Case law: Where a contract incorporates standard terms, the contract and terms must be consistent
Parties to a contract which incorporates one party's standard terms must make sure the contract and terms are consistent and can be fairly and sensibly read together - or risk the court finding that inconsistent provisions will not apply
This update was published in Legal Alert - November 2016
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An individual took out a buy-to-let tracker mortgage by accepting a formal offer made by a mortgage company as set out in the Offer letter. The mortgage was for 25 years. The interest rate was fixed for the first two years, and after that the Offer said the rate payable would be 1.99 per cent above the Bank of England base rate.
The Offer said that the bank's standard conditions applied, but that if there was an inconsistency between the standard conditions and the Offer, the Offer terms would prevail.
The mortgage company later increased the interest rate to 3.99 per cent over the Bank of England base rate. It relied on terms in its standard conditions which said it could increase the variable rate of interest for any reason, including to reflect market conditions generally.
The borrower argued that the common understanding of a tracker mortgage was a mortgage under which the interest payable would only change if the Bank of England base rate changed. Describing his mortgage as a tracker mortgage in the Offer therefore meant that the additional rate over and above the Bank of England base rate – the 1.99 per cent rate - was not variable. The clauses in the standard conditions which purported to allow the lender to vary the 1.99 per cent interest rate were therefore inconsistent with the Offer – the Offer and terms could not fairly and sensibly be read together (taking into account reasonableness and business common sense) - and therefore did not apply.
The Court of Appeal agreed with the borrower's understanding of a tracker mortgage. It ruled that:
- the Offer had clearly indicated the interest rate payable and had given no indication that the 1.99 per cent element of the rate could be changed
- this interest rate was an integral part of the description of the product, and if the standard conditions allowed the mortgage company to change the interest rate for a reason other than a change in the Bank of England base rate, that would be giving it the power to provide a completely different product
The relevant clauses in the standard conditions were therefore inconsistent with the Offer and did not apply.
The same reasoning would apply to any contract, not just mortgages.
- Parties to a contract which incorporates one party's standard terms must make sure the contract and terms are consistent (ie that they can be fairly and sensibly read together), or risk the court finding that inconsistent provisions in one of them do not apply
Case ref: Alexander (as representative of the "Property 118 Action Group") v West Bromwich Mortgage Company Ltd  EWCA Civ 496
Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.