John lives with his wife, Jane, in an apartment. lt was solely registered in his name. John told Jane that it was as much hers as it was his and that she did not have to worry about the future.
Jane did most of the household chores and took care of minor repair works in his absence. John had, without Jane's knowledge, mortgaged the apartment to the bank to raise capital for his business. His business failed and he ran away without repaying the loan. The bank now seeks possession of the apartment.
(i) Advise Jane as to her legal rights to the apartment.
(ii) Would your answer be any different if Jane had in fact provided consent to the mortgage of the apartment to the bank?
This question is a matter of three issues. The first one is whether a wife has any entitlement to the matrimonial home when only the husband is registered in the title. The second question is whether regards the rights of a mortgagee in taking possession of the property where the wife’s consent was not legally obtained.
In matters relating to land, the law recognizes two forms of ownership. The legal ownership gives rise to legal interests in land, and the legal owner is the registered owner who holds the title to land. The second type of ownerships is called beneficial ownership which gives rise to beneficial interest in land. Unlike the legal owner, the beneficial owner is not registered in the land, but he/she benefits from the land. A determination of beneficial interests was provided by Lord Bridge in that beneficial interest is created out of an arrangement of the partners that infers a common intention for sharing the property (Lloyds Bank plc v Rosset, 1991). Development in this rationale had been elaborated earlier in the case in (Eves v Eves, 1975) and in the ruling of (Grant v Edwards, 1986) where unmarried partners who were cohabiting. In both cases, the court ruled that the female partner had beneficial interest in the property since the male partner caused her to believe that they own the property jointly.
Apart from the two interests, security interest arises from a contract where one party known as the mortgagor (legal owner) uses his land to secure loan from a mortgagee (lender). The contract created is called a mortgage (Aalberts, 2014, p. 41). In this contract, the mortgagor acquires the loan, and the mortgagee acquires proprietary interest over the land owned by the mortgagor as the consideration. The terms of this contract are that the proprietary interests acquired by the mortgagee will expire once the mortgagor repays the loan in full in the specified period. Where the time elapses and the mortgagor in default, the mortgagee acquire the legal entitlement to possess the mortgaged property to recover loaned sum in full sum owed by the mortgagor usually through the sale of the property and by suing on the covenant to pay the full sum due. The authority in this situation was explained in (Four-Maids Ltd v Dudley Marshall (Properties) Ltd, 1957) where the Judge said that the mortgagee can possess the property before the ink dries.
As a mortgage in businesses are essential contracts for securing finances, some vitiating factors like misrepresentation and undue influence can cause the court to set aside the entire agreement (Sexton & Bogusz, 2011, p. 754). In cases concerning mortgage, the rules of misrepresentation does not focus on the terms of the mortgage. Instead, it looks at how the agreement came into the play. Misrepresentation is defined as any untrue statement of fact that is provided by one party to cause the other to change position (Chandler, 2015, p. 124). For a misrepresentation to be actionable, it must change the other party’s position in the transaction, and that party ends up suffering the repercussions of that transaction (McKendrick, 2017, p. 224). As the rules governing the contract could be unfair, equity comes to ensure that there is fairness in the arrangement, which is a public policy as stated in (Pesticcio v Huet, 2004). In this case, some of the rules of contract such as those apply to privity would not apply. Thus, undue influence or misrepresentation will set the contract aside even though the influence did not result from the mortgagee’s actions. According to (Thompson & George, 2017, p. 461), although both vitiating factors are different, they have the same effects. The principle was confirmed in the ruling of (Lloyds Bank Ltd v Bundy, 1975) where Lord Denning said that there is a general rule that the law will provide to a mortgage acquired through inequality in the bargaining power.
The court in (Bank of Credit and Commerce International S.A. v. Aboody, 1992) categorized undue influence either a class 1 where there is actual undue influence, or class 2 where there is a presumed. In class 1, the facts of the case demonstrate that there was undue influence where the transaction ‘speaks’ by itself that there was improper pressure before it happened. In class 2, the undue influence is deemed to arise from an existing relationship where there was trust and confidence between the parties. It is from this relationship the claimant has to prove that the wrongdoer abused it in procuring the innocent party to accept the impugned transaction.
However, as this law was at risk of being misused, the Courts had to refine this rule otherwise it would have brought adverse economic effects especially where the wife would benefit from the loan or collude with a husband to secure the loan, and then assert that there was undue influence or misrepresentation to acquire the waiver of spousal interests. Therefore, the alternative was to bring the doctrine of notice which was explained in (Barclays Bank plc v O’Brien, 1994). The rules of notice were that a creditor is ‘put on inquiry’ whenever a wife consents to a surety of the husband's debts wherever there were two elements. (a) the impugned transaction would be of no benefit to the wife (b) the transaction carried substantial risk. The rules were set that if such a transaction comes to the face of the mortgagee, the should first investigate the quality of the wife’s consent. This rule also applied in cases of misrepresentation as it intends to acquire the consent in a non-legitimate manner.
However, this rule failed since banks could not investigate on sexual relationships between the borrower and the sureties. Therefore, these principles were again refined in (Royal Bank of Scotland plc v Etridge (No 2), 2002) which now stands as the current law. The rules set in Entridge were that for a motgage to stand, the following rules has to be met.
- The bank put on enquiry on the relationships to find whether there was undue influence.
