Q. What happens when a lender mistakenly releases its security over real property?
A. It can pursue the borrowers for repayment of money had and received
In a recent case, the Bank of Scotland provided mortgage finance to enable a father to buy a property for his three children the three defendants. He subsequently raised additional finance from the bank, used in part to discharge the earlier loan, with interest payments being paid by direct debit from the third defendants account, to which the first defendant was a signatory.
The bank mistakenly thought that the security was discharged and released the title deeds to the first defendant (the second and third defendants having left the country), and the Land Registry, on instruction, also released the charge certificate. The first defendant sold the property and utilised the net proceeds. The direct debit payments ceased and upon realising the mistake, the bank sought repayment of the total indebtedness.
The first defendant raised three defences (i) undue influence by her father, (ii) estoppel and (iii) release.
David Donaldson QC, sitting as a Deputy Judge of the High Court allowed the claim and rejected the defences. In particular, in respect of the defence of release given that the first defendant had not provided any consideration to the bank, it could not be said that the bank had released her from the debt.
Bank of Scotland v Nassarpour  All ER (D) 314 (Oct)
Ch D (David Donaldson QC)
27 October 2005
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