Misrepresentation in Mortgages - Land Law

This article discusses the issue of misrepresentation in mortgages in land law. It explains the rules of legal and beneficial ownership, security interest, and the vitiating factors of misrepresentation and undue influence. It also applies these rules to a case study and discusses the impact of consent on the validity of the charge.

Running head: LAND LAW
Land Law
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Misrepresentation in Mortgages
Issue
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.
Rule
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

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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.

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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.

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(a) The bank put on enquiry on the relationships to find whether there was undue
influence.
(b) 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)
(c) 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.
(d) The bank should get the confirmation of the advice and check with the wife.
(e) The bank must provide the solicitor with all the essential information.
(f) Where the bank was suspicious of undue influence, it should inform the solicitor.
(g) The rules apply to all relationship that have trust and confidence.
Application
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.

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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

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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.
Conclusion
Jane would succeed in resisting the charge since she was not involved in providing her
consent to discharge her beneficial interests.
Question 2: Would your answer be any different if Jane had in fact provided consent to the
mortgage of the apartment to the bank?
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.
Conclusion
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.

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References
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).