A joint mortgage does not automatically put a mortgage lender on notice of undue influence.
Summary
The High Court held that a joint mortgage application did not constitute constructive knowledge of undue influence where part of the loan was security for one borrower’s debts.
Background
Ms Waller-Edwards entered a personal relationship with Mr Bishop at a vulnerable point in her life. She became involved in his business affairs as a property developer.
The couple entered several financial transactions together, eventually resulting in a mortgage against Ms Waller-Edwards’ property. The mortgage was to all appearances for the joint benefit of the borrowers. Around 10 percent of the funds advanced were used to pay off Mr Bishop’s debts.
One Savings Bank obtained a possession order following the borrowers' default.
Ms Waller-Edwards sought to have the mortgage set aside, stating that the lender was put on notice of undue influence and should have undertaken inquiries to establish whether this was the case.
The court’s decision
The appeal was dismissed.
The court held that the lender was not put on notice. It distinguished the case from Royal Bank of Scotland Plc v Etridge (No 2) [2001] UKHL 44 and Barclays Bank Plc v O’Brien and another [1994] 1 AC 180, on the basis that the loan was a joint advance to the parties, and not surety for one person’s debts.
The court referred to Etridge:
"As to the type of transactions where a bank is put on inquiry, the case where a wife becomes surety for her husband’s debts is, in this context, a straightforward case. The bank is put on inquiry.
On the other side of the line is the case where money is being advanced, or has been advanced, to husband and wife jointly.
In such a case the bank is not put on inquiry, unless the bank is aware the loan is being made for the husband’s purposes, as distinct from their joint purposes."
-Para 48, quoted at para 76 of the present judgment.
The High Court agreed that the trial judge had been correct in identifying that the question was one of fact and degree.
Comment
Mortgage lenders will be relieved that the High Court has held they are not put on inquiry in the case of a joint advance, where it is not readily apparent that one person is giving a guarantee.
Etridge is often referred to as a mortgage case; in fact, it applies to cases involving sureties and guarantees, allowing a guarantee transaction to be set aside based on a presumption of undue influence that the lender must take steps to rebut.