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Published online by Cambridge University Press: 18 February 2022
In Abbey National Building Society v Cann, the House of Lords held that a mortgagee who has funded the purchase of the mortgaged title to land (an “acquisition creditor”) has a right over the land that binds any other grantee of the purchaser. This article considers the basis for and limits of this principle, in light of its origins. It argues that the cases treat the lender's financial contribution as an independent source of an equitable interest in the purchased asset, rather than as a reason why the grant in favour of the lender takes effect earlier in time than the grant in favour of any third party. This has important and desirable consequences for the scope of the principle, rendering it more coherent with general principles of English property law and allowing for an apportionment solution in some situations involving co-contributors to acquisition.
Fellow and Tutor in Law, Hertford College, Oxford; Associate Professor of Property Law, University of Oxford. I am grateful to Professor Ben McFarlane, Professor John Mee, Professor William Swadling, Dr Andreas Televantos, and two anonymous peer reviewers for their valuable comments on previous drafts, and to Mr Felix Kroner for research assistance.
1 Abbey National Building Society v Cann [1991] 1 A.C. 56.
2 Scott v Southern Pacific Mortgages [2014] UKSC 52, [2015] A.C. 385.
3 Ibid., at [95].
4 E.g. P.T. Evans, “Abbey National Building Society v Cann” [1991] Conv. 155, 160; P. Watts, “Company Charge” [1990] N.Z. Recent Law Review 196, 197; S. Baughen, “Some Lessons of Cann” [1991] Conv. 116; M. Conaglen, “Mortgagee Powers Rhetoric” (2006) 69 M.L.R. 583, 595; Mortgage Business plc v O'Shaughnessy [2012] EWCA Civ 17, [2012] 1 W.L.R. 1521, at [55].
5 Cf. Smith, R.J., “More Troublesome Occupiers” (1990) 106 L.Q.R. 32Google Scholar; Smith, R.J., “Mortgagees and Trust Beneficiaries” (1990) 106 L.Q.R. 545Google Scholar.
6 E.g. Goldberg, G.D., “Vivit Ac Vivat Scintilla Temporis” (1992) 108 L.Q.R. 380Google Scholar; R. Boadle, “A Purchase Money Security Interest in UK Law?” [2014] L.M.C.L.Q. 76, 77–78.
7 E.g. Davies, C.J. and Bennett, H.N., “Fixtures, Purchase Money Security Interests and Dispositions of Interests in Land” (1994) 110 L.Q.R. 448Google Scholar; cf. Gullifer, L., Goode and Gullifer on Legal Problems of Credit and Security, 2nd ed. (London 2017), [5–70]–[5–72]Google Scholar.
8 Church of England Building Society v Piskor [1954] 1 Ch. 553, 561, 564–65.
9 Smith, “Mortgagees and Trust Beneficiaries”, 549.
10 Under the Trusts of Land and Appointment of Trustees Act 1996, s. 15.
11 As in cases like Mortgage Corporation v Shaire [2001] Ch. 743.
12 Hardy v Fowle [2007] EWHC 2423 (Ch), at [103].
13 A. Tettenborn, “Transfer of Chattels by Non-owners: Still an Open Problem” [2018] C.L.J. 151, 161.
14 Re Connolly Bros (No 2) [1912] 2 Ch. 25.
15 Abbey National v Cann [1991] 1 A.C. 56, 93, 102.
16 Meux v Smith (1843) 59 E.R. 931, cited at first instance in Re Connolly Bros (No 2) [1912] 2 Ch. 25, 28.
17 Ibid.
18 Ibid., at 936.
19 Kerakoose v Brooks (1860) 15 E.R. 376.
20 Bird v Philpott [1900] 1 Ch. 822.
21 Bankrupts (England) Act 1825 (6 Geo. 4 c. 16), at issue in Meux v Smith (1843) 59 E.R. 931; Indian Insolvency Act 1848 (11 & 12 Vict. c. 21), at issue in Kerakoose v Brooks (1860) 15 E.R. 376; Bankruptcy Act 1883 (46 & 47 Vict c 52), at issue in Bird v Philpott [1900] 1 Ch. 822.
22 Bankrupts (England) Act 1825, s. 64; Indian Insolvency Act 1848, s. 7; Bankruptcy Act 1883, s. 44.
23 Contrast the modern position under the Insolvency Act 1986, s. 307.
24 Meux v Smith (1843) 59 E.R. 931, 938.
25 Cf. Bird v Philpott [1900] 1 Ch. 822, 825–26.
26 Meux v Smith (1843) 59 E.R. 931, 938.
27 Ibid.
28 Ibid., at 940.
29 Cf. Fisher, W.R., The Law of Mortgages and Other Securities Upon Property, 2nd ed. (London 1868), 857Google Scholar. I am grateful to Dr. Andreas Televantos for drawing my attention to this source.
30 Although see Re Bond Worth [1980] Ch. 228, 253–56.
31 Compare Cohen v Mitchell (1890) 25 Q.B.D. 262, distinguished in Re New Land Development Association and Gray [1892] 2 Ch. 138.
