Cases
O’Connor v. McCarthy
[1982] I.R. 161
Costello J.
The word “gazumping” was coined not long ago to describe the practice by which the owner of a property agrees to sell it by means of an agreement which is legally unenforceable and then, on receipt of a higher offer, resiles
[1982]
1 I.R. O’Connor v. McCarthy
Costello J. 170
H.C.
from his bargain and sells to the new purchaser. The gazumper is concerned with his own commercial advantage and not with any inconvenience, distress or loss which his actions may cause to the first purchaser, or with any moral obligations that may have arisen from the first bargain. But he runs certain risks. In particular, if he is not careful, he may find that he has bound himself by two enforceable contracts. This is what has happened to Fuller & Co. Ltd. (the company) which owns certain property in the town of Skibbereen in the county of Cork.
On the 18th April, 1977, the company entered into a written agreement in respect of portion of its properties. Having obtained from a different purchaser a better price for the same property, it entered into a second written agreement 11 days laterin the mistaken belief that the first agreement was unenforceable. The first purchaser instituted proceedings on foot of his contract and the judge of the Cork Circuit Court directed the company to perform the agreement. The company appealed, then changed its mind and consented to a High Court order confirming the order for specific performance. But the purchasers under the second contract had not been idle; they registered their contract in the Registry of Deeds and they claimed that, as they had no notice of the first contract, their contract gets priority over the first one and that they are entitled to the property. It is now accepted that there are two legally enforceable contracts in existence in respect of the company’s property; what has to be decided is which purchaser is entitled to a conveyance of the property and which must be content with a claim for damages.
The dispute reaches this Court in the following way. The company was a wholly-owned subsidiary of Kenny & Deey Ltd. Some years ago it went into liquidation and appointed Mr. Austin O’Connor, a chartered accountant practising in Dublin, as its liquidator. The company did not go into liquidation immediately but Mr. O’Connor took charge, with its directors’ consent, of its affairs and he was involved in the negotiations for the two sales in 1977 with which we are now concerned. Eventually the company went into voluntary liquidation and Mr. O’Connor was appointed its liquidator. By special summons of the 19th November, 1979, he applied to the Court pursuant to s. 280 of the Companies Act, 1963, for directions in relation to a number of transactions into which the company had entered, including the two sales to which I have just referred. He brought a motion for directions in respect of them and served it on the purchasers under the two contracts. All parties filed affidavits and subsequently agreed that the issues should be heard on oral evidence. In the course of the hearing I pointed out that, if I were to decide that the second contract prevailed over the first, the company could not comply with the order of the Circuit Court and that it would be necessary for the first purchaser to apply to that court to assess damages for breach of contract in lieu of specific performance. So it was agreed by the parties that, in order to avoid multiplicity of proceedings, all the issues between the parties should be determined in this Court. Accordingly, I propose to make such orders on the motion before me as will help to resolve as speedily as possible the several issues that now arise, and to leave over for future determination in this Court those which cannot be resolved now and on which further evidence may be necessary. I will first detail the facts of the two sales, then give my conclusions as to the knowledge (if any) of the first sale possessed by the second purchasers and, finally, consider the relevant legal principles which should be applied in the case.
[The judge here stated the facts relating to the two contracts and drew certain inferences from those facts: see pp. 163-9, supra. Having done so, he continued his judgment]
In the light of the facts that I have found, to whom should the premises be conveyed? With the assistance of counsel it has been possible to define within clear limits the legal issues which arise in the proceedings. First, the effect of the provisions1 of s. 5 of the Registration of Deeds Act, 1707, is that a registered deed or conveyance affecting lands takes priority over an unregistered deed or conveyance. Secondly, whilst undoubtedly it is unusual to register a contract for sale, it has been accepted that such an instrument can be registered: see Wylie’s Irish Conveyancing Law at pp. 380, 381. However, it has been argued on Mr. Field’s behalf that Messrs. McCarthy and Walsh lost the statutory priority given to them by the Act of 1707 because they had notice of the earlier contract. It is the nature and extent of this equitable doctrine and of the concept of notice, and its application to the facts of this case, that have been the subject of keen debate in these proceedings.
The first submission made by Mr. Blayney on behalf of Mr. Field is that the Courts have drawn a distinction between notice of a prior transaction and knowledge of it, and he referred to two English cases to illustrate the point. In Cresta Holdings Ltd. v. Karlin 1 the plaintiffs sued 12 defendants alleging fraud against the first two, as a result of which the plaintiffs had been defrauded of some £300,000. The eleventh defendants were bankers against
whom the plaintiffs alleged that, as a result of the fraud, the bankers received a cheque and the proceeds thereof and “did not receive the same as purchasers for value without notice.” The bankers sought particulars of this allegation. The judgments of the court drew the distinction between notice and knowledge. At pp. 1057-8 of the report Hodson J. said: “I do not myself regard the word ‘notice’ as a synonym for the word ‘knowledge.’ Notice is a word which involves that knowledge may be imparted by notice, but ‘notice’ and ‘knowledge’ are not the same thing . . .”
In Goodyear Tyre & Rubber Co. (Great Britain) Ltd. v. Lancashire Batteries Ltd. 2 the plaintiffs were tyre manufacturers who applied for an injunction under s. 25 of the Restrictive Trade Practices Act, 1956, to restrain the defendants from selling, at prices lower than those prescribed, goods manufactured by the plaintiffs. Section 25 provided: “Where goods are sold by a supplier subject to a condition as to the price at which those goods may be resold . . . that condition may . . . be enforced by the supplier against any person not party to the sale who subsequently acquires the goods with notice of the condition . . .” Having referred to the section, Lord Evershed M.R. said at p. 863 of the report:
“What is the scope or limit of the words ‘with notice of the condition’? Prima facie, it would appear to me that if Parliament had meant that the retailer must know the actual terms of the condition, as the judge seems to have thought, Parliament would have said so. The word ‘notice’ to a lawyer, in my judgment, means something less than full knowledge. It means, no doubt, that the thing of which a man must have notice must be brought clearly to his attention. What, in different cases, may be sufficient notice is a matter which will be decided when those cases come before the courts . . .”
Whilst undoubtedly it may be important, in certain circumstances, for a distinction to be drawn between notice of a prior instrument and knowledge of a prior instrument, I do not think that the distinction is of any great significance in the present case. A person who registers a deed will not gain priority over an earlier unregistered instrument affecting the lands if he had notice of its existence and its nature; it is not necessary to show that he had any exact knowledge of its terms and conditions. In the present case if it can be established that either Mr. D. McCarthy or Mr. Walsh had actual notice of the Field contract at the relevant time in the sense that they knew that such
a contract existedthen the equitable doctrine which I am considering would apply.
There are, however, well-established distinctions between actual notice, constructive notice and imputed notice. Those distinctions have been explained recently by Mr. Justice Kenny in Bank of Ireland v. Rockfield Ltd. 3 which was a case concerning s. 60 of the Companies Act, 1963. That section provides that it shall not be lawful (apart from certain exceptions) for a company to give, by the provision of security or otherwise, financial assistance in connection with the purchase of its shares, and that any transaction in breach of the section is voidable, at the instance of the company, against any person “who had notice” of the facts which constituted the breach. Mr. Justice Kenny pointed out that the notice mentioned in the section is actual notice and not constructive notice; at p. 37 of the report he stated:
“As there has been considerable confusion as to the meaning of the terms ‘actual notice’ and ‘imputed notice’ and ‘constructive notice’a confusion which has been pointed out by many judges and text-book writersI wish to say that I use the term ‘actual notice’ as meaning in this case that the plaintiff bank, or any of its officials, had been informed, either verbally or in writing, that part of the advance was to be applied in the purchase of shares in the defendant company, or that they knew facts from which they must have inferred that part of the advance was to be applied for this purpose. This difficult branch of the law is well summarised at p. 50 of the 27th edition of Snell’s Principles of Equity . . . where it is stated:
‘From this it is clear that a purchaser is affected by notice of an equity in three cases:
(1) Actual notice: where the equity is within his own knowledge;
(2) Constructive notice: where the equity would have come to his own knowledge if proper inquiries had been made; and
(3) Imputed notice: where his agent as such in the course of the transaction has actual or constructive notice of the equity’.”
Now it is well established that it is actual notice of a prior unregistered deed which is necessary in order to give it priority over a later registered deed. The second edition of Madden’s Registration of Deeds states at p. 191: “A party affected with actual knowledge, either personally or through his agent, of a previous unregistered instrument, cannot in equity rely on the
statutory priority given by the Registry Act.” At p. 199 of that edition the author states: “Secondly, a registered deed will not be postponed by constructive notice onlythat is to say, it will not be sufficient to bring home directly to the party claiming under it, or to his agent, knowledge of facts from which, in cases unconnected with registration, notice of the unregistered instrument would be inferred.”
Recently the same principle has been restated in Wylie’s Irish Land Law. Having referred to the equitable doctrine of notice, the author states at para. 3.089 on p. 111: “It has been settled, however, that for this principle to operate so as to deprive the purchaser registering of the priority he would otherwise have under the Act, he must have actual notice of the prior unregistered deed at the time of the second deed’s execution or, at least, at the time of its registration, or notice imputed to him because of actual notice in his agent. It is not enough to fix him with constructive notice, whether his own or his agent’s.”
It was submitted on Mr. Field’s behalf that there was circumstantial evidence in the present case which would justify me in holding that the purchasers, and Mr. Walsh in particular, had actual notice of Mr. Field’s contract. Certainly they had such notice (it is said) by the 4th July, 1977, when the McCarthy contract was registered. Accordingly, it is claimed that Messrs. McCarthy and Walsh have lost their priority. I have already pointed out that I think that, some short time prior to the 4th July, 1977, they had heard rumours that Mr. Field was claiming that he had purchased the property; but did such rumours constitute notice of the prior contract? I do not think so. As has been pointed out in Wylie’s Irish Land Law at para. 3.071 on p. 103, where the doctrine of notice is being considered: “It seems to be the settled view that mere ‘flying reports’ or rumours are not knowledge in this context. The generally accepted principle was stated by Lord Cairns in a leading English case on the subject, Lloyd v. Banks 4 ‘knowledge which would operate upon the mind of any rational man, or man of business, and make him act with reference to the knowledge he has so acquired’.” In Lloydv. Banks 4 the question of priority as between an assignee in bankruptcy of a cestui que trust and a subsequent mortgagee (who gave notice in writing of the mortgage to the trustees) was considered. The issue turned on whether the trustee of the fund had notice of the bankruptcy petition. In the course of his judgment Lord Cairns L.C. said at pp. 490-491 of the report:
“. . . I do not think it would be consistent with the principles upon which this Court has always proceeded, or with the authorities
which have been referred to, if I were to hold that under no circumstances could a trustee, without express notice from the incumbrancer, be fixed with knowledge of an incumbrance upon the fund of which he is the trustee so as to give the incumbrancer the same benefit which he would have had if he had himself given notice to the trustee. It must depend upon the facts of the case; but I am quite prepared to say that I think the Court would expect to find that those who alleged that the trustee had knowledge of the incumbrance had made it out, not by any evidence of casual conversations, much less by any proof of what would only be constructive noticebut by proof that the mind of the trustee has in some way been brought to an intelligent apprehension of the nature of the incumbrance which has come upon the property, so that a reasonable man, or an ordinary man of business, would act upon the information and would regulate his conduct by it in the execution of the trust.”
