Scheme for sale and purchase of land – Option – Plaintiff not registering caution to protect option – Purchaser possessing land certificate – Purchaser depositing land certificate with defendant as security – Priority of competing interests – Judge finding plaintiff’s interest overtaken by defendant’s – Appeal dimissed
The plaintiff and her husband owned Brixton Lodge and land behind it at Lodge Lane, Brixton, Devon. They sold part of that land on May 23 1984 to E for £40,000. E obtained planning permission to build nine houses on the site. A field adjoining the plaintiff’s land belonged to the Cloudsleigh Trustees. The plaintiff thought this field also had potential for development and the only available access to it was from the plaintiff’s adjoining land. The plaintiff had therefore excluded from the sale to E a “ransom strip”. In 1985 the plaintiff and her husband approached E with the intention, as a joint venture, to try to purchase and develop that land. However, they did not wish the owners of the proposed development site to know of their involvement. In August 1987 a scheme was agreed whereby the plaintiff conveyed her legal interest in the ransom strip to E. The documents produced for the transaction were a transfer, an option agreement by which E gave the plaintiff the option for the sum of £10 to repurchase the land for £10,000 during the period of 20 years from the date of the option, a promissory note by E promising to pay the bearer £10,000 in seven days and a “transfer of whole” form bearing E’s signature. The plaintiff did not register a caution with the Land Registry to protect her option. The land certificate for the property was in the possession of E.
On December 15 1987 E deposited the land certificate for the property with the defendant as security for borrowing facilities. A legal charge had been created by which E charged the legal interest in the property to the defendant, but the defendant, in accordance with its custom, did not register the legal charge, but relied on the deposit of the land certificate. The defendant gave notice of the deposit of the certificate to the Land Registry on December 30 1987. E’s financial position deteriorated and in August 1988 he sought an individual voluntary arrangement.
The plaintiff sought a declaration that the option agreement of August 1987 had priority over the legal charge of December 15 1987. The judge declared that the bank’s charge had priority over the plaintiff’s option. The plaintiff appealed contending, inter alia, that the judge erred in holding that: (1) the appellant had “armed” E to be the legal owner of the land; (2) the transfer of the land by the plaintiff to E subject to an option in favour of the plaintiff was a “thoroughly artificial transaction”; and (3) such matters justified the postponement of the plaintiff’s equitable interests under the option in favour of the unregistered legal charge of the defendant.
Held The appeal was dismissed.
1. Priority under the general rule, that where there were two competing equitable interests the earlier in time prevailed in law (see Mortgage Corporation Ltd v Nationwide Credit Corporation Ltd [1994] Ch 49, per Dillon LJ at p54), could be lost when “something tangible and distinct, having the strong and grave effect of producing such a result” was “clearly proved to have taken place”. The burden of such proof fell upon the person seeking to affect the previous equitable title: see Shropshire Union Railways and Canal Co v The Queen (1875) 7 LR 496, per Lord Cairns LC. The appellant had contended that the judge had failed to define the degree of seriousness which led to loss of priority. But in referring to what was inequitable, the judge must have had all the authorities in mind, in particular Shropshire Railways (supra).
2. The bank had accepted the legal charge over the option land because E offered it a land certificate which appeared to be unencumbered. E had been able to do so because the plaintiff had so acted as to arm him with the means of representing himself to the world as the unencumbered owner of the land: Abigail v Lapin [1934] AC 491 distinguished. The judge had been entitled to take into account the plaintiff’s conduct, to find, as he did, that more was involved than a mere failure to register, and that it was inequitable for the plaintiff to retain priority over the defendant.
Akhil Shah (instructed by Blairs, of Portsmouth) appeared for the appellant;Teresa Peacocke (instructed by Curtis, of Plymouth) appeared for the respondent.
