Residential property — Security for loan — Land certificate held by owners’ solicitors to order of lender — No legal mortgage executed — Whether deposit of title deeds giving lender equitable mortgage over property — Whether principle of part performance applicable — Whether need for written contract — Lender’s appeal dismissed
The first and second defendants, S and H, were the registered proprietors of 37c Fitzjohn’s Avenue, Hampstead, London NW3 (“the property”), one of three self-contained units in a terrace. On June 30 1987 SGA, the third defendant, at S’s request, guaranteed repayment by S of all moneys outstanding under banking facilities granted to him. SGA initially took no security from S for the guarantee, but subsequently arranged for S’s solicitors to hold the land certificate to the order of SGA as additional security pending the sale or refinancing of the property. H did not authorise that action and therefore SGA did not have security over the freehold interest. Despite repeated requests no legal mortgage was executed.
In September 1991 UBK obtained judgment against S and was granted a charging order nisi over S’s interest in the property. In November UBK commenced proceedings against S and H to enforce the charging order. SGA argued that a deposit of title deeds as security for a loan was sufficient to create an equitable charge on the property in question so that the principle of part performance could be applied.
The High Court declared that as between SGA and UBK, SGA did not have an equitable mortgage or charge over S’s undivided share of the proceeds of the sale. SGA appealed.
Held The appeal was dismissed.
1. The mere deposit of title deeds relating to a property by way of security had never of itself been taken to create an equitable mortgage. The courts required parole evidence to prove that it had been agreed that the deeds were deposited as security for a loan. That was the position before 1989.
2. Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 introduced certainty in relation to contracts for the disposition of land. Its effect was that a contract for a mortgage over, or charge on any interest in land or in the proceeds of sale of land could only be made in writing and only if the written document incorporated all the terms which the parties had expressly agreed and was signed by or on behalf of each party. In the present case it was not suggested that there was any such written contract.
3. Since there was no written document satisfying the requirements of section 2, there was no contract on which SGA could rely. In the absence of any contract there was nothing on which equity could grant specific or part performance.
4. Even if an equitable charge could be created by the deposit of title deeds, section 53(1)(c) of the Law of Property Act 1925 operated to make void any disposition not in writing.
Christopher Pymont (instructed by Radcliffes & Co) appeared for SGA; James Munby QC (instructed by Clyde & Co) appeared for UBK; the first and second defendants did not appear and were not represented.