I think that the test laid down by Lord Cairns can be applied with advantage to the facts of the present case. Both Mr. D. McCarthy and Mr. Walsh are businessmen who would, I am satisfied, have acted reasonably to protect their own interests. Had the information they picked up about Mr. Field’s claim to the property been in any way specifichad it, for example, been a clear indication from a reliable source that Mr. Field had concluded a contract at a date prior to their contractI am satisfied that they would have gone to their solicitor about it. What they obtained was information that someone was claiming ownership of property which they were satisfied they had bought. That did not amount to actual notice of a prior contract. The information was not precise and did not come to them from a source which would have justified them in accepting it as true and which would have caused them to take action on it in the protection of their own interests.
In the light of this conclusion, it is unnecessary for me to decide whether the date of the execution of the McCarthy contract or the date of its registration is the relevant one for the purposes of considering the priorities in this case, since on neither date did the second purchaser have actual notice of the Field contract.
It was then submitted on Mr. Field’s behalf that the purchasers under the second contract were disentitled to priority because they had deliberately refrained from making inquiries about the Field contract after they had been told about Mr. Field’s claims and that, accordingly, they were mala fide
[
H.C.
purchasers and were disentitled to priority. The leading case on this subject is Agra Bank Ltd. v. Barry 5 which was concerned with a question of priority between a legal mortgage and a prior unregistered equitable mortgage, and the effect on such priority of the failure of the solicitor acting for the legal mortgagee to obtain the deeds relating to the title. Lord Cairns, having referred to the doctrine of notice, raised the question as to whether mere negligence could postpone a registered security and then said at p. 149 of the report:
“Of course you may have cases in which there may be such a course of conduct as was indicated in Kennedy v. Green 6 ,commented on in the case of Jones v. Smith 7 by Vice-ChancellorWigramconduct so reckless, so intensely negligent, that you are absolutely unable to account for it in any other way than this, that, by reason of a suspicion entertained by the person whose conduct you are examining that there was a registered deed before his, he will abstain from inquiring into the fact, because he is so satisfied that the fact exists, that he feels persuaded that if he did inquire he must find it out. My lords, I do not wish to express any decided opinion at this moment upon a case of that kind . . . there is no such negligence here as, to my mind, carries with it any appearance of fraud.”
As has been pointed out, the court was considering whether absence of inquiry under circumstances leading to an inference of fraud could result in the postponement of a registered deed; it found it unnecessary to decide the question as it was satisfied that the conduct of the solicitor acting for the legal mortgagee was not in any way tainted with mala fides. I am in the same position in this case. Neither Mr. Walsh nor Mr. D. McCarthy acted in any way mala fide in abstaining from acting on the rumours they heard. They did not consult their solicitor about them not because they wanted to obtain an advantage over Mr. Field which they thought they might lose if they investigated the rumours but because they genuinely believed that, even if Mr. Field was making the claim reported to them, it was a groundless one. If they did not act in a mala fide manner, then no question of the postponement of their contract could arise from their failure to make further inquiries. I agree with the submission made by Miss Carroll, on behalf of Mr. D. McCarthy and Mr. Walsh, that the whole basis for the equitable doctrine which I am considering is that the Courts of Equity would not allow a mala
fide purchaser to take advantage of an Act of Parliament. In the absence of mala fides the statutory priority prevails.
The final submission made by Mr. Blayney was to the following effect. It was pointed out that the Field contract and the McCarthy contract are executory contracts and that the Court is being asked to decide which should be specifically performed. In granting equitable relief the Court should consider the conduct of the parties and, in the exercise of its discretion, it should consider which of the parties is most entitled to relief. Mr. Field should get the property, it is submitted, because the second purchasers had constructive notice of his contract. Had they made proper inquiries after hearing the rumours about his purchase, they would have ascertained the true position and the Court, in the exercise of its discretionary powers, can take this fact into account. To accede to this argument, it seems to me, would be to drive a coach-and-four not just through the statute of Queen Anne but through the long-established doctrine recognised by the Courts of Equity that mere constructive notice of a prior unregistered deed is insufficient to give it priority over a registered one. According to the statute and to the equitable doctrine I have been considering, the second purchasers are entitled to priority because they had not actual notice of the first contract. For the Court to deprive them of the benefit thus conferred on them would amount, in my view, to an improper exercise of its discretionary powers. It follows, then, that Mr. Walsh is entitled to the property.
It is obvious that it is not possible at the present time to determine finally all the matters which have to be settled between the parties; only part of the knot can be unravelled to-day. The order should recite that the parties have agreed that no further proceedings be taken on foot of the Circuit Court order of the 14th July, 1978, or the High Court order of the 5th October, 1979. It should contain a declaration that the McCarthy contract has obtained priority over the Field contract by virtue of the provisions of the Registration of Deeds Act, 1707, and that it should be specifically enforced if a good title is made out. The order of specific performance should only be conditional at the present time because the purchaser has not yet accepted the title. If any question arises on the title, or on the purchaser’s right not to accept it and to claim damages in lieu of specific performance, the motion can be re-entered and, if necessary, a separate issue on such matters tried. The order will also direct Mr. Walsh and Mr. D. McCarthy to give particulars in writing within four weeks of to-day’s date of any claim they may wish to make for damages for delay, in addition to specific performance. If such a claim is made and not
settled then the motion can be re-entered and an issue tried on the claim. As to the Field contract, I will declare that Mr. Field is entitled to damages in lieu of specific performance on his contract and that he is to furnish to the liquidator within four weeks of to-day’s date particulars of his claim. In default of agreement on it the motion can be re-entered and, if necessary, an issue tried on the point. I will also direct Mr. Field’s solicitor to vacate the lis pendens, as the Circuit Court proceedings have now been stayed and the claim for damages does not warrant its retention.
Finally, Mr. Field, Mr. D. McCarthy and Mr. Walsh are each entitled to their costs against the liquidator. The costs should be taxed, in default of agreement, on the basis of the trial of an issue heard on oral evidence; the liquidator is entitled to be recouped out of the assets of the company in respect of such costs. I have been told that the company is solvent and, as the application was a proper one to have been brought, I will direct that the liquidator is entitled to his costs out of the company’s assets, taxed on the basis to which I have just referred.
Larianov Foundation -v- Leo Prendergast and Sons (Engineering) Ltd
[2017] IEHC 192 :
Keane J.
The validity of the mortgage deed
14. Larianov points to three features of the mortgage deed, which – it argues – render it invalid and, hence, ineligible for priority over Larianov’s judgment mortgage.
15. First, the mortgage deed describes Cascade as having its registered office at an address on the island of Jersey in the Channel Islands, whereas it is common case that the registered office of Cascade is in the BVI.
16. Second, the mortgage deed contains a recital (or ‘certificate’) that Cascade is ‘a bank named in the Third Schedule to the Central Bank Act 1942’, whereas it is common case that Cascade is not a bank.
17. Third, while the mortgage deed is endorsed with the common seal of Prendergast and the signatures of two directors of Prendergast, it has not been executed by or on behalf of Cascade.
18. Peter Zajac, a director of Cascade, swore an affidavit on 5 March 2012. In it, he avers that at the material time Cascade’s administrative office was at the address in Jersey identified and that it was recorded on the mortgage deed as Cascade’s registered office due to an error on the part of the solicitors who were then acting for Cascade. Mr Zajac further avers that the recital that Cascade is a bank, registered as such with the Central Bank, was included in error by the firm of solicitors then acting on behalf of Cascade and is an obvious error. Mr Zajac goes on to aver that at no time did Cascade ‘actively hold itself out as being a bank nor was [Prendergast] lead to understand that [Cascade] was a bank.’
19. Cascade has not applied to rectify the terms of the mortgage deed.
The validity of the mortgage deed -discussion and conclusion
20. The relevant principles concerning the construction of deeds are not in dispute.
21. In Moorview Developments Ltd. v First Active Plc &Ors [2010] IEHC 275, one of the issues that the High Court had to consider was the proper construction of a personal guarantee where the company that had secured the relevant credit was wrongly named in that document. The company named in the document was ‘Moorview Properties Limited’ (‘Properties’), whereas the name of the borrower involved was actually ‘Moorview Developments Limited’ (‘Developments’). The evidence in that case was that all of the letters and contractual documents passing between the parties at or about the time of the execution of the guarantee at issue referred to ‘Developments’ as the borrower, and that the lender was unaware of any relevant entity called ‘Properties.’ All of the relevant loans were with ‘Developments’ and a search of the Companies Register had established that there was no company with the name ‘Moorview Properties Limited.’ Based on that evidence, Clarke J found as a fact that the reference to ‘Properties’ in the guarantee was a clear mistake and that what the correct reference should have been – i.e. one identifying ‘Developments’, and not ‘Properties’, as the borrower – was equally clear. Clarke J concluded:
‘It is inconceivable that there could have been any other intention of the parties but that the company whose liabilities were to be guaranteed was Moorview Developments Limited and not Moorview Properties Limited.’
22. Before making those findings of fact and reaching that conclusion, Clarke J first identified the following principles of law applicable to the construction of contracts where a mistake is alleged to have occurred:
‘3.5 This aspect of the case concerns what has, in some of the case law, (see for example East v. Pantiles (Plant Hire) Limited (1981) 263 E.G. 61) been described as “correction of mistakes by construction”. As is clear from East and from the speech of Lord Hoffman in Investors Compensation Scheme Ltd. v. Bromwich Building Society [1998] 1 WLR 896, two conditions must be satisfied in order for such a correction to occur. First, there must be a clear mistake. Second, it must be clear what the correction ought to be.
3.6 It is also clear from the speech of Lord Hoffman in Investors Compensation that a correction of the type with which I am concerned is not a separate branch of the law, but rather an application of the general principle that contractual documents should be construed according to their text but in their context. That context may make it clear that the words used in the text are a mistake. Thus a reasonable and informed person may conclude that the words used are an obvious mistake and may also be able to conclude what words ought to be used. In those circumstances, as a matter of construction, the court will, as it were, construe the contract as if it had been corrected for the obvious mistake. The reason for so construing the contract in that way is that the proper principles for the construction of contracts lead to that construction in any event. I am satisfied that those cases, most recently restated by the House of Lords in Chartbrook v. Persimmon Homes Ltd [2009] 1 AC 1101, represent the law in this jurisdiction.’
