CIBC Mortgages Plc v Pitt and Another

JurisdictionUK Non-devolved
JudgeLord Slynn of Hadley,Lord Templeman,Lord Lowry,Lord Browne-Wilkinson,Lord Woolf
Judgment Date21 October 1993
CourtHouse of Lords
Date21 October 1993
CIBC Mortgages Plc
Pitt and Another (A.P.)

[1993] UKHL J1021-2

Lord Templeman

Lord Lowry

Lord Browne-Wilkinson

Lord Slynn

Lord Woolf

House of Lords

Lord Templeman

My Lords,


For the reasons to be given by my noble and learned friend Lord Browne-Wilkinson I would dismiss the appeal.

Lord Lowry

My Lords,


I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Browne-Wilkinson. I agree with it and for the reasons he gives I too would dismiss this appeal.

Lord Browne-Wilkinson

My Lords,


In these proceedings the appellant defendant. Mrs. Pitt, seeks to resist an application by the respondent plaintiff, CIBC Mortgages Plc., claiming possession of No. 26 Alexander Avenue, Willesden, London NW10. The plaintiff claims possession under a legal charge dated 31 July 1986 whereby Mrs. Pitt and her husband Mr. Pitt charged the property to secure a loan of £150,000 made to them jointly by the plaintiff. Mrs. Pitt claims that the plaintiff cannot enforce the legal charge because she was induced to execute it by the misrepresentations and undue influence of her husband. The trial judge, Mr. Recorder Davies, held against Mrs. Pitt and ordered possession of the house to be given to the plaintiff. The Court of Appeal (Neill and Peter Gibson L.JJ.) dismissed her appeal. Mrs. Pitt appeals to your Lordships' House.


Mr. Pitt is 52 and Mrs. Pitt is 50. They have been married since 1964 and have two adult daughters, both of whom still live with them at 26 Alexander Avenue. That house has been the matrimonial home since 1970. It was originally purchased in Mr. Pitt's sole name, but in 1978, after Mrs. Pitt raised objection, the house was put into their joint names. In 1986 the house was valued at £270,000, the only encumbrance on it being a mortgage in favour of a building society for £16,700.


In 1986 Mr. Pitt told Mrs. Pitt that he would like to borrow some money on the security of the house and to use the loan to buy shares on the stock market. He did not say what he wanted to do with the shares but he did say that he and Mrs. Pitt would have a better standard of living. Mrs. Pitt was not happy about this suggestion and made her feelings known to her husband. As a result he embarked on a course of conduct putting pressure on Mrs. Pitt which the trial judge held amounted to actual undue influence. In consequence, Mrs. Pitt agreed to the suggestion.


Mr. Pitt was put in touch with the plaintiff and an application for a loan was signed by both Mr. and Mrs. Pitt. The application form named both Mr. and Mrs. Pitt as the applicants for a loan of £150,000 for a period of 20 years, the purpose of the loan being expressed to be "proposed purchase of holiday home." Their income was stated to be £100,000 per annum. The transaction was said to be a remortgage, the intention being to pay off the existing mortgage. Immediately above the space for the applicants' signatures, the printed form contained a declaration, amongst other things, that the information given in the application was true to the best of the applicants' knowledge and belief. Mrs. Pitt did not read any of the pages of the application which had been filled in by somebody else: she did see the first and last pages.


On 6 June 1986 a written offer of mortgage was made by the plaintiff addressed to Mr. and Mrs. Pitt. It offered a loan of £150,000 for 19 years secured on 26 Alexander Avenue and also on a policy of assurance to be effected by Mr. Pitt on his life. The purpose of the loan was expressed to be "remortgage." The offer also stated:

"It is understood that the proceeds of this advance are to be used to purchase a second property without the applicants resorting to any additional borrowing. Any more borrowing or change of use must be notified to the bank immediately."


It was not a condition that any property purchased with the borrowed moneys should be charged to the plaintiff. Mr. and Mrs. Pitt signed the mortgage offer to indicate their acceptance, but Mrs. Pitt did not read it before signing.


The solicitors acting for Mr. and Mrs. Pitt on the transaction were the plaintiff's solicitors. On 31 July 1986 the legal charge was executed. It was in standard form whereby Mr. and Mrs. Pitt borrowed £150,000 for 19 years and charged 26 Alexander Avenue by way of first legal mortgage. Mrs. Pitt signed the legal charge but did not read it. By another legal charge executed by Mr. and Mrs. Pitt on the same day a life policy on Mr. Pitt's life was charged to the plaintiff: again Mrs. Pitt did not read it. At no stage did Mrs. Pitt receive any separate advice about the transaction nor did anyone suggest that she should do so. She did not know the amount that was being borrowed.


