National Westminster Bank Plc v Morgan

JurisdictionUK Non-devolved
JudgeLord Scarman,Lord Keith of Kinkel,Lord Roskill,Lord Bridge of Harwich,Lord Brandon of Oakbrook
Judgment Date07 March 1985
Judgment citation (vLex)[1985] UKHL J0307-1
Date07 March 1985
CourtHouse of Lords
National Westminster Bank Plc
Morgan (A.P.)

[1985] UKHL J0307-1

Lord Scarman

Lord Keith of Kinkel

Lord Roskill

Lord Bridge of Harwich

Lord Brandon of Oakbrook

House of Lords

Lord Scarman

My Lords,


The appellant, the National Westminster Bank Plc., seeks against Mrs. Janet Morgan, the respondent in the appeal, an order for the possession of a dwelling-house in Taunton. The house is Mrs. Morgan's family home. She acquired it jointly with her husband, and since his death on 9 December 1982 has been the sole owner. The bank relies on a charge by way of legal mortgage given by her and her husband to secure a loan granted to them by the bank. The manner in which Mrs. Morgan came to give this charge is at the heart of the case. The only defence to the bank's action with which your Lordships are concerned is Mrs. Morgan's plea that she was induced to execute the charge by the exercise of undue influence on the part of the bank. The bank, she says, procured the charge by bringing to bear undue influence upon her at an interview at home which Mr. Barrow, the bank manager, sought and obtained in early February 1978.


The action was heard in the Bridgwater County Court in November 1982. The deputy judge, Mr. C. S. Rawlins, delivered a careful judgment in which after a full review of the facts he rejected the defence of undue influence and made the possession order sought by the bank. He also rejected Mrs. Morgan's counterclaim for equitable relief.


Mrs. Morgan appealed. The Court of Appeal reversed the judge, dismissed the bank's claim, and granted Mrs. Morgan relief in the shape of a declaration that the legal charge was not a good and subsisting charge.


The bank appeals with the leave of the House. Two issues are said to arise: the first, the substantive issue, is whether Mrs. Morgan has established a case of undue influence: the second, said to be procedural, is whether, if she has, she ought properly to be granted equitable relief, and the nature of any such relief. The two issues are, in truth, no more than different aspects of one fundamental question: has Mrs. Morgan established a case for equitable relief? For there is no longer any suggestion that she has a remedy at law. Unless the transaction can be set aside on the ground of undue influence, it is unimpeachable. The House is not concerned with the claim for damages for negligence raised by Mrs. Morgan in her counterclaim but not pursued by her in the Court of Appeal: nor has any case of misrepresentation been advanced.


In the appeal the bank invites the House to review the decision of the Court of Appeal in Lloyd's Bank Ltd. v. Bundy [1975] Q.B. 326. The case, it would appear, has been widely misunderstood - though not, I hasten to add, by the judges of our courts. The majority of the court in that case addressed themselves to its very special facts and held that the customer's banking transaction (a legal charge on the home, as in this case) was procured by undue influence exercised by the bank manager: but Lord Denning preferred to base his judgment on inequality of bargaining power. Because this difference of approach may have led to some confusion, I have no doubt that the House should accede to the bank's invitation. Whether the bank is correct in its submission that the majority decision was wrong in law is, however, another matter, to which I shall return later in my speech.


The facts of the case


There is no dispute as to the primary facts: they were agreed by counsel in the county court. Mr. and Mrs. Morgan bought the house on 17 September 1974 with the assistance of two loans secured by a first and a second mortgage. The first was a charge by way of legal mortgage to the Abbey National Building Society to secure a loan of £12,800: the second was a legal charge to an investment company to secure a loan of £4,200. The total of £17,000 thus borrowed almost certainly approximated at the time to the value of the property: and the consequence of the two loans was to saddle the property with a burden of debt, the servicing of which was to cause Mr. Morgan great difficulty. The mortgage repayments soon fell into arrears.


Mr. Morgan was in business as an earth-moving contractor, a business which he conducted first through a company, Highbell Ltd., and later through a company named D. A. Morgan Contracts Ltd. The business was under-capitalised and subject to alarming fluctuations of fortune. Highbell ceased to trade in July 1975.


