Competing purchasers–First purchaser’s application to lodge cautions held up by difficulties of identification, second purchaser obtains a clear official search and lodges transfer for registration within priority period–Second purchaser entitled to do this despite his knowledge of first purchaser’s claim to have a binding contract–‘Honest doubt’ as to validity of claim held within the ambit of ‘good faith’–Further points by first purchaser on practice at Land Registry unsuccessful
These were
claims by Mr William Henry Smith, (1) against Mr George Edward Morrison, of
Longland Farm, Chertsey Lane, Staines, for specific performance of a contract
dated September 20 1972 for sale of the farm together with a bungalow, 194a
Chertsey Lane; and (2) against the chief land registrar, for a declaration that
cautions lodged by the plaintiff in respect of the titles comprised in Longland
Farm had priority over an application by Frederick Coyle & Co Ltd, property
developers, to be registered as proprietors of the land in question, and for an
order restraining the registrar from registering any disposition of the land
otherwise than pursuant to the declaration. Coyles were added as defendants to
the first and second actions, and Mr Morrison as a defendant to the second
action.
Mr M Albery QC
and Mr L H Hoffmann (instructed by Lucien Fior & Co) appeared for Mr Smith;
Mr D Nicholls QC (instructed by Rooks & Co) for Coyles; and Mr P Howell
(instructed by the Treasury Solicitor) for the registrar. Mr Morrison took no
part in the proceedings.
Giving
judgment, PLOWMAN J said that in 1972, the defendant, Mr Morrison, was the
owner of Longland Farm. It was about five acres, and he ran a pig farm there
with about 1,000 pigs. He also owned a nearby bungalow, 194a Chertsey Lane. The
titles of these properties (with one exception, which could be ignored) were
registered under the Land Registration Act 1925. On September 20 1972 Mr
Morrison contracted to sell the farm and bungalow to the plaintiff, Mr Smith.
The price of Longland Farm was £34,000, and the bungalow was sold for £7,000,
making £41,000 in all. Two months later, on November 23 1972, Mr Morrison
contracted to sell the same properties to the second defendants, Coyles, for
£42,000. The proceedings raised the question which of these contracts was
entitled to priority.
The relevant
facts were as follows. Coyles were a private company incorporated in 1927,
whose business was that of builders and contractors. They were also property
developers, and the director in charge of their development activities was a Mr
Andrews. In 1971 Coyles were interested in acquiring or obtaining options over
a number of different sites in the vicinity of Longland Farm with a view to
developing the whole as a building estate if they could get planning
permission. As part of the scheme, the acquisition of Longland Farm was
necessary, or at least desirable, for the purpose of providing access to a part
of the area known as the Wedge. On July 17 1972, Mr Andrews wrote to Mr
Morrison confirming that he (Mr Andrews) had offered Mr Morrison £33,000 for
Longland Farm and £7,000 for the bungalow, making £40,000 in all, subject to
contract, and that Mr Morrison had accepted that offer. But very shortly
afterwards the chances of obtaining planning permission were poor, and on July
27 Mr Andrews wrote to Mr Morrison withdrawing his offer. In September,
however, the prospects of planning permission improved, and early in that month
Mr Andrews reopened negotiations with Mr Morrison. But on September 20, Mr
Smith, who had heard that the farm was for sale, went to see Mr Morrison and
entered into an oral contract with him to purchase the farm and bungalow for
£41,000. This was to be apportioned as £34,000 for the farm and £7,000 for the
bungalow. Mr Morrison had entered an appearance to the present action, but he
delivered no defence and was not represented; the position on the pleadings,
therefore, was that Mr Morrison admitted the contract on which Mr Smith sued.
