Appeal from dismissal of application for injunction to restrain a bank mortgagee from enforcing a writ of possession — Bank had lent money to a company of which the appellant and his wife were sole directors and shareholders — Company owned land, mortgaged to bank as security for loan, including a mansion house, cottages, hatcheries and other buildings — In proceedings by the bank to recover possession as mortgagee the appellant claimed a right of occupation in respect of the mansion house, hatcheries and buildings under a service agreement with the company, giving him and his wife and family a rent-free licence for a period of 20 years from 1968 — He submitted that this right of occupation under licence overrode any rights of the bank under the mortgage on the ground that the bank was fixed with constructive notice of his right to occupy the premises — He had made no disclosure of his interest in negotiations with the bank, which he had carried out as the company’s agent, for the grant of the loan — Held, dismissing the appeal from the decision of Dillon J refusing the injunction, but not adopting the judge’s reasoning, that the appellant was estopped from setting up a claim that he held an interest which overrode, or stood in priority to, the interest of the bank under the mortgage — It was unconscionable for a negotiating agent to remain silent about an adverse interest to which he laid claim in the mortgaged property and subsequently to assert that interest when the other party had irrevocably altered its position — Doctrine of constructive notice and section 199 of the Law of Property Act 1925 discussed
This was an
appeal by Douglas Haig Willey from an order of Dillon J dismissing an
application for an injunction to restrain the Midland Bank Ltd from enforcing a
writ of possession relating to a property in West Hall, Mundford, Norfolk,
consisting of over 50 acres of land and including West Hall House, cottages,
hatcheries, and other outbuildings. The freehold was owned by Farmpride
Hatcheries Ltd. The present application arose out of proceedings by the bank as
mortgagee to enforce their rights in respect of the property. The present appellant,
Douglas Haig Willey, was the second defendant in the possession proceedings,
the first defendant being Farmpride Hatcheries Ltd. By his application Mr
Willey claimed that he had an interest in the mortgaged property consisting of
a right of occupation under a licence for 20 years from March 6 1968.
Peter
Mottershead QC and Augustus Ullstein (instructed by Websters) appeared on
behalf of the applicant; Geoffrey Jaques (instructed by Hill & Perks, of
Norwich) represented the respondent bank.
Giving the first
judgment at the invitation of Buckley LJ, SHAW LJ said: This appeal is brought
by the second defendant in the
dismissal by Dillon J on November 23 1979 of an application by Mr Willey for an
injunction to restrain the plaintiff (whom I shall call ‘the bank’) from
enforcing a writ of possession issued on May 10 1979. The writ related to a
property known as West Hall, Mundford, in Norfolk. It extended to over 50 acres
of land, most of it woodland, scrub or marsh; but it included also West Hall
House, a well-preserved 16th-century mansion, together with two cottages and
hatcheries and other outbuildings. The freehold of the entire property was at
material times vested in Farmpride Hatcheries Ltd (‘the company’), the first
(and originally the only) defendant. As its name indicates, it was formed to
carry on the business of a chicken hatchery. On incorporation its name had been
Farmpride Chicks Ltd, and the issued capital was divided between Mr Willey and
his wife and a Mr Gooderham and his wife. The bank account of the company was
with the plaintiff. Mr Gooderham appears to have been a gentleman of some
means, for he was a guarantor of that account. In September 1969 the Gooderhams
parted with their interest to Mr and Mrs Willey, who have since been the sole
shareholders in the company. At material times they have been and are the only
directors. The company acquired the property from a Mr Benton in February 1970.
Before that date Mr Willey had occupied the mansion and the hatcheries as a
tenant of Mr Benton. The purchase price was £14,825. According to Mr Willey
this figure was substantially less than the market value, for it took account
of Mr Willey’s occupation as tenant of the principal buildings. The nature of
Mr Willey’s tenancy is not made clear by the evidence. It may have been a
monthly tenancy, but its only importance is its possible bearing on the
purchase price. He had contemplated the purchase of West Hall some time before and
had asked the bank for overdraft facilities amounting to £10,000 or £12,000. In
the event the purchase was completed with some £6,000 left on mortgage to Mr
Benton but negotiations with the bank continued. Apart from covering the cost
of West Hall to the company, it needed overdraft facilities for the purposes of
its business.
