Lenders worried about losing their security when a borrower claims to have been coerced into signing a mortgage will take heart from a recent Appeal Court decision.
In the latest case to focus on undue influence in transactions involving married couples, the Bank of Scotland challenged a High Court ruling in February 1998, which removed a legal charge of £150,000 on a house in Fulham, London.
The house in question was occupied by a Mr and Mrs Bennett, but was solely owned by Mrs Bennett. The charge was taken out by the husband as a guarantee for business borrowings. Despite the wife initially insisting that the house should not be used as a loan guarantee, she did eventually sign the agreement.
Now the Appeal Court has quashed the High Court decision to remove the legal charge. The bank argued on appeal that, in removing the charge, Deputy Judge Munby failed to give sufficient weight to the fact that the wife had initially refused to sign the charge for a period of several weeks. They argued that this was not the conduct of someone vulnerable to coercion.
Chadwick LJ said it was impossible to accept that the transaction at the heart of the dispute was one that no competent solicitor who knew the full facts could have advised the wife to enter. There was a risk, but the decision to accept it could not be stigmatised as irrational. He said that in the circumstances the bank had been entitled to take the view that there was no real risk that Mrs Bennetts apparent consent to the transaction had been obtained by improper conduct on the part of her husband. In those circumstances, the bank should not suffer the loss of its security.
Governor and Company of the Bank of Scotland v Bennett, Court of Appeal (Auld and Chadwick LJJ and Sir Christopher Staughton) December 7 1998
Mark Hapgood QC (instructed by Jenkin Evans, of Reading) appeared for the appellant; Nicholas Yell (instructed by Underwood & Co) appeared for the respondent.
PLS News 8/1/99
