In this recent case, a son transferred his mother’s home into his and her joint names and then obtained a mortgage for £120,000 after telling his mum it was only for £31,250. Payments weren’t maintained and the bank sought possession.

The court decided the mortgage should be set aside because of undue influence and that the mortgage therefore could not be enforced against the mother, provided she repaid the sum of £31,250 she had thought the mortgage was for.

However, the bank was granted an equitable charge over the son’s half share beneficial interest. The mother appealed against this finding. Her stated position was that she had never intended her son to have any beneficial interest in the property. She had been deprived of that half share of the property by his fraudulent actions and it was unreasonable for the bank to still have its claim over that part of the subjects.

The Appeal Court expressed sympathy with the position in which Mrs Fletcher found herself but it did not agree with her arguments, finding the bank’s position reasonable.

The court helpfully reminded us of the well-established principle that where a legal mortgage is over jointly held property by two parties, and the legal mortgage is set aside on the application of one party, the lender may still have an equitable charge over the beneficial interest of the other party. This results from the application of section 63 of the Law of Property Act 1925 and has been confirmed in previous cases such as First National Bank v Achampong and Edwards v Lloyds TSB Bank Plc.

In this matter, this principle meant that the only question was whether the son did in fact have a beneficial interest in the property. The court found that Mrs Fletcher had intended to put the property into joint names and understood at the time of advance that there would be a mortgage to secure borrowing, albeit of a different amount to what her son then drew down. Her son therefore did have a beneficial interest and that the bank was entitled to enforce its equitable charge.

One final and important legal point for lenders is that the Court of Appeal in this mater declined to find that there was a burden on the bank to establish a right to bar rescission in these circumstances. This finding was somewhat specific to the facts of the matter but may be helpful in future cases to establish where the burden of proof lies on parties as regards certain specific elements of a claim or response.