Between 1975 and 1977 Mr. Morgan banked at the Basingstoke branch of the National Westminster, though he and his family were living at Taunton. He was frequently in overdraft upon his personal account, so that Basingstoke asked the North Street, Taunton branch to try to collect what was due. On at least six occasions Mr. Barrow, the North Street manager, visited the Morgan house in an attempt to collect the debt. Certainly on one occasion he had a discussion with Mrs. Morgan when she told him that the house was on the market and that the debt would be repaid. The trial judge found as a fact that during this period Mrs. Morgan's relationship with the bank was a business one, that the family was in financial difficulty, and that husband and wife were concerned about their inability to maintain the mortgage repayments.


In June 1977 Mr. Morgan put a proposal to Basingstoke: it was to borrow from the bank sufficient to pay off the second mortgage, and to set up a new company (D. A. Morgan Contracts Ltd.) which he declared to have a rosy future.


The bank agreed subject to a legal charge to be given by both owners of the property, i.e. by Mrs. Morgan as well as Mr. Morgan. The bank suggested, very wisely and fairly, that Mrs. Morgan should take legal advice, which she did and for which the bank paid. The advice was that the amount to be secured should be limited to £6,000: and the bank accepted the limit.


A few days later (end of June 1977) the bank discovered that a possession order in respect of the house had been made by a court in favour of the second mortgagee. The trial judge found that Mrs. Morgan knew of this order when she executed the legal charge in favour of the bank.


The bank now had second thoughts. In the result it did not make the loan to Mr. Morgan, who was rescued by the generosity of his father who paid off the second mortgagee. The charge to secure £6,000 stood, however; and it continued as a support for the husband's borrowing, subject to the limit demanded and obtained by Mrs. Morgan. During these unhappy events husband and wife were, the judge found, desperately anxious not to lose their home.


In October 1977 a crisis arose on the first mortgage. The Abbey National warned the bank that they were starting proceedings for possession in default of payment of mortgage instalments. On 19 October 1977 Mr. Morgan transferred his personal account (in overdraft £588) to North Street. The Abbey National began their proceedings, alleging a debt of over £13,000. On 12 December 1977 Mrs. Morgan transferred her account to North Street. From this date onward the Morgans' banking transactions were with Mr. Barrow, the North Street manager.


A bank rescue operation was decided upon by Mr. and Mrs. Morgan, if they could arrange it. On 30 January 1978 Mr. Morgan asked the bank "to re-finance" the Abbey National loan. By this time the society had obtained a possession order. Mr. Morgan told the bank that all he needed was a bridging loan of £14,500 for some five weeks. If the bank would pay off the society, he would arrange for the bank's repayment by his company, which it would appear was currently in a prosperous phase and had, it was then believed, good prospects.


The bank accepted the proposal upon the recommendation of Mr. Barrow. He was informed of the approval by his area office by letter of 31 January 1978 in these terms:

"D. A. A. Morgan and another: In reply to your letter of 30 January 1978 the following limit has been granted: £14,500 on current account to 7.3.78 on the short term bridging basis submitted, subject to completion of a new unlimited legal mortgage on NWB 1016 over Crossmoor Meadow to replace the existing limited second mortgage."


The "existing limited second mortgage" was the 1977 legal charge limited to £6,000. In place of it Mr. Barrow was being instructed to obtain an unlimited mortgage to secure a loan limited to £14,500. There was considerable discussion by counsel as to the true meaning of this approval. But it is really quite simple: the debt to be secured was the loan of a sum which Abbey National required to be paid if they were to call off their proceedings for possession and to discharge their mortgage: the security for the loan limited to £14,500 was to be a mortgage without express limit. The document of approval sent by the area office and quoted above limited the mortgage to the Abbey National debt and did not authorise Mr. Barrow to use the security to support any other lending transaction.


On 1 February 1978 Mr. and Mrs. Morgan signed an authority to the bank to pay off the Abbey National and to charge Mr. Morgan's personal account. The bank, however, required the mortgage to secure the loan to be in joint names (the property being in joint ownership). Between 3 and 6 February a joint account was opened. The details of the transaction were these. In the first week of February the debit of £14,207.22 was transferred from Mr. Morgan's personal account to the joint account, being the sum which the bank had paid to the Abbey National, and Mr. and Mrs. Morgan signed the legal charge, which is the transaction which Mrs. Morgan seeks in these proceedings to have declared null and void on the ground that it was procured by the bank's exercise of undue influence upon her. The charge bears the date 8 March 1978: no point arises on the discrepancy...

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