence - influence a mortgagor to take out a mortgage - influence of one person over another

COLLATERAL ADVANTAGES

a mortgagee stipulates in return for their loan they shal get as well as a normal rate of interest, some other additional benefit