- The bank took reasonable steps in informing the wife on the implications of the proposed transaction (provide legal advice to the wife either by the solicitor)
- The legal advice explained all the critical issues such as the consequences, choice of denying the transaction, face to face discussion with the wife without the precence of the husband.
- The bank should get the confirmation of the advice and check with the wife.
- The bank must provide the solicitor with all the essential information.
- Where the bank was suspicious of undue influence, it should inform the solicitor.
- The rules apply to all relationship that have trust and confidence.
On applying the facts discussed above, John and Jane are living as a husband and wife. The fact that they were living together as a couple means that they owned the matrimonial home jointly. From the ruling of (Lloyds Bank plc v Rosset, 1991) stated above, it is the arrangement created by the partners that determines the intention to share, and since John has even represented to the wife that they own it jointly, the Jane has a beneficial interest. Development in this rationale can also be deduced from the ruling of (Eves v Eves, 1975). In this case, the court ruled that the wife was entitled to beneficial interests of the home despite the fact that it was in the husband’s name. Also in (Grant v Edwards, 1986) the court had affirmed that the claimant had an entitlement of 50% which was her beneficial interest as per the constructive trust. Therefore, Jane had a beneficial interest in the matrimonial home whether her name was in the registry or not.
From the facts given, John acquired the loan for the business without informing his wife Jane and now the bank want to take the apartment since John was unable to repay the money. The rules stated in (Four-Maids Ltd v Dudley Marshall (Properties) Ltd, 1957) affirmed that the bank has a right to take possession of the property if the debtor was unable to pay the loan. This rationale was once held by the Singapore court in (Tan Soo Leng David v Lim Thian Chai Charles & Anor, 1998) where the court ruled that the mortgagee can take possession of the property and can decide to ratify a new lease or not. Again, this rationale was recently applied by the Singapore Court (United Overseas Bank Ltd vs Loh Boon Hua, 2015) where the court ruled that the mortgagee has a legal entitlement to enter into the vacant property and take possession when the mortgagor defaults. Even though the two cases concerned taking the possession of the property that is subject to the lease, the law does invalidate the right to take the possession. Therefore, John could not dispute the mortgagee’s rights to possession if he held the property exclusively.
However, there is problem since Jane has a beneficial interest as explained above. The two grounds in which Jane can resist the bank’s possession is through undue influence or misrepresentation. Like as discussed above, both of these vitiating factors have the same effect in law regarding the issue of mortgage. The same laws that apply to misrepresentation applies to undue influence as both involve acquiring invalid consent over the charge on the property.
Essentially, the entrance of any vitiating factors either undue influence or misrepresentation would lead to invalidation of the entire agreement thus making it unenforceable. To dispute possession, Jane should argue on the grounds of misrepresentation. In this case, burden of proof would be upon Jane to demonstrate that there was misrepresentation. In her proof, Jane only need to proof that they were married, and she had beneficial interest. On top of that, she would state that misrepresentation occurred where John either demonstrated to the bank that he had Jane’s consent, or he represented that he owned the home exclusively. In this way, the burden of proof would shift to the bank to prove that it applied the rules in (Royal Bank of Scotland plc v Etridge (No 2), 2002). On applying these rules, the bank would be required to prove that it took reasonable steps to informing Jane about the transaction, the legal advice explained all the repercussions of the transaction, and a confirmation that Jane received legal advice. Since none of these would be available, Jane would succeed in resisting the charge.
Jane would succeed in resisting the charge since she was not involved in providing her consent to discharge her beneficial interests.
The determination of this question would still require the application of the rules in (Royal Bank of Scotland plc v Etridge (No 2), 2002). Whether there was consent or not, the bank would need to prove that the wife acquired legal advice before signing, she exercised her own judgment, understood the repercussions of the transaction, a confirmation of the legal advice, bank enquiry from the wife, and face to face communication with the wife. If all these were done and the Jane gave her consent, it would be difficult for her to resist the charge.
The validity of the consent would depend on the efforts of the bank to discharge its liabilities, it they were discharged reasonably, Jane would not be able to resist the charge.
Aalberts, R. J. (2014). Real Estate Law (9th ed.). Stamford, USA: Cengage Learning.
Bank of Credit and Commerce International S.A. v. Aboody, 4 All ER 955 (1992).
Barclays Bank plc v O’Brien, 1 AC 180 (1994).
Chandler, A. (2015). Questions and Answers Law of Contract (10th ed.). UK: Oxford University Press.
Eves v Eves, 1 WLR 1338 (1975).
Four-Maids Ltd v Dudley Marshall (Properties) Ltd, Ch 317 (1957).
Grant v Edwards, Ch 638 (1986).
Lloyds Bank Ltd v Bundy, QB 326 (1975).
Lloyds Bank plc v Rosset, 1 AC 107 (1991).
McKendrick, E. (2017). Contract Law (12th ed.). UK: Macmillan International Higher Education.
Pesticcio v Huet, EWCA Civ 372 (2004).
Royal Bank of Scotland plc v Etridge (No 2), 2 AC 773 (2002).
Sexton, R., & Bogusz, B. (2011). Land Law. OUP Oxford.
Tan Soo Leng David v Lim Thian Chai Charles & Anor, 2 SLR 923 (1998).
Thompson, M. P., & George, M. (2017). Thompson’s Modern Land Law. Oxford University Press.
United Overseas Bank Ltd vs Loh Boon Hua, SGHCR9 (2015).
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