Vendor and purchaser — Whether vendor had shown a good title — Registered local land charge relating to housing improvement grant — Knowledge of vendor’s solicitor treated as knowledge of vendor — Effect of conditions in contract of sale — Eve J’s ‘alternative ground’ in Re Forsey and Hollebone’s Contract discussed and criticised — Plaintiff purchasers, who had not searched local land charges register prior to auction, refused to complete unless safeguarded against risk of claim for recovery of improvement grant — Defendant vendor contended that she had shown a good title, the conditions in the contract providing that the purchaser was deemed to have made local searches and to have knowledge of all matters that would have been disclosed thereby — After the plaintiffs’ solicitors obtained the removal of the entry in the local register, the parties took up entrenched positions, the plaintiffs claiming specific performance on payment of balance of purchase price without interest, the defendant claiming to rescind the contract and forfeit the deposit — The issue in the present vendor and purchaser summons was whether the vendor had shown a good title and this depended on whether the plaintiff purchasers were entitled to object to the register entry notwithstanding the conditions in the contract — On this issue the judge ruled that, subject to the consideration of certain defences put forward by the defendant vendor, the plaintiffs were so entitled — It was an established principle, from such authorities as Nottingham Patent Brick & Tile Co v Butler, that, if there is a defect of title or an incumbrance of which the vendor is aware, the vendor cannot rely on conditions such as those in the present case unless full and frank disclosure is made of its existence — The vendor in the present case was aware, through her solicitor, of the entry — In answer to this principle the vendor relied on several submissions, of which the only one of importance was the alleged effect of section 198(1) of the Law of Property Act 1925 as amended by section 24 of the Law of Property Act 1969, considered in conjunction with Eve J’s judgment in Re Forsey and Hollebone’s Contract — Section 198(1) as so amended still applies to local land charges and provides that in relation to them registration is deemed to constitute ‘actual notice’ — In his alternative ground in Re Forsey Eve J equated such ‘actual notice’ with the knowledge which prevents a purchaser from objecting to an irremovable incumbrance of which he is aware at the date of the contract — In his comments on this submission by the vendor the judge made the following points — (1) In the present case the incumbrance was not irremovable, but could be removed by payment: Housing Act 1974, section 77 — (2) Eve J’s equation of ‘actual notice’ with the state of mind required for terms to be implied into an open contract was ‘deeply suspect’ — (3) The natural reading of section 198 of the Law of Property Act 1925 is that registration constitutes actual notice for the purpose of the enforcement of third parties’ rights — The defendant vendor in the present case was asking not merely for the application of Re Forsey but for its extension — The reasoning of Eve J was ‘too unsound to permit of any extension’ — However, Millett J was not prepared to condemn Eve J’s ‘alternative ground’ on its own facts; ‘such cases can be dealt with as and when they arise’ — Declarations granted in favour of plaintiff purchasers on the basis that the defendant had failed to show a good title
The following
cases are referred to in this report.
Ellis v Rogers (1885) 29 ChD 661
Faruqi v English Real Estates Ltd [1979] 1 WLR 963; (1978) 38
P&CR 318; [1979] EGD 986; 251 EG 1285, [1979] 2 EGLR 150
Forsey
and Hollebone’s Contract, Re [1927] 2 Ch 379
Gloag and
Miller’s Contract, Re (1883) 23 ChD 320
Nottingham
Patent Brick & Tile Co v Butler (1885)
15 QBD 261
This was a
vendor and purchaser summons whereby the plaintiffs, Rignall Developments Ltd,
purchasers at auction of a freehold dwelling in Peckham, 218 Bellenden Road,
London SE15, sought against the defendant vendor, Gulseren Halil, inter
alia, a declaration that she had failed to show a good title in accordance
with the contract of sale.
Jonathan
Ferris (instructed by Armstrong & Co) appeared on behalf of the plaintiffs;
Justin Fenwick (instructed by Bazley White & Co) represented the defendant.
