Secured loan discharge with moneys borrowed from different lender on same security - new lender's security voidable ab initio for undue influence - new lender entitled to be subrogated to original charge

UCB Group Ltd v Hedworth: CA (Lords Justice Kennedy, Jonathan Parker and Longmore): 4 December 2003

The defendant charged her properties to the claimant bank as security for a loan granted to her and her husband, a solicitor, in order to discharge a previous charge on the same properties given to another lender to secure a loan to cover the husband's personal loans.

After the husband had been convicted of misappropriating his client's moneys, the claimant sought possession of the properties.

The defendant counterclaimed to set aside the claimant's charge on the grounds of her husband's misrepre-sentation and undue influence.

The claimant contended that it had no notice of the misrepresentation or undue influence and that, since its money had been used to discharge the original charge, it was entitled to be subrogated to the original charge.

The judge made an order for possession against the defendant.

She appealed.

The defendant in person; Mark Wonnacott (instructed by Halliwell Landau, Manchester) for UCB.

Held, dismissing the appeal, that where a lender, having bargained for a valid security to replace an existing security, received only a security which was voidable from its inception he did not obtain all that he had bargained for, and the court could apply equitable principles to declare that the lender ought to be taken to have intended to retain and keep alive any security rights to which he had been entitled in the absence of an effective replacement security; and that, by parity of reasoning, although the claimant's security being voidable ab initio was by definition unenforceable from its inception as against the defendant, the claimant was entitled to be subrogated to the original lender's rights against the defendant's properties.