The Mortgage Corporation Ltd v Shaire and others
House in joint names of unmarried couple – Loan secured on 25% beneficial interest of deceased partner – Lender seeking order for sale under section 14 of Trusts of Land and Appointment of Trustees Act 1996 – Application resisted by surviving partner – Whether lender able to rely on principles applied under earlier legislation
Under the terms of a divorce court order made in 1987, a three-bedroom house in London N14, then jointly owned by S and her husband (H), was transferred into the joint names of S and her unmarried partner (F) to hold on trusts that were not declared. At about the same time, S and F mortgaged the house in favour of Chase Manhattan Bank (the Chase mortgage) in order to raise £40,000, of which £15,000 was paid to H and the balance applied to repay a building society loan, obtained in 1976 when H and S bought the house. In January 1990 F obtained a loan of £118,000 from the claimant (TMC), part of which was used to redeem the Chase mortgage. The last loan was made on what TMC believed to be a valid mortgage of the house; however, following the death, insolvent, of F in May 1992, it was discovered that F had forged S’ signature on the relevant documents.
In proceedings commenced by TMC, it fell to be determined: (i) to what extent TMC could claim to be secured on the beneficial interests of S and F; and (ii) whether, contrary to the wishes of S, an order should be made under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 for the sale of the house.
House in joint names of unmarried couple – Loan secured on 25% beneficial interest of deceased partner – Lender seeking order for sale under section 14 of Trusts of Land and Appointment of Trustees Act 1996 – Application resisted by surviving partner – Whether lender able to rely on principles applied under earlier legislation Under the terms of a divorce court order made in 1987, a three-bedroom house in London N14, then jointly owned by S and her husband (H), was transferred into the joint names of S and her unmarried partner (F) to hold on trusts that were not declared. At about the same time, S and F mortgaged the house in favour of Chase Manhattan Bank (the Chase mortgage) in order to raise £40,000, of which £15,000 was paid to H and the balance applied to repay a building society loan, obtained in 1976 when H and S bought the house. In January 1990 F obtained a loan of £118,000 from the claimant (TMC), part of which was used to redeem the Chase mortgage. The last loan was made on what TMC believed to be a valid mortgage of the house; however, following the death, insolvent, of F in May 1992, it was discovered that F had forged S’ signature on the relevant documents.
In proceedings commenced by TMC, it fell to be determined: (i) to what extent TMC could claim to be secured on the beneficial interests of S and F; and (ii) whether, contrary to the wishes of S, an order should be made under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 for the sale of the house.
TMC contended that, since it was applying as a mortgagee, there was nothing in the 1996 Act to require the court, in the exercise of its discretion, to depart from the principles that had been applied to such applications under the repealed section 30 of the Law of Property Act 1925. Accordingly, TMC maintained that the court should follow Re Citro [1991] Ch 142 and Lloyds Bank plc v Byrne [1993] 1 FLR 369, which endorsed the practice of making an immediate order for sale unless the circumstances were quite exceptional.
Having considered the arrangements made by S, H and F, the judge proceeded on the basis that the beneficial shares of S and F were respectively 75% and 25%.
Held: Different considerations applied to applications under the 1996 Act.
1. Although the forged disposition had no effect on the legal estate, it was effective to pass F’s beneficial interest to TMC: see, for example, Ahmed v Kendrick (1987) 56 P&CR 120. Additionally, since its money had been applied to the redemption of the Chase mortgage, TMC could claim, by right of subrogation, to be secured on S’ interest to an amount equal to 75% of the £40,000 advanced by Chase.
2. It could be gathered from section 15 of the 1996 Act that parliament intended to change the law. Section 15, unlike the earlier provision, specified the factors to be taken into account in the exercise of the court’s discretion. Although those factors included the interest of any secured creditor of a beneficiary, it was noteworthy that no priority had been accorded to such an interest. Again, while the earlier case law drew no distinction between an application by such a creditor and an application by a trustee in bankruptcy, the latter could now only be made under the amended provisions of the Insolvency Act 1986: see section 15(4) of the 1996 Act. It was also significant that the statutory trust regulating co-ownership was no longer a trust for sale. Since the intention of parliament was to relax the exercise of the discretion, the authorities relied upon by TMC had to be treated with caution: dicta in Bankers Trust Company v Namdar [1997] EGCS 20 (CA) applied; observations in TSB Bank plc v Marshall [1998] 3 EGLR 100 disapproved.
3. S and TMC were both victims of the fraud perpetrated by F. While possibly not requiring three bedrooms, S would suffer real hardship if she had to leave her home. Against that, TMC would be at a significant disadvantage if it found itself locked into a quarter of the equity without obtaining a return. In those circumstances, and given the approximate £200,000 value of the house, TMC’s application should be held over in order to allow S to decide whether she could agree to the conversion of that equity into a corresponding loan at an interest of 1.25% above bank rate. Failing such agreement, or on it being shown that S could not service such a loan, the court would not refuse to order a sale.
Timothy Harry (instructed by Salans Hertzfeld & Heilbronn HRK) appeared for the claimant; Jalil Asif (instructed by Traymans) appeared for the defendants.
Alan Cooklin, barrister
