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 1,100, with pounds 150 deposit on exchange. The company duly paid the deposit. On completion (at which the lender was present), the lender’s cheque for pounds 1,000 was paid into the company’s bank account and the company paid the balance of the purchase price (amounting to pounds 950) to the vendor in cash. The same solicitor acted for the vendor, purchaser and lender. The solicitor retained the title deeds, on behalf of the lender. A few days later, the company executed a memorandum of deposit (an equitable charge) in the lender’s favour. Warrington J held at first instance that the equitable charge in favour of the lender took priority over the debenture, saying: ‘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.’
Held: The appeal failed. The court declined to dissect completion of the purchase and the grant of the charge into two notionally separate and successive stages, with the company acquiring, at stage one, a property unincumbered by Mrs O’Reilly’ charge. Since the lender had a contractual right to the security at the time when she advanced the money, she necessarily had priority over the debentures. During argument for the appellant debenture-holders, Buckley LJ identified the question at issue as being ‘whether the company acquired the property unfettered by any charge to the lender.’
Buckley LJ agreed holding that on completion the company did not acquire an unincumbered fee simple in the property. It obtained the property subject to a contractual obligation to give a first charge on it to Mrs. O’Reilly, and the debenture holders could get no more.
Sir Herbert Cozens-Hardy MR said: ‘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 unincumbered fee simple in the property was ever in the company so that it became subject to the charge of the debenture-holders.’
Judges:
Buckley LJ, Sir Herbert Cozens-Hardy MR
Citations:
[1912] 2 Ch 25
Jurisdiction:
England and Wales
Cited by:
Distinguished – Church of England Buidling Society v Piskor CA 1954
Weekly tenancies had been granted by the purchaser of the property, title to which was unregistered, before completion. The society now sought possession of the property. The tenants argued that although their tenancies were equitable, they were . .
Cited – Cook v The Mortgage Business Plc CA 24-Jan-2012
The land owners sought relief from possession orders made under mortgages given in equity release schemes: ‘If the purchaser raises all or part of the purchase price on mortgage, and then defaults, the issue arises whether the mortgagee’s right to . .
Cited – Security Trust Co v The Royal Bank of Canada PC 1-Dec-1975
(Bahamas) A company, Fisher agreed to buy land with part of the purchase price to be paid by a fixed date and the balance secured by a mortgage to the vendor. A conveyance and a mortgage were duly executed and held in escrow pending payment of the . .
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 . .
Distinguished – Church of England Building Society v Piskor CA 1954
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 . .
Lists of cited by and citing cases may be incomplete.
Land
Updated: 31 January 2022; Ref: scu.450490