First National Bank plc v Achampong [2003] EWCA Civ 487

Facts

• The case concerned a mortgage over co-owned property, with only one co-owner guaranteeing the loan.
• The lender, First National Bank plc, sought to enforce its security interest after default on loan payments.
• The defendant co-owners included both the borrowing party and a non-borrowing party.
• The guarantor agreed to repay the loan if the main borrower defaulted, but was also a co-owner of the property.

Issues

1. Whether a secured creditor could enforce a mortgage against the entire co-owned property when only one co-owner guaranteed the loan.
2. To what extent the lender could claim against the interests of non-borrowing co-owners.
3. The scope of a guarantor’s liability and whether the lender must first attempt to recover from the main borrower before seeking payment from the guarantor’s property share.

Decision

• The Court of Appeal held the lender could enforce the mortgage only against the guarantor’s (borrowing co-owner's) share of the property, not the interests of non-borrowing co-owners.
• Lenders must separate joint and individual responsibilities in cases involving co-owned property.
• The lender can seek payment from the guarantor’s share only after attempting to recover from the primary borrower.
• The interests of non-borrowing co-owners are protected and cannot be unfairly affected by another co-owner’s default.

Legal Principles

• A secured creditor’s interest attaches to the named property and is limited to the defaulting (borrowing) co-owner’s share where the charge is not over the entire property.
• Guarantors are only secondarily liable, and a lender must first pursue remedies against the principal debtor.
• Non-borrowing co-owners are shielded from enforcement unless they are parties to the mortgage.
• Mortgage agreements over co-owned property must reflect the intent to charge all shares, or else recovery is restricted to the borrower’s portion.
• Principles from cases such as Williams & Glyn's Bank Ltd v Boland [1981] AC 487 and City of London Building Society v Flegg [1988] AC 54 support protection of non-borrowing co-owners.

Conclusion

The Court of Appeal clarified that secured creditors may enforce their rights only against the borrowing co-owner’s share in co-owned property and must exhaust remedies against primary borrowers before proceeding against guarantors, thereby safeguarding non-borrowing co-owners and upholding the principle of secondary liability for guarantors.