Giving
judgment, MILLETT J said: For 60 years, ever since the judgment of Eve J in Re
Forsey and Hollebone’s Contract [1927] 2 Ch 379, a prudent purchaser has
searched the register of local land charges before contract and has not relied
exclusively on making his search in the course of the normal process of
investigation of title between contract and completion. Recently, however, the
time taken by many local authorities, particularly in London, to reply to
inquiries and to deal with applications for official searches of the registers
kept by them has become a scandal which threatens to impede the proper working
of a free market. Where land is sold by auction, it may be impossible for
prospective bidders to obtain official searches in the time available. Where
residential property is sold by private treaty, delay can cause havoc with the
long chain of transactions which may be involved. There is a growing and useful
practice for the vendor’s solicitors to obtain and supply the purchaser’s
solicitor with a copy of the entries on the register at the same time as the
draft contract. The present case calls for reconsideration of the consequences
of the purchaser’s failure to search the register or to obtain copies of the
entries thereon before contract, and the correctness of the decision in Re
Forsey and Hollebone’s Contract has been challenged.
The case
concerns a freehold dwelling in Peckham known as 218 Bellenden Road (‘the
property’). At an auction held on December 3 1985 the plaintiffs agreed to
purchase the property from the defendant for £16,000, and paid a deposit of
£1,600 to the auctioneers as stakeholders. The contract incorporated the
National Conditions of Sale — 20th edition — as well as certain general and
special conditions. These included the following:
General
Condition 11.
The purchaser
shall be deemed to have made local searches and inquiries, and to have
knowledge of all matters that would be disclosed thereby and shall purchase
subject to such matters.
Special
Condition 5.
The property
is also sold subject to any matters which might be disclosed by a search and/or
inquiries of the relevant local authority, either at the date of sale or at the
date of completion, and whether or not he has carried out any such search
and/or inquiries, the purchaser shall be deemed to buy with full notice and
knowledge of all such matters, and shall not raise any objection thereon or
requisition relating thereto.
The date fixed
for completion was December 31 1985. The plaintiffs did not complete on that
date because of a subsisting entry on the register of local land charges to
which they took objection. The defendant, relying on the conditions which I
have read, denied that this was an objection which the plaintiffs were entitled
to raise and served notice to complete.
The
plaintiffs’ solicitors eventually obtained the removal of the entry, but not
until April 14 1986. The plaintiffs then sought to complete, but the defendant
refused to complete unless the plaintiffs paid interest on the balance of the
purchase price since December 31 1985, which the plaintiffs declined to do. The
amount involved was small, and the sensible course would have been for the
parties to complete and leave the question of interest to be resolved later.
Instead, both sides took up entrenched positions, and the sale has still not
been completed. The plaintiffs, having elected not to pursue an alternative
claim to rescind the contract and recover the deposit, now seek specific
performance on payment of the balance of the purchase price, but without
interest; and the defendant seeks to rescind the contract and forfeit the
deposit. The case turns on whether the defendant had by December 31 1985 shown
a good title to the property in accordance with the contract, and this depends
on whether the plaintiffs were entitled to object to the entries on the
register notwithstanding the conditions of the contract which I have read.
At all
material times the property was let to a protected tenant, and it was sold to
the plaintiffs subject to the tenancy. In 1978 the freehold owner had applied
to the local authority for an improvement grant under the Housing Act 1974. The
application was accompanied by a certificate of availability for letting dated
November 10 1978. It was approved on April 4 1979 and registered in the
register of local land charges on April 6 1979. The date which the local
authority in due course certified as the date on which the property first
became fit for occupation after the completion of the relevant works (‘the
certified date’) was June 2 1980. The grant was paid on February 15 1982.
The plaintiffs
had not searched the register of local land charges prior to the auction and
were unaware of the entries it contained. They were not disclosed by the
defendant. On December 11 1985 the plaintiffs’ solicitors applied to the local
authority for an official search of the register and on the same day they submitted
requisitions on title. One of these asked whether any improvement grant had
been obtained in respect of the property. The defendant’s solicitors replied,
disputing the plaintiffs’ right to make the inquiry and claiming that it was
barred by the contract. Without prejudice to that contention, however, they
disclosed that there was with the deeds a search dated October 1984 which
revealed that a certificate of availability for letting had been issued on
November 10 1978, and an improvement grant had been paid on February 15 1982.
