B e f o r e :
LORD JUSTICE MUSTILL
LORD JUSTICE BUTLER-SLOSS
LORD JUSTICE MANN
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EQUITY & LAW HOME LOANS LIMITED
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-v-
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KEITH JOHN PRESTIDGE
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and
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IVY ANNE BROWN
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(Transcript of the Shorthand Notes of the Association of Official Shorthandwriters Limited, Room 392, Royal Courts of Justice, and 2 New Square, Lincoln's Inn, London, WC2A 3RU.)
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MR GEORGE BROWN, instructed by Messrs Gregory Rowcliffe & Milners (London Agents for Messrs Davies Partnership, Penzance, Cornwall), appeared for the Appellant (Second Defendant).
MR STEPHEN LENNARD, instructed by Messrs Winter-Taylors (High Wycombe, Bucks), appeared for the Respondents (Plaintiffs).
The First Defendant did not appear and was not represented.
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HTML VERSION OF JUDGMENT
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Crown Copyright ©
LORD JUSTICE MUSTILL: In November 1987 Mrs Ivy Brown was the owner of 50 Queen Margaret's Road, Coventry. She was a divorced woman who was living with Mr K.J. Prestidge. They decided to move to Pendeen in Cornwall and they set up house with her three children at "Fairview", 11 Jubilee Place in that town. For this purpose Mrs Brown sold the house in Coventry for a net sum of £10,340. The purchase price of "Fairview", namely £39,950, was met as follows. Mrs Brown put in a little less than £10,000 from the proceeds of sale of the Coventry house. The rest was raised by a mortgage of £30,000 taken out with Britannia Building Society (hereafter "Britannia"). The Deed of Charge named Mr Prestidge alone as the borrower, and he alone covenanted to make the repayments. So also with the conveyance of "Fairview" which was in the sole name of Mr Prestidge.
In her evidence in the county court Mrs Brown explained, and the Recorder accepted, that the choice of Mr Prestidge as the only party to the transaction, notwithstanding that Mrs Brown was putting up one quarter of the price, was deliberate and was taken on the advice of their solicitor; the reason being, apparently, that Mrs Brown had a county court judgment outstanding against her, and it was thought that this might make the building society less willing to lend if she was shown as jointly interested in the transaction. At all events, she undoubtedly knew very well that her name did not feature in the documents. In a written statement put in evidence in the county court she gave this explanation:
"I remember being worried about the arrangements and discussing the matter with my parents. As a result, I went back to see Mr. Stewart [he was the solicitor] again and said 'I want my name to be on the title deeds'. I remember Mr. Stewart saying 'You've got nothing to worry about. It's all in black and white. You've put money into this house and you've heard what Mr. Prestidge has said about that and anyway you'll be getting married. If you don't get married, we can always sort this problem out after you've purchased 'Fairview'. I do not recall Mr. Stewart saying anything about the problem being one of time as there was a contract race. Davies Partnership have explained to me that an amendment of the mortgage offer to Mr. Prestidge in order to include me may well have caused a delay and this was perhaps what Bate Edmunds were concerned about. I honestly do not recall any mention of this difficulty. As Mr. Stewart had said I had nothing to worry about, I let the matter go through. I was very concerned throughout the transaction and indeed considered withdrawing from the whole business. I spoke with Prestidge on the telephone in Cornwall on many occasions and his reaction to my saying I would withdraw was to reassure me that as far as he was concerned, 'Fairview' was mine."
Evidently Mrs Brown continued to be worried for we find her writing to the solicitor on 4th December 1987 as follows:
"Also, I would be very grateful if you could make up some kind of papers to show I sold my house, and put all I had left to pay a quarter of this one. It might seem silly, but it is best to be careful."
The solicitor does not appear to have replied. However, on 13th April 1988 he wrote to Mr Prestidge and Mrs Brown jointly as follows:
"In the meantime, perhaps you could let me know whether it is still your intention to transfer 'Fairview' into your joint names. If so, I can then retain the Title Deeds from the Britannia for a while longer to deal with these formalities. If not, I must then return them to the Building Society straight away."
There is no reply to these letters included in the documents before us, but we see that on 6th May a few weeks later the solicitor wrote to them in these terms:
"As to the transfer of the property, I would suggest that you wait until you are actually married and then approach a local office of the Britannia Building Society for an application form to transfer the Mortgage into joint names. Once that has been approved, it will be a simple enough matter for us to transfer the property itself."
The two addressees of the letter do not seem to have replied.