23. In Chartbrook, Lord Hoffman used the memorable phrase that, in addressing a clear mistake on the face of a contract, where it is clear what correction ought to be made to cure the mistake, ‘there is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction which the court is allowed.’
24. Larianov places reliance on the decision in Byrne v Killoran & Anor. (No. 2) [2014] IEHC 328. That case involved a mortgage deed in favour of a lender named Allied Irish Bank Finance Limited (‘AIF’). However, between 2006, when the underlying loans were made or consolidated, and 2009, when the relevant mortgage deed was executed, AIF transferred all its assets and liabilities to its parent company, Allied Irish Banks plc (‘AIB’) on 1 January 2007. In consequence, at the time the mortgage was created, the mortgagor had an obligation to AIB and did not have any to AIF, the purported mortgagee. As Ryan J put it (at para. 42):
‘That came about by mistake because neither side adverted to the prior transfer of business to AIB but it was not that the wrong name was put into the deed by accident and was not noticed; the mortgagee named in the deed was the intended party but the wrong party because of the 2007 transaction.’
On that basis, Ryan J concluded (at para. 43) that, while AIB was presumptively entitled to get a new deed naming it as mortgagee, formal rectification of the deed to that effect would be necessary, as it could not be treated simply as a naming error.
25. Larianov submits that the position here is closer to the one in Byrne than that in Moorview. I cannot agree. Larianov itself has caused to be exhibited correspondence confirming that no company with the same name as Cascade has ever been registered in Jersey and that Cascade does not appear as a bank in the registers maintained by the Central Bank. Accordingly, there can have been no intention on the part of Prendergast to enter into a mortgage deed with another company with the same name as Cascade, though with its registered office in Jersey and with a bank licence in Ireland. That conclusion is reinforced by the uncontroverted evidence of Mr Zajac, already described, to the effect that Cascade’s administrative address in Jersey was included by mistake instead of its registered address in the BVI, and that the recital that Cascade was an Irish-registered bank was included (or not deleted from the relevant drafting precedent) in error by Cascade’s solicitors when drafting the document.
26. I am satisfied both that these are clear errors and that it is clear in each case what the correction should be, namely the substitution of the address of Cascade’s registered office in the BVI for that of its administrative office in Jersey and the ‘red ink’ deletion of the incorrect recital that Cascade is ‘a bank named in the Third Schedule to the Central Bank Act 1942.’
27. Even if I were not satisfied that it is appropriate to construe the mortgage deed subject to those corrections, it could not avail Larianov for the following reason. In its submissions, Cascade points out that an error in the description or address or a mortgagee is of a different order than an error in its name, and does not carry the same consequences. They rely, presumably by analogy, on three passages from the chapter entitled ‘Form and Content of Deeds’ in the textbook Wylie and Woods, Irish Conveyancing Law, (3rdedn, Tottel Publishing, 2005), which deals with the form and contents of deeds for the conveyance of registered and unregistered lands.
28. The first, at para. 18.19, states:
‘It is usual to describe each party by his full name, ie, Christian or forename or names in full and the surname. Care should be taken over this, as a mistake can cause considerable difficulties in later transactions. If the name now differs from that given in an earlier deed, or a mistake was made in the latter, it may be useful to draw attention to the discrepancy directly, eg, by stating that the party (probably the vendor) was called by such and such a name when reciting the deed in question. It is, however, settled that, if a mistake does occur, the court will correct it on being shown sufficient evidence of the error. The need for accuracy in respect of names is vital for registration purposes, for the key to the Registry of Deeds system is the Index of Names.’
29. Whereas the second, at para. 18.20, notes:
‘It is also usual to give each party’s address or, in the case of a company, its registered office. This helps to identify the parties more clearly and may resolve any doubt created by the name given.’
30. And the third, at para. 18.21, under the heading ‘Occupation’, continues:
‘It was also the traditional practice to give each party’s occupation…. But most solicitors regard this as superfluous nowadays, since the full name and address are usually quite sufficient to identify the party in question.’
31. Here, there was no error in the identification of Cascade by name. Nor is there any suggestion that the name it provided created any doubt or confusion about its identity. To that extent, I accept on the evidence before me that, even if uncorrected, the errors concerned were immaterial to the validity of the deed.
32. For the sake of completeness, I should say that I reject the separate argument advanced by Larianov that the incorrect recital in the body of the mortgage deed that Cascade is ‘a bank named in the Third Schedule to the Central Bank Act 1942’, requires the court to hold that the said deed is ineligible for any priority over Larianov’s judgment mortgage on the ground of public policy. In advancing that argument, Larianov relies on s. 7 of the Central Bank Act 1971, as amended, which prohibits a person who does not hold a banking licence from carrying on banking business or holding himself out or representing himself as a banker or as carrying out banking business. Section 58 of that Act provides that any person who contravenes s. 7 is guilty of a criminal offence. However, I have already concluded, on the uncontroverted evidence before me in these proceedings, that the relevant recital was included in the mortgage deed concerned through an innocent mistake. It would be inconsistent with that finding to hold, as Larianov invites me to do, that the inclusion of that recital can only amount to ‘a criminal misrepresentation’ on the part of Cascade, which deprives the charge created by the mortgage deed in which it appears of any priority over Larianov’s judgment mortgage.
33. Larianov advances one further separate argument on the validity of the mortgage deed. It is that the mortgage deed is invalid because, while it has been executed on behalf of Prendergast, it has not been executed on behalf of Cascade, as mortgagee. No authority has been cited by Larianov for the proposition that a mortgage deed that it not executed by or on behalf of a mortgagee is invalid. In arguing the contrary, Cascade relies on the following authority. First, it refers again to the text Irish Conveyancing Law, already cited, and a further analogy between the law governing a deed of conveyance, on the one hand, and a mortgage deed, on the other. In respect of the former, Cascade submits that the text confirms, at paras. 18.77 and 18.123, that there is no requirement that, to be valid, a deed of transfer must be executed by the transferee. On that basis, it invites the court to conclude that the position is the same in respect of a mortgage deed.
34. Cascade further makes reference to two English cases on mortgage deeds. The first is the decision of the Court of Appeal for England and Wales in Eagle Star Insurance Ltd v Green [2001] EWCA Civ 1389. That case involved an application for permission to appeal a decision of the Swansea County Court. One of the points raised in seeking permission to appeal was that the mortgage deed on foot of which the respondent mortgagee had obtained an order for possession of the applicant’s property was invalid because, as a ‘contract…for the disposition of an interest in land’, it had not been signed by or on behalf of each party to the contract, contrary to the strict requirement of s. 2 of the Law of Property Miscellaneous Provisions Act 1989, because it had not been signed by or on behalf of the respondent Eagle Star Insurance Limited. In refusing leave to appeal, Mummery LJ pointed out very simply that a mortgage deed is not a contract and that, while a contract to create a mortgage is plainly captured by s. 2, a mortgage deed is not. That finding suggests, if only by implication, that there is no infirmity in a mortgage deed simply because it has not been signed by the mortgagee.
35. The second authority relied upon by Cascade in support of this aspect of its rebuttal is another decision of the Court of Appeal, this time in a case called Helden v Strathmore Ltd [2011] EWCA Civ 542. Giving judgment for the Court on the appeal in that case, Lord Neuberger MR considered a submission that, on the basis of certain admitted defects, a mortgage deed was invalid as in breach of both s. 2 of the 1989 Act, already considered, and the separate requirements of s. 53 of the Law of Property Act 1925. Having rejected the appellant’s argument on s. 2, Lord Neuberger MR went on to note (at para. 29) that the argument on s. 53 of the 1925 Act was ‘only marginally less weak’ in that, although that section does apply to mortgage deeds (unlike s. 2 of the 1989 Act), it ‘merely requires the arrangement to be in a document signed by the person creating or disposing of the interest.’ It is not clear how much further that decision takes Cascade’s argument here, if any distance at all, since no attempt has been made to identify a statutory provision in this jurisdiction equivalent in its terms or effect to s. 53 of the 1925 Act.
36. Nevertheless, having considered the submissions on this point as a whole, it seems to me that I cannot accept the argument that the mortgage deed is invalid simply because, although executed by Prendergast as mortgagor, it has not been executed by Cascade as mortgagee.
The issue of priority
37. Larianov’s judgment mortgage was registered as a burden on the lands by the Property Registration Authority on 9 January 2012. Cascade’s mortgage deed was registered in the Land Registry as a burden on the lands on 30 August 2012. Which of those charges takes priority?
38. The Land and Conveyancing Law Reform Act 2009 (‘the 2009 Act’) came into operation, in material part, on 1 December 2009. Part 11 of the 2009 Act deals with judgment mortgages. Section 116 provides that a person may apply to the Property Registration Authority to register a judgment against a person’s estate or interest in land. Section 117 provides, in material part:
‘(1) Registration of a judgment mortgage under section 116 operates to charge the judgment debtor’s estate or interest in the land with the judgment debt….
…
(3) The judgment mortgage is subject to any right or incumbrance affecting the judgment debtors land, whether registered or not, at the time of registration.’
39. I am satisfied that, at the time when Larianov’s judgment mortgage was registered on 9 January 2009, Cascade had a right or incumbrance affecting Prendergast’s lands, though an unregistered one, in the form of the mortgage deed entered into by Prendergast on 24 March 2004, the validity of which was confirmed by its registration as a charge over the lands in the Companies Registration Office on 1 April 2004.
40. What is the effect of s. 116 (3) of the 2009 Act? According to Professor Wylie in The Land and Conveyancing Law Reform Act 2009: Annotations and Commentary (2009):
‘This confirms the position of a judgment mortgagee is not a “purchaser” but is a mere volunteer. Thus the judgment mortgage is subject to the prior rights or incumbrances affecting the judgment debtor’s interest in the land, whether or not they have been registered and whether or not the judgment mortgagee has notice of them: see McAuley v Clarendon (1858) 8 IrCh R 121; Eyre v McDowell (1861) 9 HLC 620; Quinn v McCool [1929] IR 620; ACC Bank plc v Markham [2005] IEHC 437. As regards registered land, this was governed by s. 71(4) of the Registration of Title Act 1964: see also Re Murphy and McCormack’s Contract [1930] IR 322; Re Strong [1940] IR 382; cfTempany v Hynes [1976] IR 101; Wylie Irish Land Law (3rdedn, Tottel Publishing, 1997), para 13.182; Wylie and Woods, Irish Conveyancing Law (3rdedn, Tottel Publishing, 2005) para 12.06. See now s 71(2)(c) substituted by s 130 of the 2009 Act: see the Note to that section.’
41. Section 71 (registration of judgment mortgages) of the Registration of Title Act 1964 (the 1964 act’), as substituted by s. 130 of the 2009 Act provides:
‘71.-(1) Application for registration of a judgment mortgage under section 116 of the Land and Conveyancing Reform Act 2009 shall, in the case of registered land, be in such form and in such manner as may be prescribed.