In August 1969
Mr Willey appears to have lost patience with the cautious attitude of Mr
Christian, who was the manager of the local branch of the bank at Thetford. He
asked to pursue the negotiations on behalf of the company with an official of
the bank at higher than branch level. As a result the matter was taken up by Mr
Frank Timbers, who was the manager of the Norwich branch of the bank. The
company was accorded additional facilities, but needed yet further
accommodation to enable it to operate as an expanding business. On June 23 1971
Mr Timbers called at West Hall, where he saw Mr and Mrs Willey. The position
and affairs of the company were discussed in detail. Mr Timbers compiled a note
of the discussion, which was accepted before Dillon J as an accurate account of
what he was told about the company and its business affairs. It was a critical
interview of such importance that the more material part of that note should be
quoted. It reads:
He [that is,
Mr Willey] told us that apart from one car which was subject to a small amount
of HP, every other piece of equipment and machinery was paid for, including the
very large machines in use in the hatchery. In order to minimise profits for
tax he has ploughed a considerable amount of the company’s profits into
renovating and redecorating West Hall, which appears to be in a very good
condition whilst the various outbuildings are all in useful order. His daughter
is very interested in show jumping and they have three horses and two ponies in
addition to one horse box. Mr Willey told us that he is the British Hydroplane
Champion and this was evidenced by numerous cups on the mantelpiece. We also
inspected the two cottages which will shortly become vacant and which he hopes
to sell for at least £2,000 each, and also the cold store which at the moment
is on a 10-day offer of £2,000. The proceeds from these sales will be injected
into the company. We discussed fully the situation regarding Mr Gooderham’s
guarantee and Mr Willey asked whether we would be prepared to raise the
outstanding mortgage of about £4,500 from his solicitors, at the same time
increase the company’s limit to £10,000 to enable us to have the deeds as
security. He had in the back of his mind, should the opportunity come to
enlarge the hatchery, the bank would possibly look sympathetically at his
request. The March 1970 balance sheet and accounts should shortly be ready and
he is to discuss the possible release of the mortgage with his solicitor. Once
we have received the accounts and Mr Willey’s go ahead we can submit an
application, but of course we made no promises at this stage. As mentioned in
the surveyors’ report what land is suitable for cultivation is now in use as
either meadow for show jumping or is being cropped.
Almost the
only matter which was not mentioned was Mr Willey’s status in relation to West
Hall House, where he and his family were living. Mr Timbers did not think to
ask about it and neither Mr Willey nor his wife vouchsafed any information in
that regard. The matter was not insignificant, for at a much later stage in the
history Mr Willey asserted a claim to be a licensee of the company under the
terms of a service agreement which appointed him to be the managing director of
the company for 20 years from March 6 1968. By clause 9(iv) of that agreement
the company undertook to ‘allow Mr Willey and his family the sole and exclusive
use and occupation for the same period of the residential premises and the buildings
presently occupied therewith and known as West Hall aforesaid, free of rent
rates and all other outgoings including the cost of telephone, electricity and
heating’.
A curious and
unexplained feature of this agreement is that it bears date ‘the seventh day of
March 1968’ although the company did not acquire the West Hall property until
two years later. However, no point arising out of this discrepancy appears to
have been taken before the learned judge and it is unnecessary to dwell upon
its possible implications. What is manifest and incontrovertible is that a
licence conferring a right of occupation on Mr Willey free of rent for another
17 years from 1971 must have had the effect of reducing the market value of
West Hall House and the other buildings mentioned, in a radical degree; and it
is beyond question that the house and the buildings represented, in terms of
value, the major part of the entire property. It would have been obvious to a
schoolboy, let alone a man of business as Mr Willey undoubtedly was, that if
the property were to be offered as a security for an advance the lender would
regard the licence as reducing the value of that security in a very great
measure, indeed almost to the point of extinction.
At the
interview on June 23 1971, when Mr and Mrs Willey were looking for a
substantial loan or overdraft from the bank, their silence on the topic of the
licence cannot, in my assessment of the situation, be ascribed to oversight or
inadvertence. Collateral and irrelevant matters were described by Mr Willey
with profuse particularity; but not a word about the licence. It is impossible
to escape the conclusion that Mr Willey intended to conceal the existence of
the licence. In this design he was assisted by Mr Timbers’ omission to make any
enquiry as to the occupancy of the Willey family.
Mr Timbers
asserted, both on affidavit and when he gave evidence before the learned judge,
that he had not been told anything about a tenancy of West Hall House and that
the first he heard of the service agreement and the 20-year licence it
purported to confer was when he saw Mr Willey’s affidavit sworn in the present
action. He declared that if he had been told at the time of the negotiations of
the existence of a tenancy he would have ‘stopped them on the spot or at least
have immediately enquired what the tenancy was all about’. Dillon J accepted Mr
Timbers’ recollection in this regard.