A serious problem then arose concerning the sale of the Coventry house. The details do not matter for present purposes. It is sufficient to say that a claim was made by Coventry Council for repayment of a discount allowed to Mrs Brown when she purchased the house, which had originally been council property, and which had not been taken into account when Mrs Brown put up the whole of the net proceeds of sale as her contribution to the purchase of "Fairview". Evidently the difficulties which ensued caused her to lose confidence in her solicitor, for on 21st July she went with Mr Prestidge to consult new solicitors, Messrs Jewill Hill & Bennett, who then took over negotiations concerning the discount. Although both parties were concerned in giving instructions to the new solicitors, Mr Prestidge must already have been planning to cheat Mrs Brown, for only a few days later we find him in touch with mortgage brokers with a view to arranging an advance on "Fairview" in his name alone. The intended mortgagees were Equity & Law Home Loans Limited, the present plaintiffs. In their first letter to Mr Prestidge they made these enquiries:
"You do not appear on the voters roll. Please forward a written explanation along with documentary evidence of your address ie. Driving Licence, Bank Statement, etc. Please confirm whether any other person over the age of 17 years will be residing in the property. Could you please confirm what Life Assurance Policy you require in conjunction with your mortgage."
Mr Prestidge replied on 17th August:
"As requested in your letter dated the 15-8-88 I am not on the Voters Roll because it is not brought up to date until October each year. I enclose evidence of my address. Also, the only other person over the age of 17 residing at the property will be a Mrs Ivy Brown who is my common law wife."
Further on in time still Mr Prestidge filled in an enquiry form relating to the mortgage, in which in response to a question, "Is this mortgage either to purchase a new residence or to improve your main residence?" he had ticked the box relating to improvements, and further on in the form under the heading "Non-Owner Occupant's Details" is written the name Ivy Ann Brown. In the box marked "Reasons for Occupation or Relationship to Borrower" he had written "Common Law Wife", and under the heading "Have They Executed Deed of Consent" he had ticked the box marked "No", and had added "but will".
The plaintiffs were evidently reassured by this response, and they made a formal offer, which was accepted, and after some delay an advance was made of £42,835 net, secured by a charge on "Fairview" in the name of Mr Prestidge. It seems that part of this sum was used to redeem the mortgage with Britannia Building Society and that the rest was pocketed by Mr Prestidge.
At the hearing in the county court Mrs Brown gave evidence, which the learned Recorder accepted, that she knew nothing at the time about the redemption of the Britannia mortgage and the re-mortgage to Equity & Law, and only found out about these transactions in late November 1988. The firm of solicitors who acted for Mr Prestidge in the redemption and re-mortgage have in turn asserted in correspondence that they did not know that Mrs Brown even existed, let alone that she was residing in the property.
Not long afterwards the relationship between Mr Prestidge and Mrs Brown broke down, and he ceased to reside at "Fairview". He never made any repayment under the Equity & Law mortgage, and Mrs Brown (who by now was living on social security) could not do so. Subsequently, Mr Prestidge informally renounced all his title to the house, but no documents have been executed to recognise whatever interest therein Mrs Brown may possess.
On these facts the learned Recorder gave judgment for the plaintiffs. In essence he based his decision on Bristol & West Building Society v. Henninq [1985] 2 All ER 606. After quoting extensively from the judgment of the Vice-chancellor he continued:
"I am prepared to extend the Henninq case to this particular set of facts. Mrs. Brown should be put in the same position as if the mortgage was the same as that originally obtained. I again quote from the Henning case at page 609 E. 'Mrs. Henning knew of and supported the proposal to raise the purchase price of the Devon house on mortgage'. I think that if one analyses the matter this way, her consent seems to be the right basis for analysis. Mrs. Brown did authorise Mr. Prestidge to raise nearly £30,000 from a lending institution; what Mr. Prestidge did would have been quite unarguably justified if there had been substituted one lender for another in the same sum because she had agreed that £30,000 although not more should be borrowed."
In the result a possession order was made, coupled with an order in the following terms:
"... out of the proceeds of such sale the Plaintiff be entitled to enforce its security to such extent as would represent an advance of £29,918.40 on 21st October 1988 and accrued interest thereon".
Mrs Brown now appeals. It seems to me that these facts, and the order now under appeal, require consideration of the following four questions:
- What if any beneficial interest did the appellant acquire as a result of the transaction leading up to the mortgage and purchase?
- What was the status of this interest vis-a-vis the charge in favour of Britannia created by the mortgage for £30,000?