Immediately
after entering into the oral agreement, Mr Smith, who was a farmer, went to see
a friend in the property business, obtained from him two prints of a form of
contract and took these back to Mr Morrison. They were filled in partly by Mr
Morrison and partly by Mr Smith and handed to Mr Smith in exchange for his
cheque for £4,100 as a 10 per cent deposit. The first, relating to Longland
Farm, was headed with the vendor’s address:
‘George
Edward Morrison, Longland Farm, Chertsey Lane, Staines, Middlesex. I (vendor)
hereby acknowledge receipt of the sum of (£3,400) being the deposit and part
payment of the sum of (£34,000) for which sum I have agreed to sell my freehold
property known as Longland Farm, Chertsey Lane, Staines, Middlesex, app. 5 to 5
1/2 acres to you with vacant possession at completion, with completion to take
place (1/4/73) weeks from now’
–and the
figures ‘1/4/73’ were repeated. Then:
‘Signed G. E.
Morrison; date 20/9/72’
–and then the
purchaser’s name and address were set out:
‘W. H. Smith,
Halebourne Farm, Bagshot Road, Chobham, Surrey.’
The other
document, relating to 194a Chertsey Lane, was in similar form except that the
amount of the deposit acknowledged was £700 as a deposit in part payment of the
sum of £7,000 and the date for completion was not filled in. The date for completion
in the memorandum relating to Longland Farm, ‘1/4/73,’ was suggested by Mr
Morrison and agreed by Mr Smith, because Mr Morrison wanted to find another
farm to which to move his pigs, and needed time. A month or so later, Mr
Andrews was again in touch with Mr Morrison, to whom he wrote on October 26
1972. He said that he understood that Mr Morrison had had several offers from
developers, but assumed he would not sign any contract until he had found his
new farm. He referred to changes in the possibility of obtaining planning
permission and suggested that Mr Morrison should contact him before signing any
contract, as he (Mr Andrews) might well be able to improve on the offers.
Shortly afterwards they met, and Mr Morrison said that he had found a suitable
farm for his pigs and was now in a position to sell. A price of
Morrison’s agreement with Mr Smith.
Two or three
weeks later, there was a telephone conversation between Mr Smith and Mr
Andrews. There was a conflict of evidence as to who telephoned whom and what
was said, but it was common ground that Mr Smith told Mr Andrews that he had
purchased the property. Mr Andrews said in evidence that he did not believe Mr
Smith. However, Mr Andrews went to see Mr Morrison the next day and told him
about the telephone call. Mr Morrison assured him that he had not agreed to any
deal with Mr Smith. Mr Andrews then got in touch with Coyles’s solicitors. On
November 16, Mr Morrison wrote to Mr Smith a letter which was never received.
It said:
‘As you were
unable to contact me yesterday after my call to see you, I am sorry to have to
tell you that the proposed purchase of the above property is now cancelled.
This decision was brought about by the vendors of the property that I intended
to buy. Your deposits will be refunded in due course.’
On November 23
1972 Mr Morrison and Coyles signed a formal contract for the sale and purchase
of the farm and bungalow for the sum of £42,000, of which £6,250 was apportioned
to the bungalow. The date fixed for completion was December 11 1972, that also
being the date on which Mr Morrison was due to complete the purchase of the new
farm. Exchange of contracts took place at the offices at Staines of Dale &
Newbery, Mr Morrison’s solicitors, in the presence of Mr Hall, a legal
executive of the firm, Mr Morrison, Mr Cooke, a partner in Rooks & Co.
Coyles’s solicitors, and Mr Andrews, representing Coyles. At that meeting, Mr
Morrison stated that he had not entered into any other contract, but had
received a cheque as a deposit for which he had given a receipt and the deposit
was to be returned.
Mr Cooke then
went on holiday, and in his absence the Coyles purchase was dealt with by Miss
Foinette, an assistant solicitor, under the supervision of Mr Pritchard, who
was not only a partner in Rooks & Co but also a director of Coyles and
chairman of its parent company. The two firms of solicitors then set about the
ordinary conveyancing process appropriate to the sale of registered land.
Meanwhile, on November 27, Dale & Newbery wrote to Mr Smith returning his
deposit ‘as the matter is not proceeding.’
