Council house sold to sitting tenants with aid of mortgage from council themselves–Common-form 5-year right of pre-emption in transfer–On default by mortgagors, council nevertheless may not claim to exercise power of sale by executing transfer back to themselves at original price–Purported transfer ineffective
This was an
action by Mr Dennis Williams and his wife, Mrs Rita Williams, for a declaration
that a transfer executed by the defendants, Wellingborough Borough Council,
purporting as mortgagees to revest the freehold interest in 56 Cowper Road,
Wellingborough, in themselves at the price originally paid by the plaintiffs,
was void and of no effect, and for an injunction restraining the defendants
from taking steps to register themselves as freehold proprietors.
Mr P St J
Langan (instructed by Maxwell, Batley & Co, agents for Smith, Chamberlain
& Co, of Wellingborough) appeared for the plaintiffs, and Miss L E Appleby
(instructed by Sharpe, Pritchard & Co, agents for the council solicitor)
represented the respondents.
Giving
judgment, PENNYCUICK V-C said that in 1972 the plaintiffs, who were tenants of
the council, sought to buy the property they occupied. On November 20 1972 the
council executed a transfer of the property in common form for £5,300. The transfer
contained a clause that the purchasers would not, within five years, sell or
otherwise dispose of the property without first offering it to the council. On
the same date the plaintiffs executed a legal charge in common form on the
property in favour of the council as mortgagees, the purchase price being made
repayable by monthly instalments of £38.83, which had since risen to £47.46.
The plaintiffs executed a further charge in favour of J S Hodge Securities for
£1,000 on a second mortgage. Subsequently Mrs Williams became ill, and the
plaintiffs got into arrears with their repayments; by May 15 1974 the sum of
£341.54 was owing. The council served notice requiring payment of that amount.
Mr and Mrs Williams failed to comply with the notice, where-upon the council,
in purported exercise of the power of sale contained in the mortgage, executed
a transfer of the property to themselves for £5,300, the original purchase
price. The council then offered the plaintiffs a tenancy of the house, which
they refused. Shortly afterwards the plaintiffs issued the writ in the action,
by which they sought a declaration that the transfer back to the council was
void and an injunction to stop the council taking further steps to register
themselves as freehold owners of the property.
The relevant
provisions were contained in section 104 of the Housing Act 1957, subsection
(1) of which enacted:
Where a local
authority have acquired or appropriated any land for the purposes of this Part
of this Act, then, without prejudice to any of their other powers under this
Act, the local authority may, with the consent of the Minister, sell or lease
any houses on the land or erected by them on the land, subject to such
covenants and conditions as they may think fit to impose in regard to the
maintenance or use of the houses, and upon any such sale or on the grant of any
such lease they may, if they think fit, agree to the price or any premium being
paid by instalments or to a payment of part thereof being secured by a mortgage
of the premises.
Subsection
(3):
On the sale
of a house in accordance with this section . . . a local authority may in any
case, and shall if so required by the Minister, impose conditions . . . (c)
precluding the purchaser . . . from selling or letting the house during [a
period not exceeding five years from the completion of the sale] unless he has
. . . offered to resell or sell the house to them and the authority have
refused the offer or have failed to accept it within one month after it is
made, and prescribing or providing for the determination of the price to be
paid in the event of the acceptance of such an offer.
The Minister
of Housing and Local Government gave certain directions pursuant to section 104
contained in a circular No 54/70, dated June 30 1970, including the following:
Appendix I.
Disposal of houses provided under Part V of the Housing Act 1957. The Minister
of Housing and Local Government, in exercise of his powers under section 104 of
the Housing Act 1957 and of all other powers enabling him in that behalf,
hereby gives to all local authorities . . . the following general consents, to
operate as from July 1 1970: (1) To sell, or to lease for a term of 99 years or
more, any house provided under or appropriated for the purposes of Part V of
the Housing Act 1957 (a) to a sitting tenant . . . (2) To sell, or to lease for
a term of 99 years or more, such a house and to such a person as are mentioned
in subparagraph (1) at less than the current market price, consideration or
rent subject to the following conditions: . . . (b) on such a sale of a house
the local authority shall under section 104 (3) of the Housing Act 1957 impose
conditions to provide that (i) during a period of five years from the date of
the completion of the sale the house by virtue of a restrictive covenant
inserted in the conveyance for the purpose shall not be resold at a price in
excess of the amount at which it was
agreed . . . or determined by the Minister . . . ; (ii) the local authority
reserve to themselves in the conveyance a right of pre-emption precluding the
sale or the grant of a lease of the house during that period of five years
unless the owner has first offered to resell the house to the local authority
and the authority have refused the offer or have failed to accept it within one
month after it is made.
Section 101 of
the Law of Property Act 1925, so far as relevant, provided:
(1) A mortgagee, where the mortgage is made by
deed, shall, by virtue of this Act, have the following powers, to the like
extent as if they had been in terms conferred by the mortgage deed, but not
further (namely): (i) A power, when the mortgage money has become due, to sell
. . . the mortgaged property . . . by public auction or by private contract. .
. .