- What would the status of this interest have been if the new mortgage in favour of Equity & Law had been for no more than £30,000 plus any interest unpaid on the old mortgage?
- What difference does it make that the new mortgage secured a larger amount?
In the event we have not been called upon to decide the first of these questions. In the light of the evidence, read against the background of Grant v. Edwards [1986] Ch 638, the respondent building society has not sought to argue, and could not have hoped to argue with success, that the appellant had no beneficial interest at all. Furthermore, in the absence of any cross-appeal we need not enter into the extent of that interest. Perhaps in some other case it may be necessary to consider what the position is where the party with the beneficial interest puts up the whole or a substantial portion of the capital outlay, but assumes no personal responsibility for the repayment of the sums borrowed to finance the balance. Here, we can start on the simple basis that, as between herself and Mr Prestidge, the appellant had the entire beneficial interest in "Fairview", as indeed Mr Prestidge was later to acknowledge.
The second question is also the subject of no contest. Mr Brown accepts, as he was bound to do, that if the mortgage had remained where it was, the appellant would have had no answer to an order for sale at the suit of Britannia, and that her interest in the proceeds of the sale of the house would have been subordinated to that of Britannia up to the amount of any sums (including interest) remaining due under the mortgage.
The third question requires the application of the reasoning in Henning to a new set of facts. To see what that reasoning is I must quote from the leading judgment of Lord Justice Browne-Wilkinson at page 782-3 just above letter E:
"Therefore, in order to determine what, on the assumption made, is the nature of Mrs. Henning's right in the villa, it is necessary first to determine from the parties' actions what were their express or imputed intentions as to her beneficial interest.
Once that is identified as the relevant question, in my judgment the answer becomes obvious. Mr. and Mrs. Henning did not contemporaneously express any intention as to the beneficial interests in the property. Therefore such intention if it exists has to be imputed to them from their actions. Mrs. Henning knew of and supported the proposal to raise the purchase price of the villa on mortgage. In those circumstances, it is in my judgment impossible to impute to them any common intention other than that she authorised Mr. Henning to raise the money by mortgage to the society. In more technical terms, it was the common intention that Mr. Henning as trustee should have power to grant the mortgage to the society. Such power to mortgage must have extended to granting to the society a mortgage having priority to any beneficial interests in the property. I would not impute to the parties an intention to mislead the society by purporting to offer the unencumbered fee simple of the property as security when in fact there was to be an equitable interest which would take priority to the society. Indeed in evidence Mrs. Henning said:
'I would have realised that the building society were expecting to be able to rely on the full value of the house as security of loan - but I never really thought about it - if somebody had explained it to me as you have now I would have appreciated it.'
This evidence shows that, although she had no actual relevant intention at the time, it would be wrong to impute to the parties any intention other than that the society was to have a charge in priority to the parties' beneficial interests.
Mr. Whitaker, for Mrs. Henning, sought to avoid this conclusion by pointing out that such an intention left Mrs. Henning at the mercy of Mr. Henning and failed to provide the security which the house was designed to give her and her children. He points out that Mr. Henning could at any time cease to pay the mortgage instalments and the society would then be able to take possession from Mrs. Henning. That is true. But the fact that the arrangements made did not, because of the rights of a third party, provide full security cannot alter the only intention it is possible to impute to the parties. There was no way in which the villa could have been bought at all without the assistance of the mortgage to the society and the mortgage to the society could not be properly granted without giving the society a charge over the whole legal and equitable interest.
Since the nature of Mrs. Henning's interest has to be found in the imputed intention of the parties and the imputed intention of the parties must have been that her interest was to be subject to that of the society, it is impossible for Mrs. Henning to establish that she is entitled to some form of equitable interest which gives her rights in priority to the rights of the society. I would therefore hold that, even on the assumption that Mrs. Henning has some equitable interest or right in the villa, such interest or right is subject to the society's charge and provides no defence to the society's claim for possession."
So it seems to me that one must ask this question:
"What intention must one impute to the parties as regards the position which would exist if the mortgage which had been obtained in order to enable the purchase of the house, and which the parties intended to have priority over Mrs Brown's beneficial interest, should be replaced by another mortgage on no less favourable terms?"
In my judgment, this question need only to be posed for it to be answered in favour of the new mortgagees. Any other answer would be absurd, for it would mean that if Mr Prestidge had in good faith and without the knowledge of the appellant transferred the mortgage to another society in order (say) to obtain a more favourable rate of interest, Mrs Brown would suddenly receive a windfall in the shape of the removal of the encumbrance which she had intended should be created in consequence of a transaction which could not do her any harm and of which she was entirely ignorant.