On December 1, Mr Smith’s solicitors, Lucien Fior, returned the cheque
for the deposit, asserting that ‘your client has signed a binding memorandum of
sale to sell this property to our client,’ and calling for the abstract of
title. On December 4 Dale & Newbery replied asking for a copy of the
supposed memorandum, and on December 5 they applied to the chief land registrar
for official searches. On December 6 Lucien Fior wrote enclosing a photocopy of
the memorandum and observing that this had been ‘lodged at the Land
Registry.’ On December 11 Mr Smith
issued his writ claiming specific performance by Mr Morrison. By December 13
Rooks & Co had obtained clear searches in respect of all the titles except
that of the bungalow (on which Mr Smith’s contract had been noted), and on that
day, knowing that Mr Smith had threatened proceedings but not knowing that he
had issued a writ, they completed the sale of the farm, but not of the
bungalow, to Coyles. On December 18 they lodged the transfer to Coyles at the
Land Registry for registration. As a result of the present proceedings,
however, Mr Morrison remained on the register as the registered proprietor of
all the properties. He went out of possession on January 31 1973, and on the
same day Coyles took possession and were still in possession.
Meanwhile what
had happened at the Land Registry was that Lucien Fior, on behalf of Mr Smith,
had lodged notice of his contract with Mr Morrison in terms which related only
to title SY 246971, which was confined to the bungalow, and did not specify any
other title numbers. As far as the bungalow was concerned, it was common ground
that Mr Smith thus obtained a priority which he still retained. But
difficulties then arose in relation to Longland Farm, which was comprised in
six different titles. There was some confusion as to which part was comprised
in which title, and as already noted, the title to one small piece of the land
was not registered at all. Requisitions followed, and the matter was still
under investigation at the registry when Rooks & Co lodged their
application for official searches on December 5. Not till December 12, the day
before completion of the sale to Coyles, did Lucien Fior lodge an application
for cautions against dealings with the land comprised in the various title
numbers of Longland Farm. On January 1 1973 the official search priority period
expired, and the registry, taking the view that Lucien Fior’s applications for
cautions had come too late to affect the priority conferred by Coyles’s
applications for official searches, cancelled Mr Smith’s applications for
cautions. On January 4, Mr Smith issued his originating summons against the
chief land registrar. His case in his two actions was that Coyles were not
purchasers in good faith; that their application for registration as proprietors
was not in order, and that consequently, on both or either of those grounds,
they obtained no priority under the Land Registration (Official Searches) Rules
1969. Further or in the alternative, it was alleged that Coyles wrongfully
induced Mr Morrison to break his contract with Mr Smith by transferring
Longland Farm to Coyles instead of to Mr Smith, and an injunction was claimed
restraining Coyles from taking any steps to procure its registration as
proprietor and requiring it to withdraw its application for registration.
With regard to
the question of good faith, counsel for Mr Smith submitted that a purchaser in
good faith within the meaning of the rules must be an honest purchaser, and
that a purchaser who knew that his vendor had already sold to a third party, or
who showed reckless indifference in the face of a prima facie valid
claim by a third party to be a prior purchaser, was not honest. He submitted
(and it was common ground) that the relevant date was the date of completion,
and he argued that at completion Coyles acted with reckless indifference to Mr
Smith’s claim, being aware of its existence. He (his Lordship) approached the
question of the meaning of ‘good faith’ in the light of Lord Denning’s general
remarks in Central Estates (Belgravia) Ltd v Woolgar
[1972] 1 QB 48 at 55, to the effect that the phrase was often used in statutes
but rarely defined, and that the judges had to do the best they could to
interpret the legislature’s will in regard to it. Having considered all the
authorities cited by counsel on both sides, he (his Lordship) had come to the
conclusion that a purchaser who acted honestly acted ‘in good faith’ within the
meaning of rule 2 of the 1969 rules, and on the facts he was satisfied that Mr
Pritchard, whose decision it was to complete, was not dishonest. At the time he
took his decision he had no ulterior motive but an honest doubt as to the
validity of Mr Smith’s claim; there was an issue whether the memoranda signed
by Mr Morrison were complete when he signed them, and Mr Morrison was emphatic
that he had never entered into any binding contract with Mr Smith. In all the
circumstances, Mr Pritchard was entitled to take advantage of Coyles’s rights
under the rules of 1969. The next question was whether in so doing he had wrongfully
induced a breach of Mr Morrison’s contract with Mr Smith. It was clear from the
authorities that inducement involved some direct and deliberate interference
with the execution of a contract. In his (Plowman J’s) judgment, Mr Pritchard’s
state of mind at the time of, and in relation to, the transfer to Coyles was
not such as to render Coyles liable to a claim for inducing breach of contract.
