Secured Residential Funding Plc v Douglas Goldberg Hendeles & Co

A loan contract and the mortgage securing it are legally distinct transactions. Where a lender has performed its loan contract by transferring funds to solicitors, a subsequent payment completing the purchase does not change the date or identity of the lender.

Ratification is available only where the purported agent acted, at the relevant time, on behalf of the person said to ratify the act. A mistake in the documentation cannot itself establish that the actor intentionally purported to act for that person. Legal mechanisms such as rectification, rescission and estoppel address mistaken transactions. A mortgage registered in the wrong lender’s name may confer the legal estate, but it cannot secure a debt owing to that lender.

The claimant mortgage company brought professional-negligence proceedings against the defendant solicitors. Two preliminary issues were ordered: whether the solicitors owed the claimant a duty of care, and whether an advance made by an associated company was made on the claimant’s behalf or by that company as principal.

The deputy High Court judge found for the claimant on duty of care but held that the advance had been made by the associated company as principal. The latter conclusion required dismissal of the action. The claimant appealed on the agency issue, and the solicitors cross-appealed on duty of care. The central issue was whether the advance could retrospectively be treated as made on the claimant’s behalf by ratification.

1. The appeal was dismissed with costs. The cross-appeal concerning duty of care was moot because the claimant had suffered no recoverable loss on the agency issue. Permission to appeal to the House of Lords was refused.
2. The advance was made on 29 June 1989, when the associated company transferred the funds to the solicitors’ client account. That company had already entered into a contract with the borrower as principal and, by transferring the money, performed its contractual obligation. The later remittance of the purchase price on 30 June did not constitute the making of the loan.
3. The loan contract was legally distinct from the mortgage. The claimant could not rely on the mortgage documentation, mistakenly sent in its name, to establish that the advance had been made by or for it. The mortgage deed’s covenant secured monies payable to the claimant, but no such debt was owed to the claimant.
4. Under Keighley Maxted & Co v Durrant [1901] AC 240, ratification requires the relevant act to have been done by a person purporting to act on behalf of the alleged principal. The transfer of funds was expressly accepted to have been made by the associated company as principal, not as agent, and was therefore incapable of later ratification.
5. A mistake cannot be used to supply the necessary intention to act on another’s behalf. Agency depends on what the actor purported, intentionally, to do. The mistaken mortgage documents and subsequent acts therefore did not create an agency act capable of ratification. The claimant obtained a legal estate as registered mortgagee, but the borrower was entitled to redeem because no debt owing to the claimant was secured by the charge.

• Court of Appeal (Civil Division): dismissed the appeal with costs. The cross-appeal on duty of care was moot. The decision under appeal was the deputy High Court judge’s determination of two preliminary issues on 29 July 1999.