Council house re-taken by council mortgagees on default by purchasers–Transaction clothed in a ‘see-through dress’ by council as a purported exercise of a mortgagee’s power of sale–Transfer a nullity–No sale took place within the meaning of the statutory power
This was an
appeal by Wellingborough Borough Council from a decision of Pennycuick V-C (234
EG 743, [1975] 1 EGLR 59) granting the respondents, Mr and Mrs Dennis Williams,
a declaration that the purported transfer of their property in Cowper Road,
Wellingborough, by the council to itself in its capacity of mortgagee was void
and of no effect.
Miss E Appleby
(instructed by Sharpe, Pritchard & Co. agents for G V Baguley, of
Wellingborough) appeared for
& Chamberlain, of Wellingborough) represented the respondents.
Giving
judgment, RUSSELL LJ said that Mr and Mrs Williams bought the house in question
in November 1972 from the council, who were empowered to sell under section 104
of the Housing Act 1957. That provided, by subsection (1), that ‘where a local
authority have acquired . . . any land [for the provision of housing
accommodation] the local authority may . . . sell . . . any houses on the land
or erected by them on the land . . . and upon any such sale . . . they may . .
. agree to the price or any premium being paid by instalments or to payment of
part [of the price] being secured by a mortgage of the premises.’ Subsection (3) provided that ‘on the sale of
a house in accordance with this section . . . a local authority may in any
case, and shall if so required by the Minister, impose conditions . . . (c)
precluding the purchaser . . . from selling . . . the house [during a specified
period not exceeding five years] unless he has notified the authority of the
proposed sale . . . and offered to resell or sell the house to them and the
authority have refused the offer.’ In
the present case, the purchase price of the house was £5,300, which was
something less than market value. Mr and Mrs Williams executed a legal charge
in favour of the local authority for the amount, repayable with interest by
monthly instalments. In the transfer of sale the local authority reserved for
themselves a right of pre-emption, and Mr and Mrs Williams were restricted from
selling the house within five years from the date of sale. The only power of
sale reserved in the legal charge to the local authority was the right to
exercise the statutory power of sale conferred on mortgagees by section 101 (1)
(i) of the Law of Property Act 1925. That provided that a mortgagee had ‘A
power, when the mortgage money has become due, to sell . . . the mortgaged
property . . . by public auction or by private contract.’
Mr and Mrs
Williams fell into arrears with the mortgage instalments, and the council
purported to exercise the power of sale by a transfer of June 3 1974 of the
property to themselves. Pennycuick V-C declared that such a transfer was void
and of no effect on the principle that a mortgagee could not sell to himself.
He (Russell LJ) agreed that the transfer was a nullity, but he thought that
there was a very short answer to the problem, which was that what was done was
not something which could be described as a sale, whether by public auction or
private contract. It was a mere retaking of the property, though with a
see-through dress of a sale for £5,300, and no powers of retaking of such
property had been reserved to the mortgagees in the legal charge. Of course, he
(his Lordship) appreciated the problems which might be created during the first
five years after sale of a council house, such as the combining of a
fully-effective enforcement of the legal charge with the maintenance of the
principle that the purchasing tenant should not make a profit on any
realisation over and above the initial reduced purchase price. But he (Russell
LJ) was unable by some general implication from the policy of the Housing Act
1957 to dignify as a sale that which the council purported to do under their
power of sale as mortgagees.
Agreeing,
STAMP LJ said that for a sale to exist there must be two parties, a seller and
a buyer. In this case there was one party only. Lindley LJ in Farrar v Farrars
Ltd (1888) 40 ChD 395 said, ‘A sale by a person to himself is no sale at
all.’ As there was no sale, the question
of considering the propriety of what had been done did not arise.
BROWNE LJ also
agreed, and the appeal was dismissed.