Eventually the plaintiffs’ solicitors received the official certificate of
search, which confirmed the existence of the relevant entries. They disclosed
the dates of the certificate of availability for letting and of the approval
and payment of the grant, but not the certified date.
The
proprietorship register at the Land Registry shows that the defendant was
registered as proprietor of the property with title absolute on November 1
1984. It does not disclose whether she was a purchaser for value; but a donee
does not normally investigate his donor’s title, and from the proximity of the
dates I infer that the search of the local land charges register, made in
October 1984, was made on her behalf at the time of her acquisition of the
property, and that she was.
The
significance of the entries on the register cannot be understood without
reference to the relevant provisions of the Housing Act 1974. With immaterial
passages omitted, they are as follows:
Section 73(1):
Where an application for an improvement grant has been approved by a local
authority, the provisions of this section shall apply with respect to the
occupation, during the period of 5 years beginning with the certified date (in
this section referred to as ‘the initial period’) of the dwellings to which the
grant relates.
Subsection
(3): For the purposes of this section, the following are ‘qualifying persons’
in relation to a dwelling, namely, —
(a) the applicant for the grant and any person
who derives title to the dwelling, through or under the applicant, otherwise
than by a conveyance for value. Subsection (4): In any case where the
application for the grant was accompanied by a certificate of availability for
letting with respect to the dwelling, it shall be a condition of the grant that
throughout the initial period:
(a) the dwelling will be let or available for
letting as a residence, and not for a holiday, by a qualifying person.
Section 75(1):
The provisions of this section shall apply in any case where, under or by
virtue of any provision of this Part of this Act, a condition (in this section
referred to as a ‘grant condition’) is imposed as a condition of grant.
Subsection (2): If and so long as a grant condition remains in force —
(a) it shall be binding on any person who is for
the time being the owner of the dwelling to which the grant relates.
Subsection
(3): A grant condition shall be enforced throughout the period of 5 years
beginning on the certified date.
Subsection
(5): A grant condition shall be treated as not being registrable by virtue of
section 15 of the Land Charges Act 1925 but, as soon as may be after an
application for a grant has been approved, any condition of that grant shall be
registered in the register of local land charges.
Subsection
(6): In this Part of this Act ‘the certified date’, in relation to a dwelling
in respect of which an application for a grant has been approved, means the
date certified by the local authority by whom the application was approved as
the date on which the dwelling first becomes fit for occupation after
completion of the relevant works to the satisfaction of the local authority.
Section 76(1):
The provisions of this section shall have effect in the event of a breach of a
condition of grant (in this section referred to as ‘the relevant grant’) at a
time when the condition is binding on the owner of the dwelling concerned by
virtue of section 75(2) above.
Subsection
(2): Where the relevant grant related to a single dwelling, an amount equal to
the amount of the relevant grant, together with compound interest thereon as
from the certified date, calculated at the appropriate rate . . . shall, on
being granted by the local authority, forthwith become payable to the authority
by the owner for the time being of the dwelling.
Subsection
(4): Nothing in subsection (2), or as the case may be, subsection (3) above
shall prevent a local authority from determining not to demand any such amount
as is referred to in that subsection or from demanding an amount less than that
which they are entitled to demand under that subsection.
Subsection
(5): Upon satisfaction of the liability of the owner of a dwelling to make a
payment under this section to a local authority in respect of a breach of a
condition of a grant, the condition shall cease to be enforced with respect to
that dwelling.
Section
77(1): If, at any time while a condition of grant remains in force, the owner
of the dwelling to which the condition relates pays to the local authority by
whom the grant was made the like amount as would (on a demand by the local
authority) become payable under section 76 above in the event of a breach of
that condition, all conditions of the grant shall cease to be enforced with
respect to that dwelling.
