Equity & Law Home Loans Ltd v Prestidge

A beneficial interest arising from a common intention may be subject from its inception to a mortgage which the parties intended would finance the property's acquisition. The beneficiary's imputed consent can extend to a replacement mortgage, despite the beneficiary's lack of knowledge, where the substitution does not worsen the beneficiary's position.

If the replacement mortgage secures a larger advance, it takes priority only so far as the original encumbrance, including applicable interest. The excess does not gain priority merely because it forms part of the replacement charge. This priority reflects the limited nature of the beneficial interest itself. It does not depend upon the mortgagee overriding a pre-existing equity as a purchaser without notice.

Mrs Brown contributed nearly one quarter of the purchase price of a home conveyed into Mr Prestidge's sole name. The balance was funded by a £30,000 mortgage to Britannia Building Society, which she knew about and supported. Mr Prestidge later refinanced the property with Equity & Law Home Loans Ltd without her knowledge. The replacement advance exceeded the amount required to redeem the original mortgage.

The Truro County Court held that Mrs Brown's beneficial interest ranked behind the replacement mortgage to the extent of the original advance and accrued interest. It made a possession order and limited enforcement of the security accordingly. Mrs Brown appealed.

The central issue was whether her imputed consent to the acquisition mortgage extended to a replacement mortgage and, if so, to what amount.

1. Appeal dismissed unanimously. Mustill LJ delivered the leading judgment. Butler-Sloss and Mann LJJ agreed.

2. As between Mrs Brown and Mr Prestidge, the court proceeded on the uncontested basis that she held the entire beneficial interest. The original Britannia mortgage nevertheless had priority because the purchase could not have occurred without that finance and she had consented to the creation of the encumbrance.

3. The reasoning in Bristol & West Building Society v Henning [1985] 2 All ER 606 applied to a replacement mortgage. The intention imputed to the parties was that a mortgage created to finance the purchase should have priority over the beneficial interest. That consent extended to a substituted encumbrance on no less favourable terms, even where the beneficiary neither knew of nor expressly authorised the refinancing, provided that the substitution did not worsen her position.

4. A supposed moment between redemption of the original mortgage and attachment of the replacement mortgage did not free the beneficial interest from the encumbrance. Giving effect to that technical argument would conflict with the broad equitable reasoning in Henning.

5. Where a replacement mortgage secured more than the original debt, priority extended only as far as the consent properly imputed to the beneficiary. Equity & Law therefore had priority for the amount corresponding to the original mortgage, together with interest, but not for the excess advance. The Recorder's limited possession and enforcement order was correct.

6. The priority did not depend upon Equity & Law establishing that it was a purchaser without notice which defeated Mrs Brown's equity. Her beneficial interest was limited from its inception by an anticipated recognition of the rights of the mortgagee whose finance enabled the acquisition.

7. Mustill LJ also rejected the contention that Equity & Law's failure to investigate indications of Mrs Brown's occupation or interest created a duty of care capable of altering the consequences of her original imputed consent.

1. Court of Appeal: The appeal was dismissed unanimously. The limited possession and enforcement order made by the Recorder was upheld. Leave to appeal to the House of Lords was refused.

2. Truro County Court: The Recorder gave judgment for Equity & Law and ordered possession. Enforcement against the sale proceeds was limited to the equivalent of the original mortgage advance of £29,918.40, together with accrued interest.