Mortgage Fraud 101 | The Companies Act and Unfair Terms

Section 44 of the Companies Act 2006 compels all companies in the United Kingdom to adhere to the following provisions for the valid execution of documents:

(1) Under the law of England and Wales or Northern Ireland a document is executed by a company—(a) by the affixing of its common seal, or (b) by signature in accordance with the following provisions.

(2) A document is validly executed by a company if it is signed on behalf of the company— (a) by two authorised signatories, or (b) by a director of the company in the presence of a witness who attests the signature. […]

(4) A document signed in accordance with subsection (2) and expressed in whatever words, to be executed by the company, has the same effect as if executed under the common seal of the company.

The legal effect of the statute is that documents and deeds must be signed on behalf of the company by a director in the presence of a witness, or by two authorised signatories.

Without adherence to these provisions, no mortgage contracts can be considered validly executed by a company and their terms are therefore legally unenforceable.

This was clearly affirmed when the Court of Appeal endorsed the view of Lewison J in the case of Williams v Redcard Ltd [2011]:

“For a document to be executed by a company, it must either bear the company’s seal, or it must comply with s.44 (4) in order to take effect as if it had been executed under seal.

Subsection (4) requires that the document must not only be made on behalf of the company by complying with one of the two alternative requirements for signature in s.44 (2): it must also be “expressed, in whatever words, to be executed by the company.

That means that the document must purport to have been signed by persons held out as authorised signatories and held out to be signing on the company’s behalf. It must be apparent from the face of the document that the people signing it are doing something more than signing it on the company’s behalf.

It must be apparent that they are signing it on the company’s behalf in such a way that the document is to be treated as having been executed “by” the company for the purposes of subsection (4), and not merely by an agent “for” the company.”

Unfair Terms in Consumer Contracts Regulations 1999

Section 5 of the Unfair Terms in Consumer Contracts Regulations 1999 prescribes the circumstances in which a term in a contract is legally unenforceable:

5 (1) A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.

(2) A term shall always be regarded as not having been individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term. […]

(5) Schedule 2 to these Regulations contains an indicative and non-exhaustive list of the terms which may be regarded as unfair.

The 1999 Regulations apply to unfair terms in contracts concluded between a seller or a supplier and a consumer.

Moreover, the Regulations apply to contracts relating to land.

The 1999 Regulations Apply To All Mortgage Contracts

Mortgages are therefore caught by the 1999 Regulations, since they are entered into between a seller/supplier and a consumer, in relation to contractual terms which have not been individually negotiated.

A seller or supplier means any natural or legal person who, in contracts covered by the Regulations, is acting for purposes relating to his trade, business or profession.

For the purposes of these regulations, consumer means any natural person acting for purposes outside his trade, business or profession.

Since virtually all mortgagors are acting as natural persons acting outside of their trade, business or profession, by participating, whether knowingly or unknowingly, in the business of banking and mortgage-backed securities, the 1999 Regulations apply to the charges which arose from any purported mortgage contract with a mortgagee.

Furthermore, on the basis that none of the terms and conditions relied upon by UK mortgagees are individually negotiated, prior to the the execution of the purported mortgage contract, there is a compelling case for arguing that:

All of those terms are rendered legally unenforceable by the 1999 Regulations.

Director General of Fair Trading v First National Bank

In Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [2002] 1 AC 481 at 494, [2001] 2 All ER (Comm) 1000, Lord Bingham of Cornhill referred to the 1999 Regulations in these terms:

“. . . The requirement of significant imbalance is met if a term is so weighted in favour of the supplier as to tilt the parties’ rights and obligations under the contract significantly in his favour. This may be by granting to the supplier of a beneficial option or power, or by the imposing on the consumer of a disadvantageous burden or risk or duty […]

The requirement of good faith in this context is one of fair and open dealing. Openness requires that the terms should be expressed fully, clearly and legibly, containing no concealed pitfalls or traps. Appropriate prominence should be given to terms which might operate disadvantageously to the customer.

Fair dealing requires that a supplier should not, whether deliberately or unconsciously, take advantage of the consumer’s necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract, weak bargaining position, or any other factor listed in or analogous to those listed in Schedule 2 to the Regulations . . .

It looks to good standards of commercial morality and practice.”

Lord Cornhill’s judgment therefore comprises an affirmation of the point made in the forgoing passages:

None of the Standard Mortgage Conditions relied upon by UK mortgagees meet the legally required standards of commercial morality and practice.