On the day
following the interview of June 23 1971 Mr Timbers made the following entry in
his office records: ‘Mr Willey telephoned stating that his solicitors were
prepared to release the deeds of West Hall on the payment of £4,340 . . . we
told him we would prepare an application and he asked that this should be at a
figure of £12,000 and he offered for the first two years reduction of £2,000.
We asked again for the March 1970 accounts and he said he would expedite
these.’
After further
negotiation the company executed the mortgage which gave rise to these
proceedings. It was granted by way of demise to secure payment of all moneys at
any time owed by the company to the bank, together with interest. The property
mortgaged was described as ‘a freehold dwelling-house with the outbuildings
hatcheries and cold store, closes and pieces or parcels of land . . . all of
which premises are known as West Hall Mundford’.
The company’s
account was unsatisfactory from the bank’s point of view. Eventually
proceedings were instituted by the bank to
17 1976 was issued against the company as the sole defendant. It claimed (i) an
account of what was due under the mortgage; (ii) payment of all moneys so due;
and (iii) possession of the mortgaged property. The summons was heard on July
27 1976 by the district registrar at King’s Lynn. Mr Willey was present at the
hearing. According to his account he then asserted a claim to a tenancy of West
Hall, but this was brushed aside by the registrar, who ordered that an account
be taken of what was due under the mortgage and directed that the company
should deliver up possession of the mortgaged property within six weeks of the
date of the order. On February 8 1977 the amount owing under the mortgage was
certified in the sum of £22,552. This figure has not been challenged.
Following the
making of the order of July 27 1976 there were further negotiations to provide
for the discharge of the company’s indebtedness to the bank but they reached no
satisfactory conclusion. In October 1976 a writ of possession was issued
pursuant to the order for possession. The bank forbore to enforce this writ and
it was allowed to lapse.
After a long
interval, during which the outstanding claim of the bank to payment was not
met, a further writ of possession was obtained on May 10 1979. It was only when
it was sought to enforce that writ that Mr Willey applied for an injunction to
restrain the bank from pursuing the claim to possession of West Hall. The
foundation of Mr Willey’s application was his alleged right and interest
arising from the purported licence granted under the service agreement of March
7 1968. The matter came before Forbes J in June 1979. Mr Willey told the court
that certain property belonging to his wife was in the process of being sold
and that when the transactions involved had been completed in August and
September the debt due to the bank would be paid. Forbes J therefore ordered
that the order and writ of possession be stayed until further order and that Mr
Willey be added as a defendant in the action.
The
expectation that the Long Vacation would afford the Willeys a breathing space
to make provision for paying the bank what was owed by way of principal and
interest was not fulfilled. After a number of adjournments Mr Willey’s motion
for an injunction was restored.
At the hearing
in November 1979 before Dillon J various arguments were advanced in support of
the claim to restrain the bank from enforcing their writ of possession. The
main submission on behalf of Mr Willey was that he had a right of occupation
under the licence conferred by his service agreement, and that the right so
conferred overrode the rights of the bank under the mortgage, since the bank
was fixed with constructive notice of the Willeys’ right to occupy West Hall
House and the hatcheries and other outbuildings. This is the submission which
has been the burden of the argument put forward by Mr Mottershead QC, on behalf
of the appellant. Dillon J dismissed the other arguments and they have not been
revived in this court.
The learned
judge in dealing with the law first disposed of any claim which Mr Willey might
have had if the property had been registered land so that the provisions of the
Land Registration Act 1925 were called into play. After referring to the
decision of the Court of Appeal in Williams & Glyn’s Bank Ltd v Boland
[1979] 2 WLR 550 (it had not then reached the House of Lords) he distinguished
the basic circumstances of the present case which was not concerned with
registered land and did not attract the provisions of the Land Registration Act
1925. It is, however, pertinent to note the observation of Lord Wilberforce in
the course of his opinion in the appeal from the Court of Appeal [1980] 3 WLR
138, at p 147 at B; he said: ‘what is involved is a departure from the
easy-going practice of dispensing with enquiries as to occupation beyond that
of the vendor and accepting the risks of doing so’. A purchaser (including a
mortgagee) cannot take for granted that things are necessarily what they seem
on the surface or what he expects or would wish. As the Land Registration Act
1925 had no application to the present case Mr Willey had to look elsewhere for
some means of defeating the bank’s claim to possession. He relied on the
provisions of section 199 of the Law of Property Act 1925. In summary so far as
is material, that section enacts that a purchaser (which term for this purpose
includes a mortgagee) shall not be prejudicially affected by notice of any
instrument or matter not capable of registration unless (i) it is within his
own knowledge or that of his legal advisers or agents in the transaction
concerned or (ii) it would have come to his or their knowledge if such
enquiries and inspections had been made as ought reasonably to have been made
by him or them.