The definition
of ‘qualifying person’ in section 73(3)(a) has the result that a grant is
repayable on any sale of the property during the initial period, even though
the property continues to be occupied by a protected tenant. The object
evidently is to prevent short-term speculators from buying properties,
improving them at the expense of the ratepayers, and then selling them at a
profit which reflects the expenditure of public money. The sale to the
defendant in 1984, if, as I infer, she had bought the property, and the present
sale to the plaintiffs, if within the initial period, would both constitute
breaches of a condition of the grant and make the grant repayable. The
certified date did not appear on the register, but from the information
available to the plaintiffs’ solicitors in December 1985 it must have seemed
probable that there had been a breach of condition in 1984 and possible that
another would occur if completion took place on December 31. In those
circumstances, the plaintiffs refused to complete in the absence of
confirmation from the local authority that it would not seek to recover the
amount of the grant from the plaintiffs, or from the defendant that, if
required, she would repay it out of the proceeds of sale.
On April 14
1986 the local authority’s legal department, whose dilatoriness had largely
caused the problem, finally notified the plaintiffs’ solicitors that the
initial period had expired in June 1985, that there would not be a breach of
grant condition if the plaintiffs completed their purchase, and that it had
given instructions for the entries on the register of local land charges to be
removed. The plaintiffs then offered to complete, and the parties adopted the
positions I have described.
The defendant
relied upon the express terms of the contract. The property, it was submitted,
was not sold free from incumbrances, but subject to the entries on the register
of local land charges; and the plaintiffs had no right to object to them. The
defendant had, therefore, shown a good title to that which she had agreed to
sell and was entitled to serve notice to complete. Moreover, by General
Condition 11 the plaintiffs were deemed to have searched the register and to
have knowledge of the entries thereon.
It is,
however, a well-established rule of equity that, if there is a defect in title
or incumbrance of which the vendor is aware, the vendor cannot rely upon
conditions such as those in the present case unless full and frank disclosure
is made of its existence. The leading authority is Nottingham Patent Brick
& Tile Co v Butler (1885) 15 QBD 261. Wills J said at p 271:
The fourth
condition provides that the property is sold subject to any matter or thing
affecting the same, whether disclosed at the time of the sale or not. Such a
condition, however, does not relieve the vendor from the necessity of
disclosing any encumbrance or liability of which he is aware, but simply
protects him if it should afterwards turn out that the property is subject to
some burden or right in favour of a third person of which he is unaware. . . .
It would be nothing short of a direct encouragement to fraud if a vendor were
at liberty by a condition of this kind to sell to a purchaser as an absolute
and unburdened freehold a property which he knows to be subject to liabilities
which would materially reduce its market value. . . . In honesty and in law
alike he was bound to give the purchaser full and fair information what it was
that he had for sale, and was inviting him to buy, and having failed to do so,
he cannot insist upon the bargain procured by the suppression of material facts
affecting the nature of the subject of sale. I entirely acquit the defendant of
anything like intentional misconduct, but in the preparation of the particulars
of sale he unfortunately relied upon his solicitor, who, as I cannot help
believing, was under the mistaken impression that he could better the position
of the vendor by abstaining from making himself acquainted with the contents of
the earlier deeds in his possession, and open to his perusal.
As that case
shows, the knowledge of the vendor’s solicitor is treated as that of the
vendor, and it is no answer for him to say that he has not read the contents of
his own conveyancing file. In the present case, therefore, the defendant must
be taken to have known of the entries on the register, since a search had been
made on her behalf at the time of her purchase and a copy of the entries was
with the deeds in her solicitor’s possession. To entitle her to rely on the
relevant conditions of the contract in these circumstances, it was incumbent on
her to disclose the existence and nature of the entries to the plaintiffs
before contract. Had the information disclosed in the answers to requisitions
been included in the particulars of sale, there could have been no objection to
conditions precluding all further inquiry and making the sale subject to the
entries in question. In the absence of such disclosure the conditions cannot be
relied on. It is hardly necessary to add that the equitable principle cannot be
circumvented by the inclusion in the contract of a condition deeming the
purchaser to have searched the register and to know of its contents. The
purchaser’s acceptance of such a condition is on the basis that the vendor has
made the disclosure required of him.
