Witnessing a mortgage: traps for the unwary?

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Given the realities of a post-COVID world and the greater focus on due execution, a High Court decision handed down at the end of last year is a useful reminder of the law surrounding the execution of deeds by individuals. As such, it merits a closer look.

Wood v Commercial First Business is primarily a case about brokers' secret commissions and unfair relationships under the Consumer Credit Act (1974). However, secondary claims – which are the subject of this article – concerned forgery, the due execution of mortgage deeds and undue influence.

Facts

Mrs Wood (W) was a buffalo farmer, producing mozzarella cheese and selling this to a restaurant chain. To develop her business, she needed to raise capital, to be collateralised by her two farm properties.

On 26 May 2006, Commercial First Business Limited (C) lent W £1,020,000 secured by a mortgage over one of her properties, Higher Alham Farm, in Somerset. This was followed by a second loan agreement between C as lender and W as borrower, for £1,427,320 and dated 12 July 2007. This too was a secured loan, but this time utilising W's second property, Dean Street Farm.

W fell into arrears with scheduled repayments, and C made demand under the two facilities. Possession proceedings were brought in connection with Dean Street Farm and Higher Alham Farm in May and July 2008, respectively.

W disputed the possession proceedings, challenging the validity and enforceability of both mortgages. She alleged that:

The mortgage over Dean Street Farm was a forgery.
The mortgage over Higher Alham Farm had not been attested properly.
C did not accept applications from borrowers directly – these had to come from a mortgage broker or other intermediary. W alleged that she had entered into the mortgages as a result of the undue influence of the brokers involved, UK Mortgage and Financial Services Ltd.

Judgment

Forgery

The burden of proof was on W to show that the mortgage over Dean Street Farm, which appeared to have been signed by her, was not in fact signed by her.

The evidence of a graphologist was sought, a single joint expert for both parties. He advised that there was "very strong" evidence that the signature on this mortgage was W's.

Furthermore, Pickering J made the point that some nine mortgages had been signed by W during a short space of time. It might have been more plausible that W positively remembered signing the document. Her case that she remembered not signing it was less compelling, particularly given that the events in question took place 12 or 13 years ago.

This claim was unsuccessful.

Lack of attestation

The mortgage deed over Higher Alham Farm was signed by W in the presence of a mortgage broker, Mr Holder. W accepted this, and she also accepted the fact that the broker appeared to have witnessed her signature.

However, W said that it was Mr Holder's practice to persuade her to sign documents in his presence; and then to leave, signing as witness subsequently. In other words, he signed the deed as a witness afterwards.

W argued that in order for the deed to have been validly executed, the following needed to be satisfied:

the person executing the deed must have signed in the presence of a witness
the witness must have attested that signature
the witness must have so attested in the presence of the person executing the deed.

Under s1(3) Law of Property (Miscellaneous Provisions) Act 1989:

"An instrument is validly executed as a deed by an individual if, and only if –

(a) it is signed

(i) By him in the presence of a witness who attests the signature; or

(ii) At his direction and in his presence and the presence of two witnesses who each attest the signature; and

(b)It is delivered as a deed."

The Judge made the point that there was no requirement in s 1(3) for the witness to attest in the presence of the person signing the deed.

The claim regarding lack of due attestation was therefore dismissed.

Undue influence

W asserted that the mortgage brokers exerted undue influence and/or abused her confidence, and that as a result, she agreed to sign the mortgages. She sought equitable relief.

The leading authority on undue influence is Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773.

The Judge took the view that these "serious allegations of impropriety" were not made out. He was also influenced by the fact that:

W had solicitors acting for her
she continued to use these mortgage brokers over a prolonged time period – over years. This seemed to be a mark of favour.

Comment

As an aside, it's worth noting that COVID-19 and social distancing rules have provoked changes to laws regarding the witnessing of documents in two key areas:

Wills may now be witnessed remotely (subject to certain procedural requirements)
As of 27 July 2020, the Land Registry has been accepting electronic signatures for deeds. Where a witness is required, it remains the case that they will need to be physically present.

Frances Elizabeth Wood v Commercial First Business Limited (in Liquidation) (1) Business Mortgage Finance 5 PLC (2) Business Mortgage Finance 7 PLC [2019] EWHC 2205 (Ch)