Thus a
mortgagee will be fixed by constructive notice of the interests of third
parties which exist at the date of the execution of the mortgage, albeit he has
no actual knowledge of them, if they would have been revealed on reasonable
enquiry which he failed to make.
Applying this
to the present case Mr Mottershead, who put the appellant’s case as
attractively as forensically possible, contended that as Mr Willey’s occupation
of the company’s property was not only apparent but palpable to Mr Timbers, the
bank had constructive notice of his interest under the licence, for they made
no enquiry whatsoever. It was in the circumstances reasonable for the bank to
ask on what basis Mr Willey’s occupancy rested. When it was revealed that he
was entitled to the benefit of a 20-year licence from the company, the
prospective mortgagee could and would have required the licence to be
relinquished or the bank might have reduced the advance they were willing to
make on the available security.
Dillon J
rejected this contention. He stated that it is not at all common for directors
of private companies to have service agreements giving them the rights of
rent-free long-term occupation which were given to Mr Willey by his agreement
in the present case. After citing Hunt v Luck [1902] 1 Ch 428, in
the Court of Appeal, he said: ‘I think the authorities . . . indicate that what
is common, and the practice that is adopted to meet what is common, are very
relevant considerations in considering what enquiries ought reasonably to have
been made of a person who is found in occupation of property in circumstances
in which it is not obvious that there is any conflict between his occupation
and the title of the freehold owner of the property’. He went on to ‘conclude
that the bank when it took the mortgage did not have constructive notice of Mr
Willey’s rights and accordingly it is not bound by those rights’.
It seems to
me, with all respect to the learned judge, that the proposition thus enunciated
begs the real question. If a person is found in occupation of property in
circumstances which make it obvious that there is a conflict between his
occupation and the title of the freehold owner, there is no need to invoke the
doctrine of constructive notice now embodied in section 199. The test is not
whether it is likely or probable that an adverse interest may exist but whether
it is reasonable in the circumstances to pursue enquiry. If a purchaser or a
mortgagee elects to proceed with the transaction upon the assumption that no
adverse interest exists of which he is not told, he will generally do so at his
peril if reasonable enquiry would have elicited that his assumption was
ill-founded. I find it unnecessary to examine the line of authority touching
the operation of the doctrine of constructive notice; the terms of section 199
operate, at least by necessary implication, so that a purchaser will be
affected by such interests as touch the title he seeks to acquire even though
he does not know of them, if their existence would have been revealed by reasonable
enquiry.
How does this
apply to the situation which existed on November 16 1971 when the mortgage was
executed and which involved the company and the bank as mortgagor and mortgagee
respectively and Mr and Mrs Willey as agents for the company and Mr Timbers and
the bank’s solicitors as agents for the bank?
At that date, as Mr Timbers had known, the Willey family had been in
occupation of West Hall House for some time. They used it as their family
house. In general terms a prospective purchaser from the company must have
regarded it as not only reasonable but imperative to ask what interest the
occupation represented. It might have been a tenancy or on licence for a fixed
term or determinable by notice or at will. If no enquiry was made on behalf of
the bank which could reasonably have been made, section 199 would operate to
support the Willeys’ interest under the licence as against the mortgagee bank.
Depending on the nature and extent of the interest, the value of the
property as security was likely to be affected; and it is superfluous to add
that the amount (if any) which the bank would be prepared to advance against
the security of the mortgage would be correspondingly affected.
This
proposition does not depend on any arcane legal principle. It is elementary
business sense and it was obvious to those concerned in the negotiations in
1971, which culminated in the bank’s becoming mortgagees to provide security
for credit facilities up to some £12,000. How, if at all, does this common
realisation, which in my judgment pervaded those negotiations, affect the
position? Unless some new and material
consideration is thereby introduced, I would be of the view that not only did
Dillon J approach the question from the wrong standpoint, but he arrived at a wrong
determination.