In answer to
this, it was first submitted on behalf of the defendant that the conditions of
grant did not create an incumbrance or burden on the property, but only a
personal liability upon the owner. But the grant is repayable on demand by the
owner for the time being of the property, so that the potential liability binds
successive owners of the property affected — which is why it is required to be
registered — and in my judgment that is enough. Then it was submitted that the
entries on the register were only ‘bare’ entries, without any reality behind
them. Unknown to the parties, it was said, the initial period had expired, so
that the grant was not repayable and the entries were obsolete. In fact that
appears to be incorrect if, as I infer, there had been a breach of grant condition
in 1984. As I read the statutory provisions, once there has been a breach of
grant condition during the initial period, repayment may be demanded, even
after the expiration of that period, from the owner of the property at the date
of the demand. But in any case, neither the entries on the register nor the
defendant’s answers to requisitions disclosed the certified date or showed that
the initial period had expired. It was for the defendant to show a good title
to the property free from the risk that repayment of the grant might be
demanded from the plaintiffs, and she failed to do so.
Next it was
submitted that the plaintiffs could have inspected the register before the
auction, that a prudent purchaser would have done so, and that there was no
reason for equity to come to the assistance of the imprudent. I cannot accept
that submission. In Faruqi v English Real Estates Ltd [1979] 1
WLR 963, the equitable principle was applied in a case where the relevant
documents were made available for inspection and the vendors had given the
purchasers a fair and proper opportunity of seeing what they were buying. But,
as Walton J pointed out, any purchaser reading the conditions of sale would be
entitled to assume that, while there were no doubt entries on the register,
they were only the usual sort of entries which would not adversely affect the
value of the property. That observation applies with equal force to the present
case.
As to the
plaintiffs’ alleged imprudence, the modern practice of making pre-contract
searches dates only from 1927 and is a result of the decision in Re Forsey
and Hollebone’s Contract. But even if that is the only safe and prudent
course, why should the purchasers’ imprudence relieve the vendor of the
obligation of candour?
Finally, and
most formidably, reliance was placed on section 198(1) of the Law of Property
Act 1925 as amended by the Local Land Charges Act 1975. That deems the
registration of any instrument or matter in any local land charges register to
constitute actual notice of such instrument or matter, and of the fact of such
registration, to all persons and for all purposes connected with the land
affected.
Equity, it was
submitted — and I agree — does not insist on the performance of idle rituals
and does not require a vendor to disclose to a purchaser matters already known
to him. For this submission to help the defendant, however, the actual notice,
of which section 198 speaks, must be equated with knowledge. That is the
crucial equation which was made in Re Forsey and Hollebone’s Contract.
In that case,
land was sold free from incumbrances. In accordance with normal conveyancing
practice, the purchaser’s solicitor did not search the local land charges
register until after exchange of contracts and shortly before the date fixed
for completion. He then discovered that the local authority had resolved to
prepare a town planning scheme. The resolution had been registered as a local
land charge, but neither the vendor nor the purchaser was aware of its
existence at the date of the contract.
The purchasers
applied for a declaration that the vendor had not shown a good title to the
property sold in accordance with the contract and for repayment of the deposit.
Her application was dismissed by Eve J and the Court of Appeal on the ground
that a resolution to prepare a town planning scheme did not operate to impose a
subsisting incumbrance on the land affected. At first instance, however, Eve J
gave a second ground for his decision — upon which the Court of Appeal expressed
no opinion — that even if the registered resolution was an incumbrance, it was
an incumbrance of which the purchasers must, under section 198, be deemed to
have contracted with actual notice, and she was therefore precluded from
refusing to complete the contract. In his words at p 387:
The vendor
has only to
point to the section . . . to show that when the contract was entered
into vendor and purchaser must alike be deemed to have known of the existence
of the incumbrance which the purchaser insists on as a good ground for avoiding
the contract.
