Property – Mortgage – Deed – Purchaser failing to pay balance of purchase price before exchange of contracts – Mortgage lender seeking to register charge – Whether parties executing transfer in escrow – Whether lender entitled to register priority charge – Application granted
The claimant bank made a mortgage advance of £1.2m to the first defendant to enable him to purchase a residential property from the second and third defendants, as registered proprietors of the freehold title. The mortgage advance was to be secured by a legal charge on the property.
In June 2004, the first defendant’s solicitor returned a draft contract to the solicitor acting for the second and third defendants, enclosing a TR1 transfer form as required by the Land Registration Rules 2003, which stipulated that the consideration for the transfer of the property was £1.5m. An exchange of contracts by telephone followed and the first defendant remitted £1,137,645 to the second and third defendants’ solicitor.
The first defendant failed to pay the balance of the purchase price and when. in June 2005, the claimant applied to register its charge over the property, it was told that it would need to bring proceedings to determine the validity and priority of its charge.
In July 2006, the claimant brought an action, seeking declarations that: (i) the contract of sale and purchase had been completed; (ii) it had a legal charge over the property by way of mortgage; (iii) any right or interest of the second or third defendant by way of unpaid vendor’s lien was subject to and postponed to that charge; and (iv) that its charge should be registered in the land charges register against the title to the property. The second and third defendants claimed that they had not given up possession since the balance of the purchase price had not been paid.
The claimant subsequently applied for summary judgment, contending that it was not a term of the contract that completion would take place only once the balance of the purchase price had been paid. The principal issue was whether the TR1 form signed and sent to the first defendant’s solicitor was an unconditional transfer of the second and third defendants’ title or was a transfer executed in escrow on condition that the balance of the purchase price was paid so that, in fact, the transfer had not become effective.
Held: The application was granted.
The transfer had been executed as a deed in accordance with the 2003 Rules and not as an escrow, so that the claimant was entitled to have its charge registered against the title even if the registered title remained vested in the second and third defendants.
A conveyance on sale might be delivered in escrow so as to be binding on the grantor only if the grantee executed a counterpart or some other document as agreed with the grantor. Delivery as an escrow might be made in words or by conduct although it need not be made in any special form or accompanied by any particular word. The essential thing was that the party expressly or impliedly declared its intention to be bound by the contract only upon performance of some specified condition: Watkins v Nash (1875) LR 20 Eq 262; London Freehold & Leasehold Property Company v Baron Suffield [1897] 2 Ch 608; Thompson v McCullough [1947] 1 KB 447; and William Cory & Son Ltd v Inland Revenue Commissioners [1964] 2 All ER 66 considered.
In the absence of direct evidence, the fact that only part of the purchase price had been paid at the time of delivery justified the inference that the deed was delivered as an escrow pending payment of the balance. However, the possibility of a vendor’s lien after completion of a transfer showed that it was possible in law for a vendor to complete a transfer unconditionally, even where part of the purchase price had not been paid: Bentray Investments Ltd v Venner Time Switches Ltd [1985] 1 EGLR 39; (1985) 274 EG 43-50 considered.
In the present case, the primary facts indicated that the transfer was unconditional where, inter alia, the mortgage moneys were irrevocably released to the second and third defendants, who used those moneys to discharge other debts and retain the balance for their own purposes.
Peter Cranfield (instructed by DLA Piper UK LLP, of Leeds) appeared for the claimant; the first defendant did not appear and was not represented; the second defendant appeared in person on behalf of himself and the third defendant.
Eileen O’Grady, barrister
