Banfield & Anor v Leeds Building Society

A mortgage indemnity guarantee or insurance policy taken out for a lender’s benefit does not reduce the borrower’s debt when the guarantor or insurer pays the lender. The borrower cannot require the lender to account for that payment, even where the borrower paid the premium.

Where mortgage terms make the debt immediately payable after the specified default, sufficient arrears establish the mortgagee’s cause of action for possession. A possible claim concerning assigned security does not defeat that cause of action where the evidence shows that arrears remain.

The appellants appealed against possession and money orders made by His Honour Judge Cowell in the Central London County Court. The proceedings concerned arrears under an endowment mortgage secured on the appellants’ home.

The appeal raised three questions: whether mortgage guarantees had to be credited against the debt; whether the mortgage was an endowment or repayment mortgage; and whether the lender’s failure to surrender a second assigned endowment policy in 1996 affected the possession claim. Revised calculations showed that arrears would have remained even if the policy proceeds had been credited in 1996.

1. Appeal dismissed. The possession order and associated money and costs orders were upheld.
2. The borrowers were not entitled to credit for sums recoverable by the Society under the mortgage guarantees. Section 28 of the Building Societies Act 1962 required notice of security taken from a person other than the borrower and, without notice, permitted the court to reopen the transaction. It did not give the borrowers a right to claim the guarantee proceeds. Whether the arrangement was insurance or guarantee depended on its terms and surrounding circumstances, but in either case the borrowers could not require an account from the lender for the guarantor’s or insurer’s payment.
3. The judge was entitled to find that the parties agreed an endowment mortgage. The documents, viewed objectively, supported that conclusion. Later alterations to the application form were consistent with the transaction, and errors in the legal charge and stated initial interest did not alter its character. It remained an endowment mortgage until November 1996, when it became a capital-and-interest repayment mortgage.
4. The Society’s failure to surrender the second policy was unsatisfactory, but the revised figures showed that crediting its assumed May 1996 surrender value would still have left arrears of £1,372.28, representing about 3.5 months’ arrears, when proceedings began in November 2005. The borrowers’ alternative calculations did not displace the trial judge’s accepted evidence.
5. Because sufficient arrears remained, the Society’s cause of action had accrued under the mortgage terms. The wider questions whether the Society was liable for failing to surrender the policy, and whether resulting damage could disentitle it from seeking possession, did not arise.

• Court of Appeal (Civil Division) [2007] EWCA Civ 1369: appeal dismissed. Lord Justice Lawrence Collins gave the judgment, with Lord Justice Thomas and Lord Justice Longmore agreeing.
• Central London County Court: His Honour Judge Cowell gave judgment on 22 December 2006 and made further orders on 9 February 2007 for payment, possession and costs. The appeal was from those orders.