The plaintiff paid the advance of £150,000 to the solicitors who were acting for all parties. They redeemed the existing mortgage to the building society on 26 Alexander Avenue and then paid over the balance of the loan. £133,165,04, by cheque drawn in favour of both Mr. and Mrs. Pitt. The money was paid into their joint account.


Mr. Pitt applied the borrowed moneys to buy shares, apparently in his own name. On 9 October 1986 Mr. Pitt charged any securities he had then deposited or thereafter deposited in favour of the Union Bank of Switzerland. It appears that he never liquidated any part of his holding and that he was charging securities he had bought with the moneys borrowed from the plaintiff in order to borrow more moneys to buy more shares. For a time, he was highly successful with his investments in that at one stage he was a millionaire on paper. In October 1987 the Stock Market crashed, his creditor banks sold the securities charged to them and Mr. Pitt found himself in arrears in paying what was due under the charge. That, in due course, led to the commencement of these proceedings on 20 December 1990. An order for possession was obtained against both Mr. and Mrs. Pitt but that order was set aside as against Mrs. Pitt who alleged that the legal charge had been procured by the undue influence and misrepresentation of Mr. Pitt and should be set aside. At the time of the trial in July 1992, the total sum owing under the legal charge was nearly £219,000, which apparently exceeded the value of 26 Alexander Avenue.


At the trial, Mrs. Pitt alleged, first, that she had been induced to enter into the legal charge by Mr. Pitt falsely representing to her that the borrowed moneys were to be used to finance the purchase of shares to be held for capital appreciation and income, whereas his actual intention was to use the shares so acquired as collateral for further borrowings to purchase yet more shares. Mrs. Pitt further alleged that she entered into the charge because of the undue influence of Mr. Pitt, that she had not understood the nature of the obligation she was undertaking or the amount involved and that, since Mr. Pitt had acted as the agent of the plaintiff, the charge should be set aside as against the plaintiff. The plaintiff, in addition to denying the claims made by Mrs. Pitt, contended that the transaction was not manifestly disadvantageous to Mrs. Pitt and that, following National Westminster Bank Plc. v. Morgan [1985] A.C.686, the claim based on undue influence could not succeed. The trial judge held (1) that Mrs. Pitt had not established any misrepresentation made to her by Mr. Pitt; (2) that Mr. Pitt had exercised actual undue influence on Mrs. Pitt to procure her agreement; (3) that the transaction was manifestly disadvantageous to her and (4) that Mr. Pitt had not acted as the agent of the plaintiff.


On those findings of fact, the judge approached the case in accordance with the decision of the Court of Appeal in Barclays Bank Plc. v. O'Brien [1993] Q.B. 109, on the appeal from which decision your Lordships have just delivered judgment. It will be recalled that in the O'Brien case, the Court of Appeal detected two possible approaches which might be adopted by the court when approaching the validity of a surety obligation undertaken by a wife to secure her husband's indebtedness. The first "road" required a finding that the husband had procured the wife's agreement by undue influence or misrepresentation and a finding either that the husband had acted as agent for the creditor or that the creditor had knowledge of the relevant facts. The second, alternative, "road" involved the recognition of a special equity whereby the security obligation entered into by the wife would be unenforceable by the creditor if (1) the relationship of husband and wife was known to the creditor; (2) the wife's consent had been obtained by misrepresentation or undue influence of the husband or the wife in some other way lacked an adequate understanding of the nature and effect of the transaction and (3) the creditor had failed to take reasonable steps to try to ensure that the wife "had an adequate understanding of the nature and effect of the transaction and that the transaction was a true and informed one."


The trial judge, faced with a difference of view and approach in authorities binding upon him, sensibly reached his conclusion on both the possible "roads." As to the first road, having found that Mrs. Pitt had been induced to enter into the transaction by the actual undue influence of Mr. Pitt but that Mr. Pitt was not the plaintiffs agent, the claim failed as against the plaintiff. As to the second road, he held that it was only applicable to cases where a wife stands as surety for her husband's debt and did not apply to a case, such as the present, where there was a joint advance to both husband and wife by way of a loan. The Court of Appeal dismissed Mrs. Pitt's appeal on two grounds. First, they reversed the judge's decision on the question whether the transaction was manifestly disadvantageous to Mrs. Pitt and held that, since...

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