Mrs Fletcher appealed against the decision of Mr Recorder Gardner QC in the County Court at Plymouth. In that decision, the judge set aside a mortgage in favour of Santander against Mrs Fletcher on the grounds of undue influence. However, the judge was unable to set aside the mortgage against the joint mortgagor, Mr Fletcher (Mrs Fletcher’s son). As such, his equitable share in the property was subject to an equitable charge in favour of Santander, with the consequence that the house could be sold and half of the proceeds used to satisfy the debt.
Facts
On 24 November 2011, Mrs Fletcher made her son a joint owner of her home. When executing the TR1 form, Mrs Fletcher ticked the box at section 10, which declared that they were to hold the property on trust for themselves as joint tenants. On the same day she executed the TR1 form Mrs Fletcher also signed a statement produced by Mr Fletcher, representing that he wanted to raise an Enterprise Finance Loan of £125,000 under a government scheme, and that he required 25% (£31,250) to be secured on the property. The statement also made reference to his name having been put on the deeds of the property, and that the loan would be paid off within one month.
On 15 December 2011 a mortgage application was made to Santander in the names of both Mr and Mrs Fletcher. A mortgage offer was made, and completion took place on 16 January 2012. The sum advanced by the bank was in fact £120,995. The sum was advanced to Mr Fletcher’s sole bank account.
The sum remained unpaid and proceedings were started. At trial the debt stood at around £160,000 and was increasing. Mr Fletcher was convicted of fraud prior to the proceedings brought by Santander.
County Court
It was accepted in the County Court that the mortgage had been procured through undue influence exerted by Mr Fletcher, of which Santander had sufficient notice. Therefore, the mortgage could be set aside as against Mrs Fletcher, provided she paid the sum she had thought the mortgage was for (£31,250).
However, notwithstanding the judge’s finding of undue influence, Mrs Fletcher was still at risk of losing her home. The TR1 form executed by Mrs Fletcher granted Mr Fletcher an equitable interest in the property. At the time of the transfer, that interest took effect as a joint tenancy. By obtaining the mortgage through undue influence Mr Fletcher severed his share of the joint tenancy, and held a 50% share in the property as a tenant in common (Stack v Dowden [2007] UKHL 17). Santander held an equitable charge over Mr Fletcher’s severed beneficial interest (First National Bank v Achampong [2003] EWCA Civ 487; Edwards v Lloyd’s TSB [2004] EWHC 1745 (Ch); Law of Property Act 1925, s63), and the property could be sold and half of the sale proceeds used to satisfy the outstanding debt.
Appeal
Mrs Fletcher appealed to the High Court. She sought a declaration that Mr Fletcher did not have a beneficial interest in the property, and that consequently Santander had no right to seek possession and sale of the property. Birss J dismissed the appeal.
In order to argue that Mr Fletcher did not have a beneficial interest in the property, Mrs Fletcher had to attack the TR1 form that purported to grant that interest, as opposed to attacking the mortgage itself. Her argument is summarised at paragraph 6 of the judgment. Essentially, Mrs Fletcher argued that, as equitable relief was sought, evidence of her subjective intentions regarding the ownership of the property should be considered, and that the wording of the TR1 form should not be conclusive. According to Mrs Fletcher, her intention was not for Mr Fletcher to have a beneficial interest, and that the property should revert to her as sole owner once the loan was paid off. She also argued that it would be unconscionable for the bank to rely on the declaration of trust in the TR1 form as evidence of her intentions; Santander’s claim was through Mr Fletcher, and since he could not conscionably enforce those rights as a result of procuring the TR1 through fraud, neither could Santander.
Birss J took the view that, even if Mrs Fletcher’s intentions were as she submitted, they could only support an action founded on unilateral mistake, which would give her a claim for rescission, or to set aside or rectify the declaration of trust. As such, the declaration of trust was voidable, and not void. Furthermore, as Santander had relied on the declaration of trust to acquire rights in the property, rescission would be barred unless Santander had notice of the right to rescind. Birss J held that Santander did not have any such notice; whilst they had notice of undue influence with regard to the mortgage, the declaration of trust was a separate and earlier matter, and was not a transaction to which Santander was a party. In any event, Birss J doubted that Mrs Fletcher would have been successful in a claim for unilateral mistake.
Finally, there was no basis on which it could be found that the TR1 had been procured by fraudulent means, and the issue had not been explored at trial. Therefore, whilst the mortgage deed could be impugned for fraud, the same could not be said of the TR1. Consequently, it was not unconscionable for Santander to rely on the declaration of trust in the TR1 form.
Note
It is impossible not to sympathise with Mrs Fletcher and the position in which she found herself. In particular, Mrs Fletcher could be forgiven for feeling aggrieved at the decision that the TR1 and mortgage deed were two singular issues that fell for separate consideration. Santander first produced a mortgage illustration on 22 November 2011, but the transfer into the joint names of Mr and Mrs Fletcher did not occur until 24 November. Mr Fletcher also had Mrs Fletcher sign the pre-prepared statement detailing Mr Fletcher’s need to secure a £31,250 loan on the property on the same day as she signed the TR1 form. For Mrs Fletcher, these events are most likely inextricably linked, and form one large transaction tainted by the fraud of her son. Mrs Fletcher may also look to other areas of land law and ask why it is permissible in those instances to roll two transactions into a single issue, and why that was not allowed in her case (see, for example, the ‘part and parcel’ approach to the correction of mistakes on the land register in Knights Construction (March) Ltd v Roberto Mac [2011] EGLR 123).
However, notwithstanding any feeling that the two transactions are linked, Birss J was right to hold that they should be treated separately. Santander was not a party to the TR1, and the short passage of time between the conveyance of the property into joint names and the mortgage alerted the bank to the possibility of undue influence in the mortgage transaction, not that there was a fraud or mistake on the TR1.
If the two transactions were rolled into one, Birss J would probably have been criticised for manipulating settled legal principles in the pursuit of a remedy for Mrs Fletcher. Whilst there may have been a sense of justice at the outcome, it is well known that hard cases often make bad law; an awkward precedent would have been set, and it is unlikely that it would withstand the test of time.
Ultimately, Mrs Fletcher’s story reminds those entering into conveyances of land to obtain legal advice before doing so. Any competent conveyancing solicitor would have informed Mrs Fletcher of the effect of the declaration made in the TR1 and the consequences if her son defaulted on the loan. In fact, the consequences of the declaration of trust and Mr Fletcher’s default on the loan were so clear in principle that counsel for Mrs Fletcher abandoned the ground of appeal upon which permission to appeal was originally granted (whether the declaration of trust would properly convey to a layman that the property would be held in equal shares). In the face of such clarity of the legal effect of the TR1 form, Mrs Fletcher faced an insurmountable hurdle in arguing unilateral mistake, and that her true intentions were not represented by the document.
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