Mr Mottershead
contended that no such new or material consideration arose at all. He submitted
that even if Mr Willey’s licence survived the mortgage, the West Hall property
could, in November 1971, have provided an adequate security for the
contemplated overdraft limit. This ignores the real point, which is not what might
have been the position but what was believed by the bank to be the position. As
it has turned out, notwithstanding the inflationary rise in property value
since 1971, the bank’s claim for principal and interest had not been satisfied
in full by the time this appeal came to be heard. Mr Willey’s attitude was not
that he regarded his licence as irrelevant when the prospective mortgage was
discussed between him and Mr Timbers, but that it was referred to by him as a
tenancy. However, the learned judge, who saw and heard Mr Willey on the motion
for an injunction, accepted Mr Timbers’ evidence (also given in the witness
box) that at no time was anything told to him about a tenancy or a licence
until after the proceedings for possession had been instituted.
To what then
is Mr Willey’s reticence on this factor of manifest consequence in relation to
a mortgage of West Hall to be ascribed?
In my judgment it could only have been deliberate. If reinforcement of
this view were needed I find it in the acumen shown by Mr Willey in the conduct
of his case in the court below. He did not himself give evidence, but his
cross-examination of Mr Timbers demonstrated that Mr Willey’s appreciation of
the issues was acute. It is true that some years had elapsed since the
mortgage, but the record of the important interview between Mr Willey and Mr
Timbers in June 1971 gives strong support to my assessment of Mr Willey as
being possessed of a perceptive and high intelligence. I come back to the
question posed. Why in the course of that interview, or at some time before the
execution of the mortgage, did he not give any hint that he held so important
an individual interest in West Hall House as a 20-year licence? To brush aside the omission to mention it as
being irrelevant and immaterial seems to me altogether untenable. Apart from
all other considerations, it is the prospective lender who is most interested in
matters affecting the value of the security offered and it is he who is
entitled to determine whether it is adequate or not.
On the
materials before this court (which were also before Dillon J) I am satisfied
that Mr Willey was fully aware, during his negotiations with Mr Timbers, of the
vital importance of the licence in relation to the transaction with the bank.
He was naturally anxious, whatever might be fall in relation to the company’s
business, to retain his family home (not to mention the hatcheries) and to
protect it from creditors, including the bank. On the other hand he was acutely
aware of what the bank’s reaction would be if it were revealed to them that the
‘security’ afforded by a mortgage of the West Hall property was attenuated by
taking out of it what was, for all practical business purposes, its most
important elements, namely the house and the hatcheries.
The vivid
impression left on my mind by Mr Timbers’ note of the discussion on June 23
1971 is that Mr Willey went out of his way to convey the impression of a man
who left nothing unsaid about matters, important or trivial, which served to
reveal his character and situation social, familial and commercial. He
intended to create, and succeeded in establishing, an atmosphere of utter and
complete frankness. In my judgment, he intended to put Mr Timbers off enquiry,
and he succeeded. I arrive at this conclusion on the history disclosed by the
documents. I regard myself as being, for all practical purposes, in the same
position as Dillon J in regard to the totality of the evidence. In my judgment
Mr Willey set up a smoke-screen designed to hide even the possible existence of
some interest in himself which could derogate from the interest of the company
ostensibly conferred by the mortgage. To change the metaphor, he deliberately put
Mr Timbers off the scent and the bank accepted the mortgage as a consequence.
They would not have done so but for Mr Willey’s subtle but positive indication
that he had communicated all that had to be told which could be relevant to the
bank’s consideration of the company’s application.
This being so,
I am of the opinion that Mr Willey is estopped from setting up any facts which
would go to show that he held an interest which overrides or stands in priority
to their interest as mortgagees from the company.
It is true
that this was not the basis on which the matter was argued or decided in the
court below, where Mr Willey was not represented by counsel. However, the
history was fully canvassed and the relevant material was investigated in
depth. If the learned judge’s mind had been directed to the question he was in
a position to deal with the issues on the basis which commends itself to me.
There were no pleadings and this put the learned judge at some disadvantage.
I would
dismiss the appeal.
Agreeing that
the appeal should be dismissed, OLIVER LJ said: The second defendant (the
appellant on this appeal) and his wife, who is not a party to the proceedings,
hold, and have at all material times held, the whole of the issued share
capital of the first defendant company, Farmpride Hatcheries Ltd. At all
material times they were the only two directors of that company and the second
defendant’s wife was the secretary. The company’s seal was affixed to the
mortgage on which the plaintiffs rely for their claim in the action in the
second defendant’s presence and he attested it as a witness.
