Coldunell Ltd v Gallon

This is an appeal from an order made by His Honour Judge McManus in the Horsham County Court on 25th May 1985 setting aside a legal charge dated 26th February 1982 and made between the first defendant (to whom it will be convenient to refer as "the father") of the first part, his son, William Gallon ("the son") as surety, of the second part and the plaintiff company of the third part. The charge was expressed to secure repayment within six months of its date of a principal sum of £20,000 with interest at the rate of 20% per annum, which sum was charged upon the father's bungalow at 24 Blanches Road, Partridge Green, West Sussex, where he and his wife, the second defendant (to whom I shall refer as "the mother") lived. The father is a retired compositor entitled to a small pension from his employment in addition to his state retirement pension and the bungalow represented substantially his only capital asset. He was born in May 1896 and at the material time was 86 years of age. The mother was 91.

The action was one in which the plaintiffs sought against the father payment of the principal and interest and against both father and mother possession of the premises. Happily there is no longer any issue as to possession, because the property was sold by agreement before the date of the trial and the old couple were accommodated elsewhere. The property is currently represented by a sum of £32,000 standing in the joint names of the solicitors to the parties, the amount outstanding under the charge at the date of sale being some £30,619 principal and accrued interest.

Nothing turns on the terms of the charge nor is there any dispute that it was executed by the father. Equally, it is not in dispute that at the same time as the father executed the charge, the mother signed a form of consent agreeing to the charge being created and postponing her interest to that of the chargee. Both signatures were witnessed by a solicitor who was present for that purpose.

The defendant's defence to the action was twofold, that it to say, first that the transaction was one which was procured by the undue influence of the son over the father and that that taint on the transaction equally affected the plaintiffs; and secondly that the bargain was an extortionate bargain within the meaning of ss.137 and 138 of the Consumer Credit Act 1974.

The case is a sad one of elderly parents being persuaded to charge their home to secure money raised for the benefit of a son who was much better educated and versed in business than they were, who undertook to discharge what was intended to be a purely temporary accommodation and who let them down almost immediately by failing to make the interest payments. In fact only four payments of some £333 were made before there was a total default.

The matter arose in this way. The son was a man of about 50, a good deal more sophisticated than his parents. He had been to grammar school, had some insurance-broking experience, and engaged in various business activities here and abroad, as a result of which he needed money urgently, apparently to finance some legal proceedings in which he or some associate of his was involved on the continent.

At Christmas 1981 the father unwisely offered to help him, although it does not appear that at that time there was any discussion about how that was to be done. However, in February 1982, the son approached the plaintiffs, who are licensed moneylenders, with a proposal that they should lend a sum of £20,000 not to the son himself but to the father on the security of the father's house. Mr. Dunsden, the plaintiffs' managing director, told him the plaintiffs' terms, that is to say a first charge on the house and interest at 20%. The son represented that the facility would be required for a short period only—some 2 to 3 months. Mr. Dunsden did not insist on a survey. He motored round, took a look at the property and thought that, given a first charge, it would be adequate security for a short-term loan. It will be necessary to look at his evidence a little more closely later on in this judgment.

There is no doubt that Mr. Dunsden knew that the loan was being made in order to enable the money to be advanced to the son and he expected repayment to be made by the son. He made no enquiries about the father's age, circumstances or income, but simply referred the matter to the plaintiffs' solicitors for them to prepare a form of charge, get in touch with the father and make the necessary arrangements for completion.

The plaintiffs' solicitors were Reginald Johnson & Co of Hayes, whose senior partner, Mr. Twycross, caused to be prepared a form of charge for execution by the father and a form of consent for execution by the mother. His evidence was that these were sent separately under cover of two letters, to which I shall refer in a moment.

Mr. Dunsden must presumably have told the son the name and address of the plaintiffs' solicitors because it is quite clear from Mr. Twycross's evidence that, before the transaction was completed, the son called at his office at least once and probably twice. Moreover, on 16th February 1982, he caused to be prepared a letter to the solicitors which purported to bear the father's signature, authorising them to make the necessary searches in relation to the property, although it did not refer to the registered title number. The judge accepted that this letter was not in fact signed by the father. There is, however, no doubt that it was received by the solicitors, who duly made the necessary searches. How they came to ascertain the registered title number never appeared, but it may have been ascertained by reference to the map at the Land Registry. There was in evidence a further letter dated 16th February 1982, under the letterhead of a company—presumably a company in which the son was interested—purporting to assign to the father certain cattle (which, according to the father's evidence, was in fact non-existent)

"in consideration of your agreement to allow Mr. W.H. Gallon…..to secure a loan of £20,000 with collateral provided by means of a first charge in favour of the Lender".

This is useful evidence of the true nature of the transaction and of the son's intention to deceive his father, but in fact the father denied receiving it at the time—though it clearly came into his possession later on—and the judge found as a fact that he did not receive it.

Following a title search the solicitors prepared a form of charge and a form of consent to be signed by the mother, and Mr. Twycross's evidence (to which I shall have to refer in a little more detail later) was that these were sent to the father and the mother separately under cover of two letters addressed to them respectively at the property and dated 19th February 1982.

The letter addressed to the father was in the following terms:

"re: Legal Charge—Coldunell Finance Limited We enclose herewith the Legal Charge in favour of our Clients, Coldunell Finance Limited, together with a copy for your use.

If you are satisfied with the terms thereof this matter can be completed at short notice.

The document needs to be signed and if you will make a convenient appointment we will arrange for our Clients to put us in funds so that we can hand you a cheque in exchange for the signed document.

We should point out that we cannot advise you in relation to this document and you should seek separate legal advice on the matter before completing it.

The document also requires signing by Mr. W.H. Gallon as Surety.

We take this opportunity of sending a note of our charges which will be deducted from the advance".

The letter to the mother was in these terms:

"Dear Madam,

re: Legal Charge—Coldunell Finance Limited

In relation to the Charge of the above property we enclose herewith Form of Consent which should be signed by you after you have consulted your Solicitors as to the contents thereof. Your signature should be witnessed by a Solicitor.

Yours faithfully",

The form of consent referred to recited the proposed advance to the father and recorded that the mother (referred to as "the occupier") consented to the advance and postponed any interest which she might have in the property to the interest of the charges. It concluded:

"The Occupier confirms:—

• a. that the effect of this form of consent has been explained

• b. that the occupier has been advised on the right to have independent legal advice on its effect".

The judge found as a fact that neither of these letters was ever received by the father or the mother and that the first occasion upon which either of them saw the documents said to be enclosed with the letters was on 23rd February 1982. That appears in fact to have been the date of the next development—I say "appears" because there was some confusion in the father's evidence about whether it was the 23rd or 24th.

It seems that an appointment had been made...