(2) Registration under subsection (1) shall operate to charge the estate or interest of the judgment debtor subject to-
(a) the burdens, if any, registered as affecting that estate or interest,
(b) the burdens to which, though not so registered, that estate or interest is subject by virtue of s. 72,
(c) all unregistered rights subject to which the judgment debtor held that estate or interest at the time of registration,
and with the effect stated in section 117 of the said 2009 Act.’
42. On their face, the effect of the provisions just described is to give Cascade’s mortgage deed, created on 24 March 2004 though not registered until 30 August 2012, clear priority over Larianov’s judgment mortgage registered on 9 January 2012 since, on the latter date, Cascade’s legal mortgage deed was an existing right or incumbrance affecting Prendergast’s lands, subject to which Prendergast, as judgment debtor, held those lands.
43. But Larianov argues that that is not so. It does so by reference to the judgment of Carroll J. in the case of Industrial Credit Corporation plc v M. and J. Gleeson and Company Ltd & Anor. (Unreported, High Court, 18 February 1992) and the terms of s. 74 (priority of registered burdens) of the Registration of Title Act 1964.
44. Section 74 provides:
‘Subject to any entry to the contrary on the register, burdens which are registered as affecting the same land, and which, if unregistered would rank in priority according to the date of their creation, shall, if created or arising since the first registration of the land, rank according to the order in which they are entered on the register and not according to the order in which they are created or arise, and shall rank in priority to any other burden affecting the land and created or arising since the first registration of the land, not being a burden to which, though not registered, the land is subject under section 72.’
45. The issue in Industrial Credit Corporation was one of the order of priority between a judgment mortgage and a prior unregistered charge. The plaintiff in that case had advanced a loan to certain persons to acquire a public house premises, subject to getting a first legal mortgage over that premises. Between the date of the execution of that mortgage deed and its registration, two judgment mortgages were registered as a burden on the lands, one by the defendant. In addressing that controversy, Carroll J identified a ‘possible inherent contradiction’ between the general provision of s. 74 of the 1964 act, which ranks the priority of burdens on the register according to the date of their creation, and the special provision of [the original] s. 71 (4) of that Act, which is in materially identical terms to the present s. 71 (2) of that Act, and which made the registration of a judgment mortgage subject to all pre-existing unregistered rights subject to which the judgment debtor held the lands concerned.
46. Carroll J took the view that the possible contradiction between those provisions could be resolved by treating the payment of the loan monies, which preceded the registration of the judgment mortgages at issue, as having created an equitable charge which could then take priority over those judgment mortgages. Larianov submits that, it follows from this analysis that, since its payment of loan monies to Prendergast predated the payment of loan monies to Prendergast by Cascade, each of those payments created an equitable charge that takes priority over Larianov’sjudgment mortgage. Further, since Larianov’s equitable charge was first in time, it should take priority over Cascade’s equitable charge. Even if I were to accept that argument as far as it goes, it would still be necessary to take into consideration the fact that Larianov’s equitable charge cannot take priority over Cascade’s registered charge, having regard to the terms of s. 68 (3) of the Registration of Title Act 1964. Accordingly, Cascade’s registered charge must take priority.
47. I should add that, for my part, I would resolve any possible tension between those provisions by applying the maxim of interpretation ‘generalia specialibus non derogant’ i.e. that the general does not derogate from the specific, or that provisions of more universal application do not prevail over, or detract from, those of specific application to the same subject matter. That view, if not stated in those terms, is reflected in Deeney, Registration of Deeds and Title in Ireland (Bloomsbury Professional, 2014) at para. 18.04, where that author states:
‘[Section 74 of the 1964 Act] settles the priority of registered burdens inter se according to the order in which they are entered in the register, and not the date of their creation, subject to any entry to the contrary on the register. However, it excludes from its effect burdens whose priority is created by statute and judgment mortgages which are created by registration, and whose priority is fixed by virtue of [s. 71(2) of the 1964 Act] as substituted [by s. 130 of the 2009 Act].’
Conclusion
48. For the reasons I have given, I am satisfied that Cascade’s mortgage deed is valid and that that it takes priority over Larianov’s judgment mortgage.
49. I will hear the parties in relation to the appropriate orders to be made in the proceedings in consequence of the findings I have made.
In re Barrett Apartments Ltd.
[1985] I.R. 350 Henchy J. S.C.
The rationale behind allowing a purchaser a lien on the purchased property in respect of a deposit paid to the vendor is that, by paying the deposit in pursuance of the contract, the purchaser acquires an equitable estate or interest in the property and therefore should be allowed to follow that estate or interest by being accorded a lien on it. See Rose v. Watson (1864) 10 H.L.C. 672; Whitbread & Co. Limited v. Watt [1902] 1 Ch. 835; Tempany v. Hynes [1976] I.R. 101.
Where, as is the case here, no contract to purchase was entered into by the depositors, and the only payment made was what was called a booking deposit, which was accepted expressly on the basis that it would be returnable upon notification by either party and that the proposed purchase would be the subject of a written contract, the payment of the booking deposit did not give the payer any estate or interest, legal or equitable, in the property – as would have been the case if a written contract had been entered into and the booking deposit had been converted into a deposit paid on foot of the contract. There is no basis in law or equity, therefore, for treating the depositors as having, on payment of the deposit, acquired a purchaser’s lien on the property.
We have not been referred to any case in which a purchaser’s lien was allowed to anyone who was not a purchaser, that is to say, anyone who had not entered into a contract to purchase. The suggestion is that the reason for such absence of authority is that a booking deposit is a device of recent origin which has not yet attracted a judicial decision as to its impact on the property being sold. I cannot agree. Payment by prospective purchasers to prospective vendors of money on a provisional, conditional, or otherwise returnable basis, prior to a formal contract, has always been taking place. In my opinion, the fact that such a payment has not been judicially recognised as creating a lien is simply because the payer has not the legal standing necessary to found a purchaser’s lien.
A lien in its primary sense at common law is a right to retain possession of the property of another until certain demands are met. Such a common law lien arises by implication of law and not by contract. It is plainly not the type of lien that could arise in a case such as this where the creditor does not get possession of the property.
A lien in its secondary or alternative sense does not depend on possession. It arises either by virtue of a court order binding the property, but giving no right of possession (i.e., a judicial lien), or by virtue of a duty or intention attributed in equity to the owner to make the property available to answer a particular claim (i.e., an equitable lien). It is only the latter type of lien that could be put forward as applying in this case. Such a lien is usually referred to as a purchaser’s lien. The basis for it is given in the following passage from the judgment of Lord Cranworth in Rose v. Watson (1864) 10 H.L.C. 672 which was cited with approval by Kenny J. when giving the majority judgment of this Court in Tempany v. Hynes [1976] I.R. 101 at p. 104:
“There can be no doubt, I apprehend, that when a purchaser has paid his purchase-money, though he has got no conveyance, the vendor becomes a trustee for him of the legal estate, and he is, in equity, considered as the owner of the estate. When, instead of paying the whole of his purchase-money, he pays a part of it, it would seem to follow, as a necessary corollary, that, to the extent to which he has paid his purchase-money, to that extent the vendor is a trustee for him; in other words, that he acquires a lien, exactly in the same way as if upon the payment of part of the purchase-money the vendor had executed a mortgage to him of the estate to that extent.”
The persons who paid booking deposits in this case clearly did not get a purchaser’s lien, for they acquired no beneficial estate or interest in the property. But ought they to be deemed to have acquired some other kind of equitable lien for the amount of the deposit, on the basis that it would be inequitable to deny them the standing of a secured creditor?
I fear I am unable to accept that submission, which has been supported by the proposition that it would be unjust to allow the building company to retain the booking deposits. I agree that if it were a question of the building company retaining the deposits, it would be unjust to allow that to happen. But where, as is the case here, the building company is insolvent and is being wound up, the booking deposits will not be retained by the building company. They will be applied in the winding up, as will the rest of the assets, towards the payment of the company’s debts, according to a fixed order of priority amongst the creditors. Therefore, the point at issue is not to be decided by assessing the comparative merits of the depositors and of the company. It is the claims of the creditors inter se that have to be looked at.
Assuming that it would be within the legitimate range of judicial creativity to bring into being a new type of equitable lien in respect of booking deposits, I fear there would be no basis in equity for such an innovation in the circumstances of a case such as this. It has to be remembered that when, as happened here, a building company falls into insolvency, many creditors, particularly those who have supplied goods or services, may find that as unsecured creditors their debts are irrecoverable in the winding up of the company and that as a result they may be financially ruined. If a prospective purchaser who paid a booking deposit (which is a fixed sum, usually of a comparatively small amount) were to be accorded the status of a secured creditor by the recognition of the deposit as a lien, and thereby be advanced towards the head of the queue of creditors, such preferential treatment would be unfairly and unjustifiably discriminatory vis-a-vis other creditors. Whatever may be the position of individual depositors, I do not consider that, as a class, depositors have an equity to be treated as secured creditors when other creditors, whose debts may be more deserving of payment and no less closely connected with the property, are left to languish as unsecured creditors without hope of payment at the tail-end of the queue of creditors.
I would allow this appeal by holding that the persons who paid booking deposits are not entitled to rank in the winding up as secured creditors.
Hederman J.
I agree.
McCarthy J.
The learned trial judge dealt with the motion on behalf of the official liquidator in two stages. Michael Cummins and Michael Farrell had each entered into a building agreement with the company and Keane J. concluded that “where there is a contract in existence, the payment by the purchaser of part of the purchase price entitles him to a lien on the property in respect of the money so paid. There may be many reasons why a purchaser who has paid part of the purchase price may be precluded from specifically enforcing the contract in circumstances which are no fault of his; and his right to recover the purchase money actually paid by him, and the existence of an equitable lien to secure the payment, cannot depend on the availability to him of such a remedy.” This was the view of the House of Lords in Rose v. Watson (1864) 10 H.L.C. 672, the principles laid down in which were adopted by the majority of the Supreme Court in Tempany v. Hynes [1976] I.R. 101. At the commencement of the hearing of this appeal, the Court was informed that the receiver has settled with Messrs. Cummins and Farrell. In the circumstances it is unnecessary to express any view on that part of the judgment of Keane J.
The receiver has been appointed pursuant to the bank’s debenture; the assets (in effect, the site of the intended apartment block) when sold will be insufficient to pay off the debenture holder and/or other secured creditors, so that there will be nothing left for the unsecured creditors which include those claiming debts, professional fees, inter company accounts as well as deposits ranging from £1,000 upwards and described as “booking deposits”. It is common case that there was no binding contract- either for sale or to build – between each such depositor and the company in liquidation. Accordingly, none could have acquired what is commonly called a purchaser’s lien. After the words cited by Kenny J. in Tempany v. Hynes [1976] I.R. 101, Lord Cranworth in Rose v. Watson (1864) 10 H.L.C. 672 continued:
“It seems to me that that is founded upon such solid and substantial justice, that if it is true that there is no decision affirming that principle, I rejoice that now, in your Lordships’ House, we are able to lay down a rule that may conclusively guide such questions for the future. I think, however, that there are some authorities which have been pointed out which have established that rule, in principle, if not in terms. But I think it is unimportant to go into that, because it is now established, and will from henceforth be established as a very sound principle, founded on solid justice.”