That was in
November 1971 and it must, for the purposes of this appeal and in the light of
the learned judge’s findings of fact, be treated as common ground that nothing
was said either before or upon the execution of the mortgage to suggest that
there was any incumbrance upon the mortgaged property which would impede or
inhibit the mortgagee from taking possession of it if it became necessary to do
so for the realisation of the mortgage security. Nor does it appear from the
evidence that any such incumbrance received any mention at the time when the
plaintiffs obtained an order for possession in 1976, nor indeed at any time
prior to July 1979 when, for the first time, the second defendant laid claim to
a rent-free right of occupation of the dwelling-house forming part of the
security under the service agreement referred to in the judgment delivered by
my Lord, Shaw LJ. It is perfectly clear from the notes which have been
exhibited to the affidavit of the plaintiff’s branch manager, Mr Timbers, that
all the negotiations for and leading up to the mortgage were conducted by the
second defendant personally on behalf of the defendant company. So the position
is this, that a mortgage was negotiated on behalf of the first defendant by the
second defendant in person; that, although if he had any interest in the land
apart from the interest of the company on whose behalf he was acting, he must
have known perfectly well what it was and that it would derogate from the value
of the security which the company, through him, was offering, he chose to say
nothing about it; that this reticence continued for nine years in the course of
which, to his knowledge, an order for possession was obtained by the plaintiffs
against the company; and that only when that order is sought to be enforced by
writ of possession is the right of the second defendant to continued rent-free
occupation asserted for the first time.
The principle
invoked to support this wholly unmeritorious claim is that of constructive
notice. Section 199(1) of the Law of Property Act 1925 provides that a
purchaser (which, of course, includes a mortgagee) shall not be prejudicially
affected by notice of (inter alia) ‘any other instrument or matter of
any fact or thing unless (a) it is within his knowledge, or would have come to
his knowledge if such enquiries and inspections had been made as ought
reasonably to have been made by him . . .’. Mr Timbers, who represented the
plaintiffs in the negotiations leading up to the mortgage, did not claim to
have made any enquiries at all as to the title of the second defendant to be in
the property, but simply assumed that his occupation (which was certainly overt
enough, since he was living in the house with his wife and family) was the
company’s occupation and what is said is that, since he could see that the
second defendant was there with his family, he ought reasonably to have
enquired by what right they were there, in which event he would either have been
told of the relevant provision of the service agreement or, if that had been
suppressed, could at least claim that he had made all reasonable enquiries.
Since no enquiry was made, it is claimed that the plaintiffs are bound by the
provisions of the service agreement, which constitute an irrevocable licence
entitling the second defendant to stay in the property indefinitely.
Dillon J
rejected that contention. He said that in considering what enquiries ought to
be made, the common practice has to be taken into account and in saying that he
was, I think, referring particularly to the judgment of Cozens-Hardy LJ in Hunt
v Luck [1902] 1 Ch 428 at p 435. That is clearly right, if I may
respectfully say so, but the learned judge went on to hold, if I understand his
judgment correctly, that because the right arising under the service agreement
was an unusual right, therefore there was no need to enquire and accordingly
that the plaintiffs did not have constructive notice of it. I cannot, for my
part, follow the learned judge along this road. The commonness or otherwise of
the right which may be disclosed by the enquiry cannot, in my judgment, affect
the reasonableness or otherwise of making any enquiry. What gives rise to the
duty to enquire — if duty is the right word to describe the prospective
purchaser’s self-interest in enquiring into the title which he is being asked
to accept — is not the nature of an interest of which, ex hypothesi, the
purchaser is ignorant, but the fact that the vendor’s or mortgagor’s property
is in the occupation of someone other than the vendor or mortgagor. Once the
purchaser knows that, then reason dictates, so it is claimed, that he should
enquire to what title, usual or unusual, that occupation is attributable and if
he does not do so he risks being bound by whatever interest emerges.