As already stated, Mr Pritchard’s state of mind was one of honest doubt, and
that was not enough to bring him within the principles of liability established
by the relevant decisions.
Mr Smith
pleaded next that for the following reasons Coyles’s application for
registration as proprietor was not ‘in order’ within the meaning of rule 5 of
the rules of 1969:
‘(a) The transfer did not comply with rule 121 (1)
of the Land Registration Rules 1925 in that it was not in Form 35.
‘(b) The application did not comply with rule 259
of the Land Registration Rules 1925 in that it included neither a copy of the
second defendant’s memorandum and articles of association nor a certificate
from the second defendant’s solicitors that it had power to hold land.
‘(c) The name of the transferee on the transfer
was not the correct name of the second defendant.’
As regarded
point (a), in fact Form 19, which was the ordinary common form of transfer, was
used instead of Form 35, but in
although a transfer to a company was not in the prescribed statutory form, it
was not for that reason invalidated, having regard to the wide discretion given
to the registrar by rules 74, 123 and 322 of the rules of 1925. It followed
that the use of Form 19 instead of Form 35 did not prevent the application from
being in order. Then as to point (b), rule 259 did not state that a copy of the
memorandum and articles of association was to be lodged with the application,
merely that it should be lodged. The Land Registry’s practice was to
requisition for it if it was not lodged, and the fact that a copy was not
lodged at the same time as the application for registration did not in his
(Plowman J’s) judgment mean that the application to register the transfer was
not in order. Lastly, as regarded point (c), what was said was that Coyles’s
application described them as ‘Frederick Coyle & Company’ and not as
‘Frederick Coyle & Company Ltd.’
Rule 13 gave the registrar power to correct clerical errors, but that
power was not available here, since the transfer was not yet registered. The
practice of the Land Registry, however, was to return the transfer for
rectification before it was registered. Again, he (his Lordship) was of opinion
that the mere fact that it was necessary for the Land Registry to return a
document for amendment before it could be registered did not necessarily
involve the conclusion that the application was not ‘in order’ in the first
instance. In his judgment, the words ‘in order’ could fairly, and should, be
construed as ‘substantially in order’ rather than ‘in perfect order,’ and the registrar
had a discretion to accept applications for registration which were regarded as
in order and to enter them in the day list subject to whatever requisitions
were considered necessary. That being so, acceptance and entry must be taken as
conclusive of the sufficiency of an application in point of form.
Mr Albery had
also submitted that the registrar was wrong in cancelling Mr Smith’s
application for cautions without giving him a hearing. Counsel relied on
section 55 (1) of the Land Registration Act 1925, but although that section
talked about lodging a caution, the protection given by the Act to a cautioner
(namely a right, not a priority, to be heard in opposition to an application to
register a dealing) applied only when the caution was entered on the register.
Mr Smith’s application for cautions was never entered on the register and was
cancelled by the registrar because as soon as Coyles lodged their application
to register their transfer within the priority period, Mr Smith ceased in
effect to have any cautionable interest. In these circumstances, the formal
defect points failed. In the result, therefore, both actions failed, and must
be dismissed, except that there would of course be an order for specific
performance in respect of the sale of the bungalow.
His Lordship
ordered the plaintiff to pay Coyles’s costs, and Mr Morrison to pay Mr Smith’s
costs, save those owed to Coyles. A stay of execution was granted pending
notice of appeal, notice to be lodged by January 18. An interlocutory
injunction restraining dealings in the land was continued.
