Possession - first charge paid off by loan from third lender - third lender, although unable to be registered as legal chargee due to opposition second chargee, entitled to be subrogated to first chargee

Cheltenham & Gloucester plc v Appleyard and Another: CA (Lord Phillips of Worth Matravers Master of the Rolls, Lords Justice Kennedy and Neuberger): 15 March 2004

The defendants bought a property with a mortgage registered as a first charge.

Later a further loan was obtained secured on the property by a second charge which provided that no further charges were to be registered against the property without the second chargee's consent.

The defendants took a loan from the claimant, with which the solicitor acting for both the defendants and the claimant paid off both prior loans.

The second chargee went into liquidation on the day the payment was made and refused to acknowledge receipt or to agree to the registration of the claimant's mortgage.

In the first possession action a suspended order was made.

In a second possession action the claimant succeeded on preliminary issues in establishing its claim to be subrogated to the first chargee and therefore entitled to possession.

The defendants appealed.

Adrian Davies (instructed by Fenwick & Co) for the defendants; Andrew Sutcliffe QC and David Gilchrist (instructed by Parker Bullen, Salisbury) for the claimant.

Held, dismissing the appeal, that the equitable remedy of subrogation was aimed primarily at preventing or reversing unjust enrichment and was flexible; that at the time when the prior loans were paid off the claimant became entitled to be subrogated to the first chargee; and that the claimant thereby stood in the first chargee's shoes to the extent of the value of the first chargee's loan at the date it was paid off with interest.