I do not
quarrel in the least — nor, indeed, in the light of the decision of the House
of Lords in Williams & Glyn’s Bank v Boland [1980] 3 WLR 138,
would it be possible to do so — with the general proposition that a purchaser
who is put on notice that someone other than the vendor himself is in
occupation of the property sold, either because he actually knows of such
occupation or because he does not bother to inspect the property, has
constructive notice of the occupier’s interest if he does not bother to enquire
what it is. Boland’s case was, of course, a case of registered land
which is regulated by specific statutory provision, but there can be no doubt
that a similar principle applies to unregistered land. All that the purchaser
is required to do, however — certainly in the case of unregistered conveyancing
— is to make such enquiries as a reasonable purchaser would make and what those
enquiries are must, in my judgment, depend upon the circumstances of the
individual case. The mere fact, of course, that a part of a limited company’s
property is in the personal occupation of one of the company’s servants does
not, of itself, signify that the occupation is the company’s occupation, for he
might well be there as a service tenant and the purchaser would not, I should
have thought, have been entitled simply to assume that he has no right to be
there save as the agent of the vendor. That I think would follow from the case
of Bailey v Richardson (1852) 9 Hare 734 to which Mr Mottershead
referred us. But the position is, in my judgment, very different where the
person who is in occupation and who seeks subsequently to assert a right in
derogation of the title which is offered to the purchaser is himself not only
in control of the company (either alone or with members of his family) but is
also the very person who has throughout negotiated the sale or mortgage. He
knows what title is being offered to the person with whom he is dealing and he
knows that the interest which he claims in the property is one which is adverse
to that title. In a case where it is obvious that that person is negotiating on
the footing that possession of the property will be given or will at least be
capable of being taken if required, it would, in my judgment, be in the highest
degree unconscionable for the negotiating agent who chooses to remain silent
about some adverse interest which he claims personally to have, subsequently to
assert that interest when the other party has irrevocably altered his position
in ignorance of it; and it does not seem to me to be an answer to say simply
‘Well, if you had only asked me, I would have told you’.
The matter
may, I think, be put in two ways. Prima facie a prospective vendor of
property offers the property with vacant possession unless he otherwise states
and that would ordinarily be implied in the contract of sale in the absence of
stipulation to the contrary. Equally, as it seems to me, he who offers his
property as security must be taken to be offering it on the footing that the
mortgagee will have the usual remedies, including that of taking possession,
for the realisation of his security. That, as it seems to me, is implicit in
the negotiation. Now of course, an agent who negotiates a sale or mortgage on
his principal’s behalf does not thereby make any representation that his
principal has an indefeasible title to the property offered for sale or as
security. As to that the purchaser or mortgagee must satisfy himself by making
the usual enquiries before he completes. But in negotiating on his principal’s
behalf he does, in my judgment, at least represent that he has his principal’s
authority to offer the property free from any undisclosed adverse interest of
his own. I would therefore be prepared to hold that the purchaser or mortgagee
dealing with such an agent can reasonably assume that if the agent with whom he
is dealing has himself an interest adverse to the title which he offers on his
principal’s behalf, he will disclose it. It was in my judgment reasonable for
Mr Timbers not to make enquiry about an adverse interest of the negotiating
agent which that agent’s own reticence entitled him to assume did not exist and
he did not, therefore, have constructive notice of it. That, by itself, would be
sufficient to dispose of the case, but an alternative answer to the second
defendant’s claim is, I think, to be found in the principle expressed by Lord
Kingsdown in Ramsden v Dyson (1866) LR1 HL 129, as that principle
has been applied and extended by more recent authority (see, for instance, Inwards
v Baker [1965] 2 QB 29, Ives (ER) Investment Ltd v High
[1967] 2 QB 379 and Crabb v Arun District Council [1976] Ch 179).
That principle may be expressed thus: ‘If A under an expectation created or
encouraged by B that A shall have a certain interest in B’s land, thereafter,
on the faith of such expectation and with the knowledge of B and without
objection by him, acts to his detriment in connection with such land, a court
of equity will compel B to give effect to such expectation’. Mr Mottershead
does not, I think, quarrel with the general proposition which I have
formulated, but he argues that for a number of reasons it can have no
application in the circumstances of the instant case. In the first place he argues
that there was no finding of fact by the learned judge of an expectation
induced by the second defendant upon the faith of which they entered into the
mortgage. Secondly, he says that any proprietary estoppel relies upon knowledge
by the party estopped of the belief which has induced the other to alter his
position, and there is no finding of such knowledge. Thirdly — and this is
essentially a pleading point — he points out that there is no cross-notice by
the plaintiffs seeking to uphold the learned judge’s decision on any ground
other than that which he gave in his judgment. Accordingly, Mr Mottershead
argues that if this point is to be taken at all the case will have to be
remitted to the Chancery Division for further issues of fact to be investigated.
