Loan — Security — Property — Claimant requiring equitable charge over property prior to grant of loan — First defendant signing security agreement — Whether agreement enforceable — Claim allowed
The claimant made a loan of £50,000 to the second defendant (a company through which the first defendant carried out his business activities) to enable it to proceed with a business opportunity. As security for the loan, the first defendant and his wife signed an agreement giving the claimant an equitable charge over a property that they co-owned. The defendants’ deal subsequently fell through but the claimant sought repayment of the loan and enforcement of the security agreement.
The claimant acknowledged that the document did not comply with the provisions of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. However, he contended that the security agreement created an equitable charge. He also argued that because the agreement conferred no ownership or interest in kind, but merely gave the chargee certain rights over the property as security for the loan, and since it conformed to the requirements of section 53(1) of the Law of Property Act 1925, it was perfectly enforceable.
Section 53(1) provided, inter alia, that a disposition of an equitable interest or trust subsisting at the time of the disposition had to be in writing and signed by the person disposing of it, or by his or her agent lawfully authorised in writing or by will.
The defendants contended that the document did not conform to section 53, since the section presupposed the existence of an equitable interest that could be disposed of. They submitted that the document made no disposition because, until an equitable mortgage was granted, there was nothing that could be the subject of a disposition.
Held: The claim was allowed.
The document was sufficient to create an equitable charge and was enforceable because it complied with section 53(1). The defendant and his wife had consented to the charge on their property in favour of the claimant in order to secure the loan and the return on the advance that the claimant had clearly made to the second defendant.
For section 53(1) to apply, it was not necessary to have a pre-existing equitable interest in order for there to be a disposal protected by the 1925 Act: London County & Westminster Bank Ltd v Tompkins [1919] 1 KB 515, Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584 and Murray v Guinness [1998] NPC 79 considered.
Angus Macpherson (instructed by Phillips, of Basingstoke) appeared for the claimant; Adrian Jack (instructed by TG Baynes, of Dartford) appeared for the first defendant; the second defendant did not appear and was not represented.
Eileen O’Grady, barrister
