The High Court decision in Rutherford v BNZ serves as a
warning for lenders offering mortgages over jointly owned
property. Where a loan is given to a husband customer and
secured over jointly owned property, a lender cannot rely on a
solicitor's certificate where the lender was arguably put
on inquiry to the possibility that the wife's solicitors
did not know the full extent of the risk secured by the
Mrs Rutherford (wife) and her husband entered into an all
obligations mortgage in favour of the bank over their jointly
owned home. Unbeknown to the wife or her solicitors, her
husband had also simultaneously arranged a further credit
facility for his business, secured in part by the mortgage. The
same bank manager handled both loans, but different solicitors
handled the security documentation for the home loan and the
company loan. The bank failed to tell the wife's solicitors
of her husband's associated credit arrangements.
When the business defaulted and the bank sought to exercise
its power of sale over the jointly owned home, the wife
objected. She claimed it would be inequitable for the bank to
take the full benefit of the mortgage due to its actual or
constructive knowledge of the undue influence exercised by her
husband. The bank applied for summary judgment on the basis
that the wife's undue influence claim had no chance of
success. The bank claimed it was the wife's solicitors who
erred by failing to give proper advice. The wife argued that
the bank was not entitled to rely on the solicitor's
certificate as, in giving instructions to the solicitors
concerned, the bank failed to appraise them of the extent of
the risk their client was facing.
The High Court declined to enter summary judgment for the
bank and found that the wife had made out an arguable claim for
undue influence on the part of the husband. The Court took into
account the limited commercial ability of the wife, that she
did not stand to gain from the transaction and a relationship
of dependency. The Court found it was arguable that the bank
would have been aware that the company loan was being driven
solely by the husband and concluded that the bank was put on
inquiry as to the risk of undue influence.
Obtaining A Valid Mortgage
The Rutherford case is a reminder that a bank must take
steps to ensure that all parties to a mortgage are aware of the
full extent of the risk secured by the mortgage. In most
circumstances, this will be satisfied by ensuring that the
spouse or de facto partner obtains independent legal advice as
to the nature and effect of the transaction. This will require
that the solicitor providing the independent advice is provided
with full details of the facilities to be secured under the
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