The Mortgage Corporation Ltd v Shaire (2000)


On a mortgagee's application for an order for sale, s.15 Trusts of Land and Appointment of Trustees Act 1996 specified the factors to be considered by the court in the exercise of its discretion. Accordingly, the interests of secured creditors were just one factor to be considered; such interests were not distinguished as priority interests.


Consolidated proceedings in two actions in which the claimant mortgage company ('TMC') sought possession of a house occupied by the defendant, Mrs Shaire ('S'), and damages against two firms of solicitors in respect of the mortgage executed against the property. The issues between TMC and the solicitors had been adjourned by agreement. The house was bought by S and her husband ('H') in 1976 for #18,750 with an Abbey National mortgage in joint names, and #3,750 from other sources. H left the house in 1980, continuing to provide S with the funds to make the Abbey National mortgage repayments. In 1986, S started a relationship with a new partner ('F'), who moved into the house. On 6 March 1987, a transfer of the house was executed by S and H to S and F. This transfer was made pursuant to a consent order, made in divorce proceedings, providing that H transferred all of his interests in the house to S and F (the trusts were not declared) in consideration of #15,000 and dismissal of all financial claims in the divorce. S and F mortgaged the house to the Chase Manhattan Bank for #43,750, to pay-off H and the Abbey National. The payments due under the Chase mortgage were all provided by F, who died, insolvent, in 1992. It was then found that F had forged S's signature on a number of documents of which she previously had no knowledge, including: (a) a further charge on the house dated 25 August 1988 in favour of First National Bank securing #52,439; and (b) a charge on the house dated 17 January 1990 in favour of TMC, securing #118,000. The #118,000 was used to pay-off the Chase and First National Bank mortgages, the balance of the money being retained by F. S and her adult son still lived in the house and wanted to remain there. The issues for the court were: (i) whether S was bound by the TMC mortgage on the grounds of agency or estoppel; (ii) S's percentage share of the house (ie 50 per cent or 75 per cent); (iii) the respective interests in the house of TMC and S; and (iv) whether the court was required to make an order for sale and, if not, what order should be made.


(1) The case against S, whether put in terms of authority or estoppel, had not been made out and she was not bound by the TMC mortgage. (2) The authorities relevant to the determination of the respective beneficial interests of two persons who were living in a house together, either as man and wife or in a close relationship, were: Lloyds Bank plc v Rossett (1991) AC 107; Goodman v Gallant (1986) 2 WLR 236; Midland Bank v Cooke & Anor (1995) 4 All ER 562; Stokes v Anderson (1991) 1 FLR 391. (3) Before 1986/7 S and H shared the beneficial interest in equal proportions. (4) As between S and F, there was no express agreement, nor anything that could fairly be construed as an express agreement, as to how the beneficial interest was shared. (5) The arguments in favour of S having 75 per cent of the beneficial interest in the house were compelling, given the circumstances of the transfer and of the divorce. (6) It was agreed that the TMC mortgage was valid as against F's share and was therefore valid against his estate's interest in the house. Given that F's estate was effectively insolvent, TMC was the owner of the 25 per cent beneficial interest in the house previously owned by F. While the TMC mortgage was not binding on S, TMC was subrogated to the Chase mortgage in relation to S's 75 per cent share considering that the monies secured by the TMC mortgage were used to pay-off the Chase mortgage. The extent of the subrogation was 75 per cent of the Chase mortgage, as S had 75 per cent of the equity in the house. (7) The Trusts of Land and Appointment of Trustees Act 1996 had established a code to be followed by the courts on a chargee's application for an order for sale. In that code the interest of a chargee was given the same importance as the interests of children residing in the house (s.15(1)(c) and (d)). Nothing in the code supported a presumption that the court should order sale (as presumed under the old law). Parliament now considered that a different approach was appropriate in the case where one of the co-owners was bankrupt (In re Citro, Domenico (A Bankrupt) : In re Citro, Carmine (A Bankrupt) (1990) 3 WLR 880) and a case where one of the co-owners had charged his interest (Lloyds Bank plc v Byrne & Byrne (1991) FLR 369): compare s.15(2) and 15(3) of the Act with s.15(4) and the new s.35A Insolvency Act 1986. Together with academic and judicial comment and the Law Commission's proposals, this pointed strongly to the conclusion that s.15 of the Act had changed the law, tipping the balance more in favour of families, and against banks and other chargees. The judge disagreed with the suggestion to the contrary by HH Judge Wroath in TSB plc v Marshall (1998) 3 EGLR 100. (8) Earlier authorities should be treated with caution, in light of the change in the law. (9) Section 15(3) of the Act applied to any application not falling within s.15(2), and given that the present application fell within s.15(1), s.15(3) applied. (10) Applying the Act's principles to the case, the judge concluded that it would be right to refuse to make an order for sale if: (a) TMC could be protected by sorting out the equitable interest providing for a proper return and ensuring that the house was repaired and insured; and (b) S could really pay a proper return. This was primarily because S had a valid interest in remaining in the house and had a 75 per cent interest in it, and TMC was ultimately in the business of lending money on property in return for being paid interest.

Judgment accordingly. S awarded 50 per cent of her costs.