If this answer is correct, it disposes of two objections to the judgment of the learned Recorder, which were canvassed in argument. First, it is said that the appellant's interest could not be encumbered by a mortgage of which she was unaware, especially in circumstances where there was ample on the documents to put the society on notice of that interest. Well, this would have been right if the mortgage to Equity & Law had been the first and only transaction. But it was not. The new mortgage was made against the background of a consent by the appellant to the creation of an encumbrance, so that the transaction could proceed. This imputed consent must, in common sense, apply to the creation of a new encumbrance in replacement of the old, whether the appellant knew about it or not, provided that it did not change the appellant's position for the worse.
The second objection receives the same answer. It presupposes that there was a scintilla temporis between the discharge of the first mortgage and the attachment of the second when the property was entirely unencumbered and the appellant's interest therein was also unencumbered. It could be said that this interest could not effectively be re-encumbered by a transaction of which she was unaware. I doubt whether this argument is even technically correct, for it may very well be that if the position in law were closely examined (which very sensibly it was not in the argument before us) it would be found that the transactions were simultaneous. But apart from this, to give effect to such a technicality would go against the grain of the broad equity expounded in Henning. If it was just to enforce the first mortgage it must inevitably be just to enforce the second by virtue of an imputed consent which applied to the creation of both.
This leaves the fourth question: what is the position where the replacement mortgage creates a greater encumbrance than before? If the respondents had sought to argue that they could enforce their charge in full the judgment in Henning would have provided a conclusive answer, for no intention to prefer a mortgage in any amount greater than £30,000 plus interest could properly be imputed to the appellant. But the judge has not made any order to this effect, nor have the respondents sought by cross-appeal to obtain one. The issue is therefore not whether the new mortgage has made the appellant's position worse, but whether, as she contends, it has made it very much better. This would be a strange result if it were so, and I do not think that it is so. I repeat that the purchase could not have taken place at all without some encumbrance, and in my view it is a natural development of Henning to hold that in justice to both parties the original or substituted encumbrance should rank ahead of the beneficial interest as far as, but no further than, the consent which is to be imputed to the appellant. I therefore conclude that the judge's order was right.
Finally, I must add two comments on an argument advanced by Mr Brown based on the failure by the respondents to follow up the clear hints in the documents that someone besides Mr Prestidge might have an interest in the house. In the form deployed by Mr Brown, this was a complaint that if the respondents had been more alert and had made more enquiries the appellant would have realised that Mr Prestidge was up to no good and that she was being left with a property encumbered by a mortgage whose instalments she could not pay. In such circumstances she would, so it is said, have prevailed on the Department of Social Security to keep up the instalments, something which they now will not do because the unpaid sums have in the interval become so greatly increased. Thus, she is being made homeless through a combination of Mr Prestidge's dishonesty and the respondent's incompetence and, she might well add, some serious mistakes by her first solicitors. I am by no means convinced that this will be the practical result of upholding the judgment, for it may happen that a result can be negotiated which will keep Mrs Brown and her family in the house, whilst recognising the full mutual rights of the parties. I certainly hope so. But in any event I am quite unable to see how the respondents could be regarded as owing towards her any duty of care which could alter the consequences of her initial imputed consent to the encumbering of the property.
This leads to the second observation. After the conclusion of the argument I had begun to wonder whether the combination of the respondents' means of knowledge with the fact that the appellant's interest was in the nature of an equity might mean that they could not claim to be bona fide purchasers without notice whose title defeated the equity. This point was not raised on the argument of the appeal, and we have not sought to open it up by further argument because on reflection it appears unsound. The rights of the mortgagees are preferred, not because they override the equity, but because the appellant's beneficial interest was of a very special kind, which from the outset had carved out of it by anticipation a recognition of the rights of the mortgagees whose finance was intended to bring the purchase into being. In my view once this is recognised the problem disappears.
I would therefore dismiss the appeal. Mrs Brown has been cruelly deceived, and has suffered grievous hardship, but this is not something to be laid to the account of the respondents.
LORD JUSTICE BUTLER-SLOSS: For the reasons given in the judgment of Lord Justice Mustill I agree that this appeal should be dismissed.
LORD JUSTICE MANN: I also agree.
Order: Appeal dismissed with costs not to be enforced without leave of the court; legal aid taxation of the appellant's costs; application for leave to appeal to the House of Lords refused.
