The bank took a mortgage over a company title unit. Usually a mortgage of company title is achieved by the borrower signing and depositing with the lender a transfer of shares. The security documents signed by the borrowers indicated that they would do this. However for reasons unknown the bank failed to obtain a signed transfer and was forced to approach the court.
The bank argued that the borrower’s obligations were secured by an equitable mortgage. The Court agreed noting that:
An equitable mortgage will arise where there is an agreement between mortgagor and mortgagee to create a mortgage. That was plainly the effect of the Mortgage and Charge. The document recited that the Borrowers would lodge a signed transfer with the Bank, and authorised the Bank when exercising its rights of sale to complete the transfer and deliver it to a purchaser. No signed transfer was provided by the Borrowers. The loan was drawn down in full. In those circumstances, an equitable mortgage arose on execution of the Mortgage and Charge.
The court held that the bank was a secured creditor and that they were entitled to have vacant possession and to sell the shares.