A purchaser, let into possession before completion, granted weekly tenancies to Captain Hamilton and others. The plaintiff building society loaned the sum of pounds 1,600 to assist the purchaser with completion, the money being paid over on completion in return for a legal charge.
Held: The tenants had priority over the building society.
Lord Evershed MR observed that, although the transaction might fairly be said to be one in substance, it could not be said to be one and indivisible in the eyes of the law. He said: ‘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.’
Romer LJ expressed the same view: ‘The theory that a purchase, which is completed by payment of money which has been provided in part by a third party, and a mortgage by the purchaser of the property sold to secure the payment of that money to the lender, constitutes only one transaction, if the instruments are executed at more or less the same time, is a conception which has a prima facie appeal, but it does not, on analysis, in my opinion, truly reflect the legal effect of what takes place. 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.’
He added: ‘I find myself unable to treat as one what were, in law, two palpably distinct transactions merely for the purpose of enabling the society to evict persons, who were already in occupation but whose existence or rights the society had never troubled to inquire about at all.’
Citations:
[1954] Ch 553
Jurisdiction:
England and Wales
Citing:
Distinguished – In re Connolly Brothers Ltd (No. 2) CA 1912
A company had granted a debenture over all its assets, present and future, but wishing to acquire an additional property, it approached a third party who agreed to finance the purchase against a charge. It contracted to buy the property at pounds . .
Cited by:
Cited – Lloyds Bank plc v Rosset CA 13-May-1988
Claim by a wife that she has a beneficial interest in a house registered in the sole name of her husband and that her interest has priority over the rights of a bank under a legal charge executed without her knowledge. The case raises a point of . .
Lists of cited by and citing cases may be incomplete.
Land
Updated: 31 January 2022; Ref: scu.655177