Eve J thus
equated the actual notice attributed to the purchaser by section 198 with
knowledge for the purpose of the well-known rule that, in the case of an open
contract for the sale of land, a purchaser cannot object to an irremovable
incumbrance of which he was aware at the date of the contract. An incumbrance
is irremovable if the owner of the land is not entitled as of right to procure
its discharge by the payment of money. The rule rests upon implication. A person
who knows that a property has some incurable defect or is subject to some
irremovable incumbrance, and yet contracts to buy it, must impliedly be taken
to have agreed to accept the vendor’s title despite the existence of that
defect or incumbrance. To this extent the implication in an open contract that
the property is sold free from incumbrances is negated. (Normally, the
purchaser’s knowledge of the state of the title cannot deprive him of the
benefit of an express term that the land is sold free from incumbrances. Eve J
attributed this to the parol evidence rule, but it would, I think, be more
accurate to attribute it to the obvious impossibility, even if the evidence
were received, of implying a term inconsistent with an express term of the
contract.) The rule has no application
to an incumbrance like that in the present case, which can be removed on
payment: see section 77 of the Housing Act 1974. The purchaser’s knowledge of
such an incumbrance is not inconsistent with the vendor’s obligation to make
the payment necessary to obtain its discharge on completion: see Re Gloag
and Miller’s Contract (1883) 23 Ch D 320. Hence the crucial importance of
the contractual provisions on which the defendant relies.
This part of
Eve J’s judgment represents an alternative ground for his decision and cannot
be dismissed as merely obiter. It has stood for nearly 60 years, but not
without challenge. It was greeted at the time by conveyancers with
consternation and incredulity. Its interpretation of section 198 was described
as ‘startling’ and its effect as ‘revolutionary’. It has since been subjected
to severe criticism by the editors of Emitt on Title and other eminent
conveyancers. It has led to a change in conveyancing practice, which is both
inconvenient and time-consuming, and which is unlikely to be adopted by those
who buy at auction or who contract before consulting solicitors. For such
purchasers, the decision constitutes a potential trap. Even in ordinary sales
by private treaty, the need to search the local land charges register before
contract rather than at the same time as the other registers, that is to say
shortly before completion, is inconvenient and entails a delay which can put
the contract at risk. Pre-contract searches of the land charges register — to
which section 198 also applied — are, of course, impractical, since
registration in that register — unlike the local land charges register — is
effected against the name of the estate owner for the time being, and until
contract it is not known against what names the search should be made.
These
problems, aggravated by the reduction in the statutory period of title from 30
to 20 years, led to the reversal of the relevant part of Eve J’s decision by
section 24 of the Law of Property Act 1969, following a report of the Law
Commission (No 18). That section, however, does not apply to local land
charges, in respect of which pre-contract searches are feasible and had by 1969
become normal practice. In relation to local land charges, therefore, the
decision in Re Forsey and Hollebone’s Contract has not been reversed by
statute, but neither has it been confirmed thereby.
In my
judgment, the equation of the actual notice referred to in section 198 with the
state of mind required for terms to be implied into an open contract is deeply
suspect. I find it impossible to reconcile with principle or authority. If a
purchaser knows, or even mistakenly believes, that he cannot expect to obtain a
title free from incumbrances, and yet enters into a contract of purchase on that
basis, the inference is obvious. But the inference depends upon his state of
mind, which may be affected by error, or ignorance, or forgetfulness. Notice —
even actual notice — however, has nothing to do with the person’s state of mind
and is not affected by such matters. In the absence of knowledge, notice cannot
support the necessary inference.
This is neatly
demonstrated by the decision of the Court of Appeal in Ellis v Rogers
(1885) 29 Ch D 661. In that case, the purchaser knew before he entered into the
contract that the land was subject to restrictive covenants, but he wrongly
believed that they had been extinguished when the land had been compulsorily
acquired by a railway company. He later discovered that the covenants were
still extant and would bind him if he completed. When he refused to complete,
the vendor contended that, having known of the existence of the covenants from
the outset, the purchaser must be taken to have agreed to accept the title
subject to them. The Court of Appeal rejected this contention. As Cotton LJ put
it at p 671:
The vendor
knew nothing of the covenants. The purchaser knew of them, but thought they had
been discharged, so that both parties were contracting on the footing that a
good title was to be made, and as a good title cannot be made, the purchaser is
not bound.
