A house was mortgaged to a bank. The house was then let to tenants at an annual rate of pounds 1,000. The tenants were protected as against the mortgagor by the Rent Acts. The tenancy was not binding on the bank. The mortgagor’s wife took a transfer of the mortgage and sued for possession. The purpose of obtaining possession was not to enable the wife to sell in her capacity as transferee of the mortgage, but to enable her husband, the mortgagor, to do so.
Held: A tenant granted by a mortgagor in breach of his mortgage is estopped from denying the validity of the lease (or sublease) while his occupation thereunder remains undisturbed.
Bridge L said: ‘on the facts of this case it is as plain as a pikestaff that the purpose of the bringing of these proceedings via Mrs. Quennell is not for her own benefit to protect or enforce the security which she holds as the transferee of the legal charge but for the benefit of her husband as mortgagor to enable him to sell the property with the benefit of vacant possession. In substance she is suing as his agent.’
Templeman LJ said: ‘The estate, rights and powers of a mortgagee, however, are only vested in a mortgagee to protect his position as a mortgagee and to enable him to obtain repayment. Subject to this, the property belongs in equity to the mortgagor.’ and ‘In the present case it is clear from the facts and the evidence that the mortgagee, Mrs. Quennell, is not bona fide exercising her rights and powers for her own purposes as mortgagee but for the purpose of enabling the landlord mortgagor (her own husband) to repudiate his contractual obligations and defeat the statutory tenancy of the tenant which is binding on the landlord. Mrs. Quennell does not even pretend to be acting in her own interests as mortgagee. She brings this action to oblige her husband. In my judgment the court must therefore treat this action, although in form brought by a mortgagee, as an action brought for and on behalf of the landlord mortgagor.’
Lord Denning MR: ‘So the objective is plain. It was not to enforce the security or to obtain repayment or anything of that kind. It was in order to get possession of the house and to overcome the protection of the Rent Acts.’ and ‘So here in modern times equity can step in so as to prevent a mortgagee, or a transferee from him, from getting possession of [the property] contrary to the justice of the case. A mortgagee will be restrained from getting possession except when it is sought bona fide and reasonably for the purpose of enforcing a security and then only subject to such conditions as the court thinks fit to impose. When the bank itself or building society lends the money, then it may be right to allow the mortgagee to obtain possession when the borrower is in default. But so long as the interest is paid, and there is none outstanding, equity has ample power to restrain any unjust use of the right to possession.’
Judges:
Lord Denning MR, Bridge LJ, Templeman LJ
Citations:
[1979] 1 WLR 318, [1979] 1 All ER 568, [1978] EWCA Civ 1
Links:
Jurisdiction:
England and Wales
Cited by:
Cited – Abbey National Plc v Tufts CA 16-Feb-1999
A bankrupt husband, a mortgage broker, had applied for mortgage for his wife, fraudulently claiming that she had income. She appealed against an order for possession on the basis that he was agent of the bank, and that therefore the bank was fixed . .
Cited – Meretz Investments Nv and Another v ACP Ltd and others ChD 30-Jan-2006
The applicant challenged the exercise of a power of sale under a mortgage, saying that the mortgagee’s purposes included purposes not those under the mortgage. The parties had been involved in an attempted development of a penthouse.
Held: The . .
Cited – The Co-Operative Bank Plc v Phillips ChD 21-Aug-2014
The bank had brought possession proceedings against the defendant under two legal charges securing personal guarantees. The proceedings had been abandoned, but the court now was asked whether costs for the defendant should be on the standard or . .
Cited – Downsview Nominees Ltd and Another v First City Corporation Ltd and Another PC 19-Nov-1992
(New Zealand) The holder of a second debenture appointed receivers to the assets. The first debenture holder then also appointed receivers not to obtain repayment of its debt, but to disrupt the work of the first appointed receivers and in order to . .
Cited – Cukurova Finance International Ltd and Another v Alfa Telecom Turkey Ltd PC 30-Jan-2013
(British Virgin Islands) The claimant sought to recover shareholdings given in charge.
Held: There was an event of default, which entitled ATT to accelerate the loan and to appropriate – or forfeit – the charged shares, but that relief against . .
Lists of cited by and citing cases may be incomplete.
Landlord and Tenant, Equity, Land
Updated: 23 March 2022; Ref: scu.183103