Clause 6 of
the transfer to the plaintiffs said:
Provided
further that in case the borrower shall . . . (2) be in default for one month
in payment of any interest or other moneys herein covenanted to be paid by the
borrower . . . then and in any such case the whole of the moneys payable or to
become payable hereunder shall be deemed to be forthwith due and owing and the
council may at any time thereafter without any previous notice to or
concurrence on the part of the borrower. . . . (b) exercise the power of sale .
. . conferred upon mortgagees by the Law of Property Act 1925 and so that the
power of sale may be exercised whether the council are in possession or not and
without the restrictions imposed by section 103 of the said Act and so that for
the purposes of such Act the whole of the moneys so becoming due as aforesaid
shall be deemed to be moneys hereby secured.
The question
now for decision was one of law, namely, was the very unusual transaction the
council had purported to carry out an effective exercise by them of their power
of sale? It was not in question that the
power of sale had arisen by reason of default on the part of the plaintiffs in
the payment of the mortgage instalments. Counsel for the plaintiffs referred to
the well-known principle by which it was not competent for a mortgagee
execising a power of sale to sell to himself. He (counsel) submitted that there
was in fact no sale in the present case, the transaction being a nullity.
Counsel for the local authority argued, on the other hand, that in the very
special circumstances and having regard to the policy which apparently underlay
the Housing Act 1957, this should be treated as a valid transaction.
The general
principle that a mortgagee could not sell to himself was established beyond
dispute. It would be sufficient to make two citations from cases of high
authority and two citations from textbooks. In Farrar v Farrars Ltd
(1888) 40 Ch D 395 at p 409 in the Court of Appeal Lindley LJ said: ‘It is perfectly
well settled that a mortgagee with a power of sale cannot sell to himself
either alone or with others, nor to a trustee for himself . . . nor to anyone
employed by him to conduct the sale. . . . A sale by a person to himself is no
sale at all, and a power of sale does not authorise the donee of the power to
take the property subject to it at a price fixed by himself, even although such
price be the full value of the property.’
In Henderson v Astwood [1894] AC 150 in the Privy Council
Lord MacNaghten said at p 158: ‘The so-called sale was of course inoperative. A
man cannot sell to himself, either in his own person or in the person of
another.’ Halsbury’s Laws of England
3rd ed (1959) vol 27 p 307 para 575 stated, ‘A mortgagee cannot sell to himself,
either alone or with others, nor to a trustee for himself.’ Finally, there was the statement in Snell’s
Principles of Equity 27th ed (1973) p 398: ‘The sale must be a true sale. A
purported sale by a mortgagee to himself, whether directly or through an agent,
is no sale at all, and may be disregarded.’
It would be
difficult to find a set of more uncompromising statements of principle. Counsel
for the local authority referred to a series of cases on the analogous but by
no means identical position where a trustee sold directly or indirectly to
himself, and in particular she relied on Holder v Holder [1968]
Ch 353, a case in the Court of Appeal, where it was held that in certain
special circumstances the rule of equity that a trustee was debarred from purchasing
trust property did not apply. The circumstances concerned were that the
individuals involved had taken virtually no part in the administration of an
estate of which an executor, after certain small acts of administration, had
purported to renounce probate. He (his Lordship) could not accept that the
decisions cited justified him in disregarding in the present case the
authorities directly concerned with sales by a mortgagee to himself. He (the
Vice-Chancellor) thought that those authorities governed the facts before him,
which in one particular respect afforded a striking instance of the application
of the relevant principle. This was not even the case which sometimes arose of
a mortgagee, directly or indirectly, bidding at an auction for purchase of the
mortgaged property. There was nothing remotely resembling a sale here. The
council simply executed a transfer of the property back to their own name, and
all else apart, it was impossible to describe that as a sale ‘by public auction
or by private contract’ within the meaning of section 101 of the Law of
Property Act 1925.
Counsel had
gone on to submit that if the plaintiffs were precluded from making a profit on
the resale of the property within five years of their purchase of it, it would
be anomalous that they should indirectly be entitled to make a profit on the
sale of that property by the council as mortgagee, the council having been put
into the position in which they were more or less obliged to sell by the
plaintiffs’ own default in payment of instalments. Why, counsel asked, should
the mortgagors be entitled to the surplus in the latter case, where they would
not be entitled to make a profit in the former case? It was possible that the court’s decision was
not in accordance with what might be called the general policy of the Housing
Act 1957. There was, however, nothing in the Act, and nothing in the transfer
or legal charge, which would justify him (his Lordship) in reaching any
different conclusion. Having regard to the apparent policy of the Act, he
abstained from expressing any concluded view as to what would be the position
if the transfer and legal charge had contained an express provision authorising
the council to do that which it had done. There was no such express provision.
Counsel had submitted, finally, that the plaintiffs were now precluded by
estoppel from claiming any surplus which there might be from a sale of this
property by the council. But the only elements relied on as setting up such an
estoppel were the terms of the transfer and charge themselves, and it was
impossible to derive from those terms anything which went beyond what was there
provided.
His Lordship
made a declaration, as sought by the writ, that the transfer dated June 3 1974
was void and of no effect. It would not, he said, be useful to go into the
question whether the transfer should strictly be regarded as voidable or void,
because it was quite clear that the matter having come before the court, the
court would be obliged to avoid this transfer if it had any validity at all,
and make an injunction in the terms sought by the writ. Nothing prejudiced the
right of the council to exercise any powers of a mortgagee which they could
otherwise exercise.
