Chapter 13 Audio podcast: Clarifying the effect of undue influence on mortgages

One key issue that we encounter in the law of mortgages is the effect of undue influence on mortgages. You'll be familiar with undue influence from the law of contract. And here, we're not concerned with how you prove undue influence--you'll see that discussed in the text book, and generally students engage very well with those issues. The issue here--and I want to take a moment to consider--is what is the effect of undue influences, undue influence, on mortgages? In other words, what is the impact on a mortgage if you have proven undue influence exists, that the bank is on inquiry, and that the bank has not taken the reasonable etridge steps.

Well, there are three possible outcomes. The first is that the mortgage may be set aside in its entirety; the authority for this is TSB v Camfield. If the court considers that the mortgage is so tainted by undue influence that no part of it can be saved, then the court will of course move to set aside the mortgage in its entirety. Now, of course this is fair to the innocent party who escapes any liability. But the lender loses its security. And equally, the wrongdoer--the undue influencer--also escapes liability under the mortgage, and, in that sense, it’s considered unfair.

This is why other avenues--other options--have developed. The first for us to consider is taken from the case of Barclays Bank v Caplan. If it is possible for the court to isolate a particular part, or parts, of the mortgage, as being tainted by undue influence, the court may move to sever those tainted parts, leaving the remaining mortgage intact. Of course, that's only if they can identify which aspects are tainted and if they can easily sever those aspects.

This leads us to our final option to consider when thinking about the effect of undue influence on a mortgage, and this is the authority of First National Bank v Acheampong; this only applies when it's a joint legal mortgage. But under the authority of Acheampong the court may conclude that the mortgage is set aside against the innocent party but that the lender enjoys an equitable charge, an equitable mortgage, against the wrongdoer, the undue influencer. Of course, this allows the innocent party to escape liability, yet the wrongdoer is still bound under this equitable mortgage. And equally, it ensures that the lender has a charge, has someone against whom it can pursue legal action to recover its debt. It can realise its charge, its security interests, against the wrongdoing party and ultimately sell that property.

You'll find all of these different issues discussed in the relevant chapter on mortgages in the book, but I hope this is clarified for you the effect of undue influence on mortgages.