In my view, part of the rationale underlying this purchaser’s lien is the reciprocity attaching to the contract. The purchaser obtains a lien in that”every portion of the purchase money paid in pursuance of that contract is a part performance and execution of the contract, and, to the extent of the purchase money so paid, does, in equity, finally transfer to the purchaser the ownership of a corresponding portion of the estate.” (Lord Westbury L.C. at p. 678 in Rose v. Watson (1864) 10 H.L.C. 672.) Keane J. qualified this view when he said: (at p. 355)
“It (the bank’s submission) proceeds on the assumption that, for such a lien to exist, the money must have been paid on foot of a contract; and that, where there is no such contract or, at all events, no contract capable of being enforced, no lien can arise. I think it is clear that the lien which is claimed by the depositors in the present case arises not from the existence of any contract but from the right of the prospective purchaser to recover his deposit in circumstances where it would be unjust for the prospective vendor to retain it.”
He then cited from the judgment of Vaughan Williams L.J. in Whitbread and Co. Limited v. Watt [1902] 1 Ch. 835 at p. 838. I do not share the view of the learned trial judge that the right to the lien claimed is to be determined irrespective of there being a contract. It may be, as Vaughan Williams L.J. said, that the lien is not the result of any expressed contract, if that means that it does not have to be expressed in the contract; in my view, it does depend upon there being a contract, meaning what had originally been a legally enforceable contract as was the case in Whitbread and Co. Limited v. Watt [1902] 1 Ch. 835; Rose v. Watson (1864) 10 H.L.C. 672; Wythes v. Lee (1855) 3 Drew 396; and Combe v. Swaythling (Lord) [1947] 1 Ch. 625 (infra). To take the analogy used by Vaughan Williams L.J., it is true that, generally speaking, in an action brought for money had and received to the use of the plaintiff, the money has not been so received – that is, expressly to the use of the plaintiff, but, undoubtedly, the money has been received – otherwise the action could not lie. In the course of argument, reference was made to Combe v. Swaythling (Lord) [1947] 1 Ch. 625, in which Wynn-Parry J. said at p. 628:
“The basis of the undoubted right of a purchaser, who has paid a deposit to a vendor, to a lien for his deposit if the contract goes off otherwise than through the purchaser’s default is, in my judgment, that the purchaser is to be regarded, in respect of that deposit, as a secured creditor. That, in my view, emerges clearly from the speeches of Lord Westbury L.C. and Lord Cranworth in Rose v.Watson in which case, be it observed, it was not claimed that the lien ought to extend to the costs of the suit. In the later authorities to which I have been referred, however-namely, Middleton v. Magnay 2 H & M 233, Whitbread & Co. Limited v. Watt [1901] 1 Ch. 911; [1902] 1 Ch. 835 and Kitton v. Hewitt [1904] W.N. 21 – it does appear that the purchaser’s right, where the sale goes off otherwise than through his default, has being extended to cover, in such cases, his costs of suit and the costs of investigating title.
In my judgment all those cases are to be explained by reference to the underlying principle that the right of a purchaser to a lien in such circumstances is tested on the basis that he is to be regarded as a secured creditor. I cannot see how a purchaser has any right to a lien until it can be postulated of him that he is a secured creditor.”
This latter reference indeed, seems to beg the very question raised in this appeal. Mr. Landy has laid great stress upon the words of Vaughan Williams L.J. where he says:”. . . it is a right which may be said to have been invented for the purpose of doing justice.” Be it so – how does the doing of justice demand that those who pay advances in respect of an anticipated contract should be put in a position better than that of trading creditors or professional creditors who have put their goods or their services at the disposal of the self same debtor without payment and whose claims can only rank as those of unsecured creditors? I cannot see that any principle of justice requires any different treatment for the former as compared with the latter. In Irish Conveyancing Law (J.C.W. Wylie 1978 Ed.) the learned author said at para. 10.134:
“It is not uncommon for builders to demand money from prospective purchasers at a very early stage in the development of a site; indeed, often before any building has commenced at all. Sometimes this takes the form of what is called a “booking deposit” and may be paid before any contract is entered into. The dangers of paying such a pre-contract deposit or any other money before a contract is signed cannot be emphasised too much. If, as is often the case, the money is paid to a builder which is a limited liability company, the prospective purchaser runs the risk that, in the event of the company becoming insolvent or going into liquidation, he will be treated as an unsecured creditor with little hope of recovery of his money.”
The learned author was right. I would allow the appeal accordingly.
Byrne v. Allied Irish Banks
[1978] IR 446
McWilliam J.
I have already stated the facts of this matter in my judgment of the 1st June, 1976.
The relevant paragraphs of the letter of the 8th April, 1974, from Wm. Fry & Sons on which the claim of Allied Irish Banks Ltd. is based, are as follows:
“We now therefore undertake in consideration of your granting the company a bridging loan of £4,000 on the strength of the contract for the sale of their premises in Grafton Street to hold such documents of title to the said premises as we may have in trust for the Bank and to hand over sufficient monies out of the proceeds of the sale to redeem this bridging finance as soon as the sale is closed. It is however to be strictly understood that this firm undertakes only to hand over out of the proceeds of sale and should there be any delay in closing the sale the firm cannot be held responsible for the money until the sale has been finalised.”
Having decided that this letter was sufficient to create an equitable charge, I had this matter re-entered for argument on the question of what property was charged and, if it was the purchase money which was charged, whether it was a charge that was required to be registered under s. 99 of the Companies Act, 1963, either as a charge on land or any interest therein or as a charge on book debts of the company.
On behalf of the bank it was argued, first, that a vendor is a trustee for a purchaser after a binding contract for sale has been signed and that such vendor retains no interest in the land which can be charged; Hillingdon Estates Co. v. Stonefield Estates Ltd. 2 was cited in support of this proposition. Secondly, it was argued that the purchase price is a chose in action which can be charged, that this is what was intended to be charged and was charged in the present case, and that it was not a book debt within the meaning of the section. As to book debts, Paul & Frank Ltd. v. Discount Bank (Overseas) Ltd. 3 was cited.
On behalf of the liquidator it was argued that this was a mortgage by deposit of title deeds, that it was a charge on the vendor’s interest in the premises, that the vendor did have an interest in the premises which could be charged, and that it was not intended to charge the proceeds of sale. No argument was advanced to support the proposition that the proceeds of sale were a book debt.
Since the hearing I have been furnished with the judgment of Mr. Justice Kenny of 1st June, 1976, in Tempany v. Hynes 4 in which he discusses at length the nature of the interest retained in land by a vendor after a contract for sale has been signed, and the extent to which this can be charged so as to affect a purchaser. In the present case I am only concerned to ascertain whether the purchase price was charged. Mr. Justice Kenny’s judgment is only relevant in so far as I suggested originally (and counsel for the bank argued) that the company retained no interest in the lands after the contract for sale which could be charged.
The letter of the 8th April, 1974, dealt solely with the proceeds of sale; the title deeds were stated to be held solely to secure payment out of the proceeds of sale. Although not stated in so many words, the clear intention was to charge the proceeds of sale and no argument has been advanced to me to show that the proceeds of sale cannot be charged as such, and I can see no reason why they should not be so charged. Although the fact that the documents of title were to be held by the solicitors in trust would normally create a charge on the vendor’s interest in the lands and, very possibly, would have done so in this case had it been registered, the purchase price would only be paid on handing over the deeds so that the holding of the deeds would be equally attributable to securing the proper application of the purchase price.
I am satisfied that it was intended to charge the purchase money, that the letter was effective to do this, and that the purchase price is not a book debt within the meaning of the section. Accordingly, I will make the necessary declaration in favour of the bank.
[The purchase money had been placed on deposit account with a merchant bank pursuant to the order of 24th June, 1974. The order made pursuant to the judgment,supra, declared that the sum of £3353-62 secured by the equitable charge was well charged on the purchase money, and ordered that sum to be withdrawn and paid to the respondent bank and the balance to be withdrawn and paid to the applicant as official liquidator of the company.
Duff v Devlin
[1924] IR 56
MOORE L.J. :
The net point for this Court to decide is a short one, and is whether or not a prior legal mortgagee is entitled to sell the mortgaged property under the power of sale in his mortgage after a decree for sale has been made in a suit brought by a puisne mortgagee, of which suit the first mortgagee has knowledge, but to which he has not been made a party originally or by notice, or is not otherwise bound.
Prima facie a mortgagee can pursue all his remedies concurrently. But in my opinion he cannot do so after he has been made a party to a suit in which there has been an order for sale or administration. I think this is clear from the judgment of Farwell J. in Stevens v. Theatres, Limited (6), and the ground of that decisionin a case where the mortgagee, who was plaintiff in a foreclosure suit, exercised his power of sale out of Courtwas thus expressed, pp. 860-61: “Now, if the plaintiff cannot get rid of his action after judgment, because the judgment is for the benefit also of the defendants, it must follow that he cannot in any way vary the form of that judgment by doing an
it out of his power to perform that which the Court has directed him to do as a condition of getting the judgment.” This reasoning must equally apply to all parties to the suit. But these considerations do not extend to the position of a mortgagee who stands outside the suit, never having been made a party either in the framing of the action or by service of the order. This appears as a necessary inference from the case of Armstrong v. Dickson (1). There the Court (Meredith M.R.) directed that the prior mortgagee should be served with notice of the order for sale in order that he should be thereby bound.
The other questions in that case do not arise in the present one; but the whole of the authority asserted by the Master of the Rolls over the first mortgagee is derived from the fact that there was power to bind him as a notice party to the action, and that this had been done. It would follow from this that, notwithstanding the decree, the Court would not have had such authority had the first mortgagee remained a stranger to the suit.
Holding, therefore, that the Tyrone Loan Company, Ltd., were at liberty to exercise their power of sale on April 21st, 1923, at which date they had not been made parties to the suit or served with notice of any order, I think the order of Brown J. was right, and that we should affirm it.
ANDREWS L.J. :
I have not entertained any doubt from the opening of the arguments in this case that the order of Brown J. should be affirmed.