As to the
first point, I think there is no substance in it. Mr Timbers, in his evidence,
said that the bank was seeking a first mortgage and that if he had been told
that there was a tenancy (which the second defendant was claiming was
mentioned) he would probably have stopped all negotiations on the spot. The
learned judge stated that he accepted Mr Timbers’ evidence on this point. While
therefore it is true that there is no specific finding about what would have
happened if the bank had been told about the service agreement — which even the
second defendant himself did not suggest was mentioned — it is really a
fortiori, because if the bank would have been deterred by the suggestion of a
tenancy at a rent of £1,800 per annum, the effect of the suggestion of an
indefinite and irrevocable rent-free licence hardly needs to be stated.
Mr
Mottershead’s second point, however, is that since (as was the fact) the
previous vendor of the property had been content to let a sum of something over
£6,000 remain outstanding on the security
tenancy in favour of the second defendant, the importance to the bank of the
property being free from incumbrances might well not have been present to the
mind of the second defendant even though the bank was being requested to
advance considerably more than the amount of the previous mortgage.
Accordingly, Mr Mottershead argues, there is not only no finding of the second
defendant’s knowledge of the plaintiff’s state of mind which is an essential
element of an estoppel, but no evidence from which such knowledge can be
inferred. That there is no such express finding I of course accept, but it
really seems to me to follow as a matter of necessary inference from the
circumstances proved in evidence. Mr Timbers produced the bank’s notes of the
various meetings between its representatives and the second defendant and these
do not appear to have been challenged. During the 18 months or so which
preceded the grant of the plaintiffs’ mortgage the second defendant was seeking
an increase of the first defendant’s borrowing limits from £5,000 to £15,000.
In January 1970 he provided the plaintiffs with a balance sheet and a valuation
made in the previous November of the first defendant’s property including the
Hall which attributed a total valuation of £18,000 to the land on which the
valuers suggested that £12,000 could safely be advanced by way of first
mortgage.
On June 23
1971 Mr Timbers visited the land and was shown round. His note of the visit
starts thus: ‘We visited Mr and Mrs Willey at West Hall, Mundford, and Mr
Willey explained the whole set-up of the company including the present
position’. The note is a lengthy one, but it contains this statement, to which
my Lord, Shaw LJ, has already referred: ‘In order to minimise profits for tax
he has ploughed a considerable amount of the company’s profits into renovating
and redecorating West Hall which appears to be in a very good condition whilst
the various outbuildings are all in useful order’.
So it is quite
evident that at that time a particular point was being made of an expenditure,
which could have been of no conceivable interest to a mortgagee except upon the
footing that the Hall was being offered as a realisable security.
It does not
seem to me, therefore, that the evidence before the learned judge left any room
for doubt that what was being offered was a first mortgage of property which
was in hand and the suggestion that the second defendant might or could
reasonably have thought that the right now claimed to remain in indefinite
rent-free occupation would not be material to the plaintiffs simply does not
bear examination.
While it is
true that this way of putting the case was not raised in a respondent’s
cross-notice, it does not seem to me that it requires the elucidation of any
facts which are not already self-evident from the unchallenged evidence before
the court.
For both the
reasons which I have endeavoured to state, therefore, I too would dismiss the
appeal.
Also agreeing,
BUCKLEY LJ said: Mr Willey was undoubtedly aware that the bank was negotiating
a first mortgage of the property which the bank believed would be unencumbered.
Mr Willey was himself the agent of the defendant company in those negotiations.
Mr Timbers was, in my judgment, fully entitled to assume that if Mr Willey
claimed any right or interest in the property which would adversely affect the
company’s ability to create a first mortgage of the property unencumbered by
any rights which would depreciate it as a security, Mr Willey would on his own
initiative disclose that right or interest, as he clearly ought to have done.
In view of the fact that Mr Willey and his wife were the only shareholders in
the company and the only directors, the occupation of the house by Mr and Mrs
Willey as their home was not, I think, a situation which was so inherently
inconsistent with a probability of their being entitled to no security of
tenure as against the company as should reasonably have suggested to Mr Timbers
that he ought to enquire about the incidence of their occupation
notwithstanding Mr Willey’s silence on the subject. In these circumstances I do
not consider that Mr Timbers, on the bank’s behalf, failed to make any
enquiries about the basis of Mr and Mrs Willey’s occupation of the house which
he ought reasonably to have made. Accordingly the bank is not, in my judgment,
affected with constructive notice of Mr Willey’s alleged rights under this
agreement with the company.
I agree that
the appeal should be dismissed.
The appeal was dismissed with costs; leave to appeal
to House of Lords was refused.
