Transactions were entered into under which loans were made to enable the borrower to acquire and develop certain properties were held to be unenforceable under the 1927 Act. The effect was to enrich the borrower, who had fallen into arrears of payments of interest and moneys due but was successful in his defence that all the transactions including those which provided security rights to the creditor were unenforceable.
Held: While the Acts were designed to protect unsophisticated borrowers from being overreached by unscrupulous moneylenders, they were capable of being used by unscrupulous borrowers to avoid paying their just debts to moneylenders. Whether a remedy in subrogation to redress the unjust enrichment might be available was considered, but it was not open to the court to mitigate the harshness to the moneylender and the undeserved enrichment of the borrower which had resulted from the technical failure to observe the provisions of the Act.
Lord Diplock stated the principle in relation to such provisions as follows: ‘Agreements or securities that are unenforceable are not devoid of all legal effect. Payments made voluntarily pursuant to their terms are not recoverable and I regard it as open to question whether the unenforceability of a higher ranking security which is not void ab initio excludes the doctrine of the merger in it of a lower ranking security in respect of the same charge, at any rate when the higher ranking security remains potentially enforceable in the hands of an assignee.’
As to subrogation: ‘It is a convenient way of describing a transfer of rights from one person to another, without assignment or assent of the person from whom the rights are transferred and which takes place by operation of law in a whole variety of widely different circumstances.’ and as an example ‘One of the sets of circumstances in which a right of subrogation arises is when a liability of a borrower B to an existing creditor C secured on the property of B is discharged out of moneys provided by the lender L and paid to C either by L himself at B’s request and on B’s behalf or directly by B pursuant to his agreement with L. In these circumstances L is prima facie entitled to be treated as if he were the transferee of the benefit of C’s security on the property to the extent that the moneys lent by L to B were applied to the discharge of B’s liability to C. This subrogation of L to the security upon the property of B is based upon the presumed mutual intentions of L and B; in other words where a contract of loan provides that moneys lent by L to B are to be applied in discharging a liability of B to C secured on property, it is an implied term of that contract that L is to be subrogated to C’s security.’
As to unjust enrichment, Lord Diplock said: ‘My Lords, there is no general doctrine of unjust enrichment recognised in English law. What it does is to provide specific remedies in particular cases of what might be classified as unjust enrichment in a legal system that is based upon the civil law. There are some circumstances in which the remedy takes the form of ‘subrogation’, but this expression embraces more than a single concept in English law. It is a convenient way of describing a transfer of rights from one person to another, without assignment or assent of the person from whom the rights are transferred and which takes place by operation of law in a whole variety of widely different circumstances. Some rights by subrogation are contractual in their origin, as in the case of contracts of insurance. Others, such as the right of an innocent lender to recover from a company moneys borrowed ultra vires to the extent that these have been expended on discharging the company’s lawful debts, are in no way based on contract and appear to defeat classification except as an empirical remedy to prevent a particular kind of unjust enrichment.’
Lord Salmon said: ‘The test as to whether the courts will apply the doctrine of subrogation to the facts of any particular case is entirely empirical. It is, I think, impossible to formulate any narrower principle than that the doctrine will be applied only when the courts are satisfied that reason and justice demand that it should be.’
Lords Diplock, Salmon and Keith
[1978] AC 95, [1977] 3 All ER 1
Moneylenders Act 1927 6 13(1)
England and Wales
Cited by:
Cited – Wilson v Secretary of State for Trade and Industry; Wilson v First County Trust Ltd (No 2) HL 10-Jul-2003
The respondent appealed against a finding that the provision which made a loan agreement completely invalid for lack of compliance with the 1974 Act was itself invalid under the Human Rights Act since it deprived the respondent of its property . .
Cited – Castle Phillips Finance v Piddington CA 1995
The wife charged the matrimonial home to Lloyds to secure the husband’s indebtedness. The husband subsequently agreed with Barclays for the indebtedness to be refinanced. The husband and an accomplice forged her signature on a transfer of the . .
Cited – Dimond v Lovell HL 12-May-2000
A claimant sought as part of her damages for the cost of hiring a care whilst her own was off the road after an accident caused by the defendant. She agreed with a hire company to hire a car, but payment was delayed until the claim was settled.
Applied – Cheltenham and Gloucester Plc v Appleyard and Another CA 15-Mar-2004
The owners had purchased their property with a loan from the BBBS. A charge was then given to BCCI, which charge said no further charge could be registered without BCCI ‘s consent. The C and G agreed to lend a sum to refinance the entire borrowings, . .
Cited – Boscawen and Others v Bajwa and Others; Abbey National Plc v Boscawen and Others CA 10-Apr-1995
The defendant had charged his property to the Halifax. Abbey supplied funds to secure its discharge, but its own charge was not registered. It sought to take advantage of the Halifax’s charge which had still not been removed.
Held: A mortgagee . .
Cited – McGuffick v The Royal Bank of Scotland Plc ComC 6-Oct-2009
Requirements for Enforcing Consumer Loan Agreement
The claimant challenged the validity of a loan agreement with his bank as a regulated consumer credit agreement. After default, the lender failed to satisfy a request for a copy of the agreement under section 77. The bank said that though it could . .
Cited – Bankers Trust Company v Namdar and Namdar CA 14-Feb-1997
The bank sought repayment of its loan and possession of the defendants’ property. The second defendant said that the charge had only her forged signature.
Held: Non-compliance with section 2 of the 1989 Act does not make a bargain illegal, and . .
Cited – Bank of Cyprus UK Ltd v Menelaou SC 4-Nov-2015
The bank customers, now appellants, redeemed a mortgage over their property, and the property was transferred to family members, who in turn borrowed from the same lender. A bank employee simply changed the name on the mortgage. This was ineffective . .
Lists of cited by and citing cases may be incomplete.
Consumer, Financial Services, Equity
Leading Case
Updated: 01 November 2021; Ref: scu.184428