The plaintiff, who is a puisne judgment mortgagee for the sum of £52 15s. 5d. and costs, instituted the proceedings in this matter by way of equity civil bill to raise the amount of his judgment mortgage. Peter Devlin, the owner of the equity of redemption, was made sole defendant. It was quite competent for the plaintiff under sect. 66, rule 7, of the Chancery (Ireland) Act, 1867, to constitute his suit in this manner, and to obtain a decree for sale without making the appellants or any other mortgagee defendants, or serving them with the civil bill: see also Hunter v. M’Connell (2). Rule 9 of the same section provides that in such case all persons who according to the practice of the Court, previous to the passing of the Court of Chancery (Ireland) Regulation Act, 1850, would have been necessary parties to the suit, should be served with notice of the decree; and after such notice they should, unless cause be shown to the contrary, . . . be bound by the proceedings in the same manner as if they had been originally made parties to the suit; and any party so served may within the prescribed time apply to the Court to add to or vary the decree. Such notice of decree must under Order 18, rule 22, of the County Courts (Ireland) Orders, 1890, be prepared
by the Clerk of the Peace or Registrar. Brown J. has found as a fact in the case stated that no such notice was served on the Tyrone Loan Company. In lieu of such notice the plaintiff served another notice, dated 14th April, 1923, prepared and signed by his own solicitor, in which, referring to the decree directing a sale of the lands, he cautioned the appellants, their auctioneers, and solicitors against selling or letting the lands. An intended sale had been advertised on 10th April to take place on 21st April. The appellants and their advisers disregarded the cautionary notice, proceeded with the sale, and sold the farm to one Peter Campbell for £700.
It was not until 19th May, almost a month later, that a notice of motion was served in this matter on behalf of the plaintiff on the appellants, asking for an order setting aside the sale on the grounds (a) that the decree had been obtained by plaintiff on 10th January, 1923; (b) that the cautionary notice of 14th April, 1923, had been served; (c) that the lands had been sold at an undervalue; and (d) that the sale was an unwarrantable interference with the course of justice whilst this suit was pending. Before the County Court Judge the preliminary point was taken on behalf of the appellants, that the Court had no jurisdiction in this matter to make the order sought. The Judge ruled against the point, and the appellants expressly reserved it in their notice of appeal. It does not appear from the case stated what opinion Brown J. formed upon this point; but I am clearly of opinion that it is sound. The plaintiff’s contention is that he, a mere puisne mortgagee, can in this mortgage suit, in which the mortgagor is sole defendant, obtain an order setting aside or restraining a sale made by a first mortgagee in exercise of his statutory right, though such first mortgagee is not a defendant, has not been served with notice of the proceedings, nor submitted in any way to the jurisdiction of the Court. In my opinion, if the plaintiff were entitled to an order setting aside the sale, it could only be obtained in a plenary suit, where the issues to be tried could be properly knit, and witnesses could be orally examined and cross-examined. When pressed on this point, Mr. Murphy submitted on behalf of the plaintiff that the motion was in reality one for contempt of Court. Whilst I have the greatest doubts as to whether the County Court Judge would have any jurisdiction to deal with the matter as a contempt of Court, since the alleged contempt was not committed in the face of the Court, it is unnecessary for me to determine this point, as the motion is neither in form nor in substance a motion for contempt of Court; and I am accordingly of opinion that it was entirely misconceived.
This would be sufficient to dispose of the case; but I feel it only right to express my opinion as briefly as possible on the other points which were argued before us. In the first place, it is contended that the appellants are bound by the decree of 10th January, 1923. It is obvious that under rule 9 they are not
so bound, unless the prescribed notice of decree be served, and it be not varied within the prescribed time. No such notice was served. On this point the judgment of Meredith M.R. in Armstrong v. Dickson (1) is clear and instructive. In the next place, the sale is challenged on the ground that the lands were sold “at an undervalue.” In support of this contention an affidavit has been made by John Doris, the second mortgagee for a sum of £235, and accordingly a very interested party, who expresses the opinion that in a free and open market, with reasonable competition, the farm should sell at £1,000. The soundness of this opinion is, of course, challenged; but, even if it were accurate, it would not justify us in setting aside the sale. As Kay J. pointed out in Warner v. Jacob (2): “A mortgagee is, strictly speaking, not a trustee of the power of sale. It is a power given to him for his own benefit, to enable him the better to realize his debt. If he exercises it bona fide for that purpose, without corruption or collusion with the purchaser, the Court will not interfere even though the sale be very disadvantageous, unless, indeed, the price is so low as in itself to be evidence of fraud.” The evidence falls far short of these requirements in the present case. Lastly, the sale is attacked as being an unwarrantable interference with the course of justice. Such a contention must be regarded as obviously unsustainable when it is remembered that the appellants were in no way bound by the decree for sale, and in acting as they did were merely exercising their statutory right; a right which it is well settled will not, as a general rule, be interfered with by the Court, provided the mortgagee keeps within the terms of his power: Colson v.Williams (3).
For all these reasons the order of Brown J. must be affirmed with costs, including the special fees of £2 and £2 2s. provided for by Order 65, rule 84.
Abbey National Building Society v Cann
[1990] UKHL 3 [1991] AC 56, [1991] 1 AC 56 189, [1990] UKHL 3, [1991] 1 AC 56
Lord Jauncey
As a result of the various transactions to which my noble
and learned friend has already referred Mrs. Cann had, prior to its
sale in August 1984, an equitable interest in 30, Island Road. On
its sale she ceased to have any further interest in that house but
acquired rights against her son George Cann in relation to the
proceeds of sale. On completion of the purchase of 7, Hillview
she once again acquired an equitable interest in that house. Since
that interest derived from George Cann it followed that she could
acquire no equitable interest in the house prior to his acquisition
of an equitable interest therein on completion, nor could she
acquire an interest greater than he acquired. Mr. Aylen argued
that the equitable interest which Mrs. Cann took on completion
had priority over the equitable interest which the society took at
that time. This argument necessarily presupposed that there was a
moment of time when George Cann had a right to the
unincumbered leasehold estate whereby he could grant to Mrs.
Cann an interest which took priority over that of the society as
mortgagees. Mr. Munby countered that argument by submitting
that the two transactions of purchasing 7, Hillview and borrowing
money from the society must be looked at as one and that in
reality George Cann never acquired more than the equity of
redemption in 7, Hillview from which it followed that any
equitable interest acquired by Mrs. Cann could only be carved out
of this limited interest.
– 22 –
In order to consider these arguments it is necessary to look
at a number of authorities. In re Connolly Brothers Ltd. (No. 2)
[1912] 2 Ch. 25. a company issued debentures creating a floating
charge over all their property present and future and subject to a
condition that it should not be in a position to create any other
mortgage or charge in priority to the debenture. Thereafter the
company bought a property after borrowing a sum of £1,000 for
that purpose from a Mrs. O’Reilly. It was a condition of that
loan that Mrs. O’Reilly should have a charge upon the property
purchased. It was held that the company only acquired the equity
of redemption in the property with the result that Mrs. O’Reilly
was entitled to priority over the debenture holders. Warrington J.
said, at pp. 28-29:
‘It must be borne in mind that these debentures and the
trust deed, so far as this after-acquired property is
concerned, amount to nothing more than a contract by the
company to give to the debenture holders a security upon
this particular item of property by its description as
appearing in the conveyance, but only on such interest as
the company may in fact acquire in that and their other
after-acquired property. Now, in my judgment, the company
on the facts of this case never acquired as against Mrs
O’Reilly any interest in this property at all, except subject
to the obligation of giving to her a charge for the amount
of the purchase-money which she so advanced.”
In dismissing the appeal Sir Herbert Cozens-Hardy M.R. said, at p.
31:
“Did the company as between themselves and Mrs. O’Reilly
ever become the absolute owners of the property? Or was
not the bargain that Mrs. O’Reilly was to have a first
charge, and the company was only to get the property
subject thereto? In my opinion we should be shutting our
eyes to the real transaction if we were to hold that the
unencumbered fee simple in the property was ever in the
company so that it became subject to the charge of the
debenture holders.”
In Coventry Permanent Economic Building Society v. Jones
[1951] 1 All E.R. 901 the first defendant successfully bid for a
house at auction. On the following day she agreed to let the
ground floor to two tenants. Thereafter she borrowed a sum of
money from the plaintiffs to enable her to complete the purchase.
On the date of completion she granted a mortgage to the
plaintiffs which excluded her right to grant leases. It was argued
for the tenants that a tenancy by estoppel had been created
before the completion of the conveyance to the first defendant
and that there must be predicated a scintilla temporis between the
conveyance to her and the mortgage by her into which the tenancy
by estoppel could be inserted so as to precede the mortgage. In
dismissing this argument Barman J. said, at p 903:
“The question is whether I must assume the scintilla
temporis and assume that because of the obligations of the
landlord she must be held to have defrauded her mortgagee
by creating a tenancy which is good against the society
– 23 –
although it was not willing to lend the money except on the
footing that she had no such right. I do not see why I need
postulate this. The whole transaction was one transaction.
The vendor would not sell without without receiving his
purchase money, and the mortgagee would not provide the
purchase money without receiving the term of years. The
money, in fact, went straight – as is the universal practice
– from the mortgagee to the vendor, and not until it was in
the vendor’s hands would a legal state be created either in
favour of the landlord or of the mortgagee. It seems to me
that the whole thing is one transaction in substance, and I
am not constrained to introduce an artificiality so as to
affect the rights of the building society. Consequently, I
reject the argument that the doctrine of estoppel must have
created in the tenants an estate in priority to that of the
building society. The grantor of the so-called tenancy would
never have acquired the estate which she did acquire but
for that mortgage money, and it would not be right,
therefore, to introduce a fiction in the manner suggested.”
In re Connolly was followed by the Privy Council in Security
Trust Co. v. Royal Bank of Canada [1976] AC 503. In that case
the contract of sale provided for payment of part of the price in
cash and the balance by a mortgage granted in favour of the
vendor. After the contract but before completion the purchaser
granted a debenture charging all his property present and future
and providing for a fixed first charge on all his present freehold
property. In a competition between the mortgagee and the
debenture holder it was held that the mortgagee had priority.
Delivering the advice of the Board Lord Cross of Chelsea said, at
p. 518:
Their Lordships turn now to consider what were the
relative priorities of this charge and the appellant’s
mortgage apart from any question of registration under the
Registration of Records Act. As they see it the mortgage
was entitled to priority. The respondent’s charge was a
charge on Fisher’s interest under the contract and could
give the respondent no greater interest than Fisher had.
Fisher could not obtain a conveyance of the lands free from
the obligation to grant back the mortgage to the appellant.
He had no right to obtain an unencumbered fee simple and
the charge on his interest which he created in favour of the
respondent only gave the respondent rights which were
subject to the prior rights of the appellant. The case is
exactly parallel to In re Connolly Brothers Ltd. (No. 2)
[1912] 2 Ch. 25.”
Although in that case the contract of sale required that a
mortgage be granted in favour of the vendor Lord Cross obviously
considered that this in no way distinguished it from In re Connolly
where the obligation to grant the mortgage was not a term of the
contract of sale. These three cases ail support the contentions of
the society.