This shows
that notice and knowledge are not synonymous. The purchaser had actual notice
of the existence of the covenants. Had he completed before discovering his
error, he would unquestionably have been bound by them as a purchaser with
notice. His ignorance of their continuing subsistence, while negativing any
inference which might otherwise have been drawn from his knowledge of
them, would not avail him against the covenantee, for it would not affect his
notice of them.
There are two
further grounds for suspecting Eve J’s reasoning. First, in Ellis v Rogers
Kay J pointed out at p 666 that to force the title on the purchaser it is
essential that he should have knowledge not only of the existence of the incumbrance
but of the vendor’s inability to remove it. Section 198 cannot help with this.
Unless consciously aware of the existence of an incumbrance, a purchaser cannot
form any useful opinion on the vendor’s ability to remove it.
Second, it is
unlikely that the notice attributed to the purchaser by section 198 was
intended to have any greater effect than actual notice would have had before
1926; and notice of equities before 1926 had nothing to do with the
relationship of vendor and purchaser or with the interpretation and effect of
their contract of sale. It was concerned exclusively with the enforcement of
third parties’ rights. The fundamental rule of equity is that an equitable
interest is binding on everyone except a bona fide purchaser for value without
notice. The Land Charges Act 1925 substituted registration for notice and was
likewise concerned exclusively with the protection of third parties’ rights.
Section 198 of the Law of Property Act 1925 forms an integral part of the
machinery of registration. In this context, the natural reading of section 198
is that registration constitutes actual notice to all persons and for all
purposes for which such notice is material, that is to say for the
purpose of the enforcement of third parties’ rights against the land affected.
In the present
case, the defendant asks me not merely to apply the decision in Re Forsey
and Hollebone’s Contract but to extend it by applying it in a different
though closely related context. There, both vendor and purchaser were equally
ignorant of the existence of the local land charge; it constituted an
irremovable incumbrance; and the question was whether section 198 had the
effect of modifying the vendor’s contractual obligation to make a good title.
Here, the defendant, through her solicitor, knew of the existence of the entry
on the register; she could have procured its removal by repaying the grant if
necessary; and the question is whether her failure to disclose what she knew
prevents her from relying on the express terms of the contract. I cannot think
that a vendor who knew of the existence of a registered charge, and who
deliberately deceived the purchasers by telling them that there was no such
charge, or that it was not registered, could escape liability for fraud by
claiming that by virtue of section 198 the purchasers must be taken to have had
actual notice of the truth. Similarly, I am not prepared to hold that a vendor
who knows of a registered charge and who wishes to make the sale subject to it
is exonerated by section 198 from his obligation to make full and frank
disclosure of its existence before he can take advantage of an appropriate
condition of sale.
It is
therefore not strictly necessary to reach any conclusion whether the decision
in Re Forsey and Hollebone’s Contract can be supported where the
existence of a registered local land charge is unknown to the vendor at the
date of contract — so that it is not unconscionable for him to rely upon a
special condition of sale without disclosing it — or where it represents an
irremovable defect of title — so that he does not need to rely on any special
condition. Such cases can be dealt with as and when they arise. In my judgment,
the reasoning of the decision is too unsound to permit of any extension,
however logical, to a situation not directly covered by it.
I shall grant
a declaration that the defendant failed to show a good title in accordance with
the contract before April 14 1986; and that the defendant is not entitled to
interest on the balance of the purchase money; and I shall grant a decree of
specific performance of the
less the costs to the plaintiffs of obtaining the removal of the relevant
entries on the local land charges register.
Declarations
and decree of specific performance granted as mentioned at the end of the
judgment. Leave to appeal, if necessary, granted.