Mr. Aylen however relied strongly on Church of England
Building Society v. Piskor [1954] Ch. 553 where the Court of
Appeal declined to treat as one individual transaction the purchase
– 24 –
of leasehold premises and the granting of a mortgage to a lender
who had provided a substantial part of the purchase price. The
relevant facts may be summarised as follows:
In September 1946 the defendants agreed to purchase
leasehold premises having in August 1946 made application for an
advance on mortgage. Having paid part of the purchase price the
purchasers were allowed by the vendors to take possession. In
early November they granted weekly tenancies of part of the
premises. At the end of November the purchase was completed by
an assignment of the lease to the purchasers and at the same time
they granted a mortgage to secure the sum which had been paid
by the plaintiffs direct to the vendor. The mortgage contained a
recital that the borrower was the estate owner. There was
evidence that if the money had not been advanced for the
plaintiffs the vendors would not have delivered the assignment.
Sir Raymond Evershed M.R. said, at p. 558:
“From what I have said, it is clear that as between the
mortgagors and Captain Hamilton (and I will henceforth
speak of Captain Hamilton, treating him and Miss Hunnex as
equivalent) there was created a tenancy by estoppel. So
much is not contested, although the facts about the creation
of that tenancy are somewhat vague. If, then, the
mortgagors acquired a legal estate before the legal charge
took effect, for however short a time, then the estoppel
would, as it is said, be fed and the plaintiffs’ claim must
necessarily be defeated.”
After commenting that the conclusion of Harman J. in
Coventry Permanent Economic Building Society v. Jones “that the
whole thing LwasJ one transaction in substance” might be justified
on its facts he stated, at p. 561:
“at any rate in a case such as the present, the transaction,
although it may fairly be said to be one in substance, still
cannot be said in the eyes of the law to be one and
indivisible. The claim of the plaintiffs to a title paramount
rests essentially upon their having obtained a legal estate,
and this they can only have done by virtue of the legal
charge on which they sue; and if for some moment of time
the legal estate was vested in the mortgagors and was
therefore capable of being subjected by them to the charge
upon which the mortgagees rely – if that is right, then it
seems inevitable that the estoppel, which was involved in
the tenancy created in favour of Captain Hamilton,
necessarily is fed by the legal estate in the hands of the
mortgagors; in other words, I am not satisfied, with all
respect to Harman J., that if the language which I have
read was meant to lay down a general proposition covering
all cases of this kind, it was correct. It is no doubt true
to say that in one sense the transaction was one
transaction; but it is equally true to say that it consists
necessarily of certain defined steps which must take place
in a certain defined order, if the result intended is
eventually to be achieved. That seems to me not an
artificiality, but a necessary result of the law and of the
conveyancing practice which was involved.”
– 25 –
Later the Master of the Rolls referred to the facts of In re
Connolly and after opining that the question between Mrs. O’Reilly
and the debenture holders was a question of equitable priorities
said, at p. 563:
“It is true that Sir H. Cozens-Hardy M.R. in his judgment
said: ‘In my opinion we should be shutting our eyes to the
real transaction if we were to hold that the unencumbered
fee simple in the property was ever in the company so that
it became subject to the charge of the debenture holders.’
But I do not think that that language, appropriate to a case
of competing equities, can be used to justify the view that
there is one transaction – one, that is, not only in substance
but in law one and indivisible – in a case such as the
present.”
Romer L.J. said, at pp. 564-565:
“The mortgage of the purchased property cannot have any
operation in law (whatever rights it may give rise to in
equity or by estoppel) unless and until the purchaser is in a
position to vest a legal term in the property, as security, in
the mortgagee, and he is not and cannot be in a position to
do this until he himself has acquired from the vendor the
legal estate out of which the mortgage term is capable of
being created. From this it follows that the execution and
delivery of the conveyance (if the property is freehold) or
of the assignment (in the case of a leasehold) by the vendor
to the purchaser must of necessity constitute an essential
preliminary to the vesting in the mortgagee of a subsidiary
interest in the property. . . the fact remains that the
purchasers could not have given the society the legal charge
which the society required unless, at the time when the
charge was executed, the purchasers were the owners of the
legal interest in the property charged. That this was
recognised by the society itself is sufficiently shown by the
fact that there appears in the schedule to the charge the
statement that the premises were then (that is to say, at
the moment of the delivery of the charge) vested in the
mortgagors – a circumstance of evidence upon which
Danckwerts J. relied in Woolwich Equitable Building Society
v. Marshall [1952] Ch. 1. I agree with Danckwerts J. that
the plaintiffs, having inserted that statement in the charge,
cannot very well complain if the statement is regarded as
true. Even without this element, however, I should still
regard the legal interest in the purchased premises as having
become vested in the purchasers prior to the execution of
the charge for, as I say, unless this sequence of interests is
observed, the charge would have been wholly ineffective in
law to achieve its immediate purpose. I agree with Mr.
Alcock’s submission that a composite transaction cannot be
regarded as being one transaction, unless it is not only one
but one and indivisible; and that two transactions, each
possessing a legal individuality of its own, do not coalesce
into one merely because they are dependent on each other.”
Romer L.J. concluded his judgment, at p. 566, by hypothesising
that after the creation of the tenancies but prior to completion of
the sale the purchasers had bound themselves to give to the
– 26 –
plaintiffs a charge upon the property when assigned to secure the
advance in which event he considered that:
“the legal estate which passed to the purchasers, subject to
the equity in favour of the plaintiffs arising from the
agreement, would have sufficed to feed the estoppel in
favour of the tenants. As, however, there is no evidence of
such an agreement having been entered into, whether before
or after the tenancies were granted, the point does not
arise, and I express no concluded opinion upon it.”
It must be noted that Romer L.J. expressed no views as to what
would have been the position if the undertaking to the plaintiffs
had preceded the grant of the tenancies. In any event feeding the
estoppel in favour of the tenants would merely confer on them as
against the purchasers such rights as they, the purchasers, were in
a position to confer.
In Security Trust Company v. Royal Bank of Canada [1976]
A.C. 503 Lord Cross sought to reconcile the decisions in In re
Connolly Brothers Ltd. (No. 2) [1912] 2 Ch. 25 and Church of
England Building Society v. Piskor [1954] Ch. 553 in the following
passage, at pp. 519-520:
“But Romer L.J. in distinguishing In re Connolly Brothers
Ltd. (No. 2) was careful to point out (see [1954] Ch. 553,
566) that there was no evidence to show that the purchasers
had prior to granting the tenancy entered into any binding
contract with the plaintiff building society to grant it a
morgage on completion in consideration of its advancing
some of the purchase price. If there had been such an
agreement then the rights of the parties might well have
been different, although as the tenancy was undoubtedly
subsequently clothed with the legal estate an agreement to
grant a mortgage, even though made before the grant of the
equitable tenancy to him, would presumably not have bound
the tenant unless he had notice of it. Furthermore, the
fact that the plaintiff building society had not inspected the
property or inquired as to the rights of any person in
occupation might also have been relevant. But the basic
difference between the two lines of cases is that in cases
such as In re Connolly Brothers Ltd. (No. 2) and this case
the charge under the debenture only bites on property which
is already fettered by the agreement to give the other
charge, whereas on the facts of Church of England Building
Society v. Piskor the tenancy was created out of an interest
which was then unfettered by any such agreement.”
I have difficulty in understanding the second sentence in the
foregoing passage because just as the tenancy was subsequently
clothed with the legal estate or, as Romer L.J. put it, the legal
estate passing to the purchaser would have fed the estoppel in
favour of the tenants, so would the mortgage in favour of the
plaintiffs have been clothed with the legal estate. If the
agreement to grant the mortgage preceded the granting of the
tenancy then I should have thought that when both equitable
interests were clothed with the legal estate the prior equitable
interest would prevail.
– 27 –
Both Sir Raymond Evershed M.R. and Romer L.J. treated
Piskor as a case involving legal interests alone and on this basis
the Master of the Rolls was able to distinguish In re Connolly.
Furthermore the court appeared to proceed upon the basis that the
only interest of the mortgagees which required to be considered
was that which they acquired by virtue of the execution of the
charge in their favour after the legal estate had vested in the
purchaser. This, in my view was to ignore the interest which they
must have acquired when they handed over the purchase price to
enable completion to take place. It would be quite unrealistic to
assume that the money was made available unconditionally and
that only at or immediately after the moment of completion did
the question of the execution of a charge in their favour arise.
In Lloyds Bank Plc v. Rosset [1989] Ch 350, 389 Mustill
L.J. carefully analysed the three decisions in In re Connolly,
Piskor and the Security Trust Co. case and confessed to finding it
hard to see how they could stand together. I share his difficulty.
It would have been possible for the Privy Council in the Security
Trust Co. case to have distinguished that case from In re Connolly
on the basis that in terms of the contract of sale the purchaser
could never acquire from the vendor more than the equity of
redemption. In the event Lord Cross drew no distinction between
the two case and sought instead to distinguish Piskor. In each of
the three cases the purchaser was dependent upon the loan.
It is of course correct as a matter of strict legal analysis
that a purchaser of property cannot grant a mortgage over it until
the legal estate has vested in him. The question however is
whether having borrowed money in order to complete the purchase
against an undertaking to grant security for the loan over the
property the purchaser is, for a moment of time, in a position to
deal with the legal estate as though the mortgagee had no interest
therein. In re Connolly, Coventry Permanent Economic Building
Society v. Jones [19195] 1 All E.R. 901 and the Security Trust
Co. case say that he is not in such a position recognising, in my
view, the realities of the situation. Piskor say that he is, thereby
ignoring any interest which the mortgagee may have prior to
completion of the purchase. Nevertheless in each of the four
cases the purchase was dependent upon the loan and I find it
impossible to see any material distinction between the
circumstances obtaining in the three former cases and those
obtaining in Piskor. In my view a purchaser who can only
complete the transaction by borrowing money for the security of
which he is contractually bound to grant a mortgage to the lender
eo instante with the execution of the conveyance in his favour
cannot in reality ever be said to have acquired even for a scintilla
temporis the unencumbered fee simple or leasehold interest in land
whereby he could grant interests having priority over the mortgage
or the estoppel in favour of prior grantees could be fed with
similar results. Since no one can grant what he does not have it
follows that such a purchaser could never grant an interest which
was not subject to the limitations on his own interest. In so far
as Piskor decided that such a purchaser could be vested for a
moment of time in the unencumbered freehold or leasehold estate
with the consequences to which I have just referred, I consider
that it was wrongly decided. Conversely I consider that the
decision of Harman J. in the Coventry Permanent Economic
Building Society case was correct.
– 28 –
I would only add a further word about Piskor in relation to
the recital in the mortgage that the property “is now vested in
the mortgagors free from incumbrances for the unexpired residue
of the term”. Romer L.J., at p. 565, considered this to be a
matter of some importance and referred to a dictum of
Danckwerts J. in Woolwich Equitable Building Society v. Marshall
[1952] Ch. 1 where the judge said, at p. 9:
“It seems to me that a mortgagee, who has inserted in the
deed under which he acquires title a statement that the
mortgagor is ‘the estate owner in respect of the property’
which is being mortgaged or charged to the morgagee,
cannot object if that statement is taken to be true.
Therefore, it seems to me that the irresistible inference is
that I must assume that to be the position, even if the
transfer by the vendors to the purchaser bore the same date
as the charge. In fact, the trasfer must have been
executed at a time earlier than that at which the charge to
the society was executed; so that there was a time in which
it would be correct to say that the mortgagor had become
the estate owner, i.e., the legal owner of the fee simple of
the property subsequently charged by him to the society to
secure the amount of his loan.”
My Lords I think that Romer L.J. and Danckwerts J. read too
much into these recitals. In my view they amount to no more
than an acknowledgment by the mortgagor that he is the person
who is able to grant a valid legal charge over the property in
question.
In the present case George Cann borrowed money from
society in order to complete the purchase of 7, Hillview and in
return granted to them a mortgage. The mortgage was executed
by George Cann prior to 13 August 1984 when the purchase was
completed. It follows that as a matter of reality George Cann
was never vested in the unencumbered leasehold and was therefore
never in a position to grant to Mrs. Cann an interest in 7,
Hillview which prevailed over that of the society. The interests
that Mrs. Cann took in 7, Hillview could only be carved out of
George Cann’s equity of redemption. In reaching this conclusion it
is unnecessary to consider whether or not Mrs. Cann was aware
that George Cann would require to borrow money in order to
finance the purchase of 7, Hillview.
That is sufficient for the disposal of this appeal but in
deference to the able arguments addressed to your Lordships on
the relevant date for the determination of the subsistence of an
overriding interest for the purposes of section 23(1)(b) and section
70(1)(g) of the Act of 1925, and in view of the general importance
of this question I propose to say a few words thereanent. I should
at the outset explain that I am in entire agreement with the
analysis and reasoning of my noble and learned friend Lord Oliver
of Aylmerton on this matter and that anything that I may say
must be treated as merely supplementary thereto.
Mrs. Cann claimed to have an overriding interest in 7,
Hillview by virtue of (1) her notional contribution to the purchase
of 48, Warren Road, (2) George Cann’s undertaking that she would
always have a roof over her head and (3) her occupation of the
– 29 –
premises on the date of the conveyance to George or in any event
on the date of registration of George Cann’s title to the premises.
Mrs. Cann’s primary submission was that the tempus inspiciendum
for the ascertainment of her overriding interest was the date of
registration whereas the society submitted that it was the date of
completion of the relevant transaction. The point is almost devoid
of authority and until the recent case of Lloyds Bank Plc v.
Rosset [1989] Ch 350 had been considered only once in the county
court case of Paddington Building Society v. Mendelsohn, 50 P &
C.R. 244 in which Judge McCarraher in the Bristol county court
held that actual occupation at the date of the mortgage was
necessary to found an overriding interest. On appeal to a court of
two judges the decision of the trial judge was upheld on another
ground, Browne-Wilkinson L.J. observing that it was undesirable for
a two-judge court to adjudicate upon so important a point if the
appeal could be otherwise disposed of. It is true that in In re
Boyle’s Claim [1961] 1 W.L.R. 339 Wilberforce J. expressed the
view that the relevant date was that of registration. However the
issue in that case was whether a claimant was entitled to
compensation for rectification of the register by the removal from
his title of land belonging to a neighbour, the land being subject
to overriding interests. The issue was thus far removed from that
which is raised in this appeal and the present point does not
appear to have been argued.
In Rosset the trial judge faced with the obvious
conveyancing absurdity of construing section 70(1)(g) in a way
which could give to someone moving into occupation after
completion of a transfer or mortgage an interest taking effect in
priority to the completed transaction essayed a construction of
section 20(l)(b) which avoided this. He concluded (see [1989] Ch.
350, 371) that section 20(1)(b) fell to be construed as though it
read “subject . . . (b) . . .” to the overriding interests, if any,
affecting the estate transferred or created at the time it is
transferred or created.” Thus only those overriding interests which
subsisted at the date of completion would be effective against the
transferee or mortgagee, any interests coming into existence
between completion and registration being ineffective. The Court
of Appeal saw difficulties in the judge’s construction of section
20(l)(b) and approached the problem in a rather different way.
Nicholls L.J., considered at p. 372, that the natural construction of
section 20(1) was that both paragraphs (a) and (b) focused on the
position at the time of registration, although He recognised the
conveyancing absurdity to which I have already referred. However
he felt unable to accept the conclusion of the trial judge because
that would result in the transferee or mortgagee taking “free from
all overriding interests, whatever their nature, which came into
being after the execution of the transfer or mortgage …” (p.
373). He went on to say
“I am not persuaded that section 20(1)(b) was intended to
have the effect that a purchaser or a mortgagee should take
free from local land charges coming into being after
execution of the transfer or mortgage.”
He said, at p. 374:
“Consistently with conveyancing sense and the underlying
conveyancing principle which is being carried forward into
– 30 –
paragraph (g), it seems to me that paragraph (g) is
concerned with persons who are in actual occupation of the
land at the time when the estate or interest which is said
to be subject to the rights of the occupant was created.
For example, on completion of a purchase or a mortgage in
the usual way. This is so despite the need for a further
step to be taken (registration) before the legal estate will
be acquired by the purchaser or mortgagee. In line with
this is the exception provided for in paragraph (g).
Explicitly, the rights of an occupant are not protected if
enquiry is made of him and the rights are not disclosed.
That exception, implicitly, contemplates an inquiry by or on
behalf of the person whose estate or interest is said to be
subject to the rights of the occupant and, again implicitly,
an inquiry made before he acquired his estate or interest.
Otherwise the provision makes no sort of sense. If this is
right, the pieces of the jigsaw fit together reasonably well.
A purchaser or mortgagee inspects and inquires before
completion, in the established fashion. Or he fails to do so,
at his own risk. He then completes the transaction, taking
an executed transfer or mortgage. Whether or not an
overriding interest under paragraph (g) subsists so far as his
freehold or mortgage is concerned falls to be determined at
that moment. If an overriding interest does subsist, then
his estate when registered takes subject to that interest. If
it does not, then subsequent entry of a person into
occupation before the transfer or mortgage has been
registered, and “completed” for the purposes of section 19,
does not have the consequence of creating an overriding
interest under paragraph (g) in relation to that freehold or
mortgage.”
If I understand Nicholls L.J. correctly he is there saying
that one must look at the date of execution of the mortgage to
see whether an overriding interest of the type described in section
70(1)(g) subsists and is protected by occupation and that if such
interest still subsists at the date of registration it will fall within
the ambit of section 20(l)(b). By this line of reasoning he was
able to avoid the conveyancing absurdity to which he earlier
referred and also the problem of post-completion land charges.
My Lords I have sympathy with the courts below in their
quest for the true meaning of section 20(1)(b). I agree with
Nicholls L.J. that it is implicit in section 70(l)(g) that the inquiry
as to actual occupation is one which is capable of being made
before completion of the mortgage or other transfer. Inquiry
about occupation which commenced after completion would be
futile because by then the transferee or mortgagee would be
committed and the die cast. However whichever of the two
constructions of section 20(1)(b) referred to in Rosset is correct
there will be anomalies. Nicholls L.J.’s approach to section
70(1)(g) does not avoid the problem of the transferor of land
creating overriding interests under section 70(1)(j) and (k) between
the date of completion of a mortgage and the registration thereof
by granting sporting rights or leases for less than 21 years.
Conversely it would be an odd result if a land charge resulting
from the listing of a building of special architectural interest or
from the incurring of expense of a highway authority should not
bind the transferee or mortgagee.
– 31 –
During the course of argument I was attracted by Mr.
Munby’s submissions that section 15(1) of the Land Charges Act
1925 provided an answer to Nicholls L.J’s difficulty. The whole of
that Act was repealed by the Local Land Charges Act 1975 but
that does not affect the matter as Nicholls L.J. was considering
the position as at the time when the Land Registration Act 1925
was enacted. In terms of that subsection a local land charge is
“void as against a purchaser for money or money’s worth of
a legal estate in the land affected thereby, unless registered
in a appropriate register before the completion of the
purchase.”
“Purchaser” is defined to include a mortgagee or lessee. Thus, it
was argued, a local land charge created prior to the execution of
a mortgage but not registered in the appropriate register until a
later date would have been void as against a mortgagee. That
being the position it might be thought to follow that a local land
charge arising between the creation and registration of a mortgage
would also have been void under section 15(1) against the
mortgagee and could not therefore be an overriding interest within
the meaning of section 70(1)(i). Thus the problem which concerned
Nicholls L.5. could never arise. However on further consideration
I have come to the conclusion that the submission is unsound.
Under the 1925 legislation a local land charge was capable
of registration in two different registers, namely, the appropriate
local register under the Land Charges Act 1925 and the Land
Registry under the Land Registration Act 1925. Registration in
the local register was required for the purposes of section 15 and
such registration by virtue of section 198 of the Law of Property
Act 1925 constituted actual notice of the charge to all persons for
all relevant purposes. Registration in the Land Registry was
required before a local land charge affecting registered land could
be realised. Subject to the foregoing provisions a local land
charge was good against the owner of land for the time being.
Section 15 was dealing with a situation where the local land
charge had been created prior to the completion of sale or
mortgage. In the case of registered land completion of the
purchase or mortgage of the legal estate could only take place on
registration of the relevant disposition (section 20(1) of the Land
Registration Act 1925). Accordingly a local land charge created
before or after execution of a disposition of registered land but
registered in the local register before registration of the
disposition in the Land Registry would not have been void under
section 15 and could thus constitute an overriding interest under
section 70(1)(i) of the Land Registration Act 1925 if registration
under that act were the relevant date.
It therefore follows that section 15(1) of the Land Charges
Act 1925 does not resolve the problems which concerned Nicholls
L.J. and I am satisfied that it cannot have been the intention of
the legislature that local land charges imposed on registered land
between the execution and registration of a disposition should be
ineffective against the disponee. It may well be that charges of a
non-financial nature such as listing of a building could be
reimposed on the land after registration of the disposition but this
could not happen in the case of a financial charge which had once
arisen. I therefore conclude that Nicholls L.J. was correct (1) in
– 32 –
taking the date of registration as the relevant date for
determining the existence of overriding interests which will effect
the estate transferred or created for the purposes of sections
20(1)(b) and 23(1)(c) and (2) in his approach to the construction of
section 70(1)(g). “I do not feel that I can usefully add anything
further to what has already been said on this matter by my noble
and learned friend Lord Oliver of Aylmerton.
For the foregoing reasons I would dismiss the appeal.
– 33 –
Important Notice!
This website is provided for informational purposes only. See the Disclaimer and the Terms of Use in the footer. It is a fundamental condition of the use of this website that no liability is accepted for any loss or damage caused by reason of any error, omission, or misstatement in its contents.
Public Sector Materials; Statutes and Cases in italics are reproduced as public sector material. See the Legal Materials link in the footer.