32 Meux v Smith (1843) 59 E.R. 931, 935. Meux v Smith (1843) 59 E.R. 931 was interpreted in these terms by Sugden, E., A Concise and Practical Treatise of the Law of Vendors and Purchasers of Estates, 14th ed. (London 1862), 541Google Scholar. I am grateful to Dr. Andreas Televantos for drawing my attention to this source.
33 Kerakoose v Brooks (1860) 19 E.R. 559, 566.
34 Ibid., at 563.
35 Ibid., at 566.
36 Ibid.
37 Bird v Philpott [1900] 1 Ch. 822.
38 The fact of Templeman's first bankruptcy came to light when he was bankrupted again; the second trustee in bankruptcy was also party to the litigation.
39 Bird v Philpott [1900] 1 Ch. 822, 830.
40 Ibid., at 831.
41 Ibid., at 832.
42 Re Connolly Bros (No 2) [1912] 2 Ch. 25.
43 Ibid.
44 Ibid., at 27–28.
45 Ibid., at 28.
46 Ibid.
47 Ibid., at 29.
48 Ibid.
49 Ibid.
50 Ibid.
51 Ibid.
52 Ibid., at 31.
53 Ibid.
54 Ibid.
55 Ibid.
56 McFarlane, B. and Stevens, R., “What's Special About Equity?” in Klimchuk, D., Samet, I. and Smith, H.E. (eds.), Philosophical Foundations of the Law of Equity (Oxford 2020), 191, 203–06Google Scholar. Examples include Lysaght v Edwards (1876) 2 Ch. D 499, Pullan v Koe [1913] 1 Ch. 9 and Holroyd v Marshall (1861) 11 E.R. 999; cf. FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45, [2015] A.C. 250, at [33].
57 Holroyd v Marshall (1861) 11 E.R. 999.
58 Re Connolly Bros (No 2) [1912] 2 Ch. 25, 30.
59 Ibid.
60 As in Re Connolly Bros (No 2) [1912] 2 Ch. 25.
61 As in Kerakoose v Brooks (1860) 15 E.R. 376.
62 As in Meux v Smith (1843) 59 E.R. 931.
63 As in Re Connolly Bros (No 2) [1912] 2 Ch. 25.
64 As in Meux v Smith (1843) 59 E.R. 931 and Kerakoose v Brooks (1860) 15 E.R. 376.
65 Bird v Philpott [1900] 1 Ch. 822, 831.
66 Honoré, A.M., “Ownership” in A.G. Guest (ed.), Oxford Essays in Jurisprudence: First Series (Oxford 1962), 107, 119Google Scholar; the link to the nemo dat principle is discussed by Tettenborn, “Transfer of Chattels”, 159.
67 Street v Mountford [1985] A.C. 809, 816.
68 Such a grant may, however, form an element of a defence based on purchase for value, e.g. under the Land Registration Act 2002, s. 29(1). In such a case, it is C's reliance on the register, rather than A's consent, that provides the reason for its release from the duty owed to B.
69 Douglas, S. and McFarlane, B., “Defining Property Rights” in Penner, J. and Smith, H., Philosophical Foundations of the Law of Property (Oxford 2013), 219, 240–43Google Scholar.
70 Restrictive covenants are an exception: Re Nisbet and Pott's Contract [1905] 1 Ch. 391.
71 Swadling, W., “Restitution and Bona Fide Purchase” in Swadling, W. (ed.), The Limits of Restitutionary Claims: A Comparative Analysis (London 1997), 78, 81–82Google Scholar.
72 The duty may arise only if C acquires knowledge of the breach of duty while still holding a proprietary interest in the asset: Agnew, S. and McFarlane, B., “The Paradox of the Equitable Proprietary Claim” in Agnew, S. and McFarlane, B. (eds.), Modern Studies in Property Law, vol. 10. (Oxford 2019), 303Google Scholar.
73 As in Williams & Glyn's Bank v Boland [1981] A.C. 487.
74 Ali v Dinc [2020] EWHC 3055 (Ch), [2021] 2 P. & C.R. 19, at [318].
75 E.g. a registered disposition for value of a registered estate: Land Registration Act 2002, s. 29(1).
76 Pilcher v Rawlins (1871–72) L.R. 7 Ch. App. 259, 261.
77 Phillips v Phillips (1861) 45 E.R. 1164.
78 Coventry Permanent Building Society v Jones [1951] 1 All E.R. 901.
79 Ibid., at 903.
80 None of the earlier cases are cited in Coventry Permanent v Jones [1951] 1 All E.R. 901, which was associated with Re Connolly Bros (No 2) [1912] 2 Ch. 25 only later: Mornington Permanent Building Society v Kenway [1953] Ch. 382, 385.
81 Coventry Permanent v Jones [1951] 1 All E.R. 901, 903. This possibility was subsequently rejected by the Supreme Court in Scott v Southern Pacific Mortgages [2014] UKSC 52, [2015] A.C. 385.
82 Ibid., at 904.
83 E.g. if the land had been registered and the tenants in actual occupation: Woolwich Equitable Building Society v Marshall [1952] Ch. 1, 9.
84 Church of England Building Society v Piskor [1954] 1 Ch. 553, 561, 564–65.
85 Such a characterisation of a transaction will normally depend on the intentions of the parties: Cutts, T., “Tracing, Value, and Transactions” (2016) 79 M.L.R. 381, 398–99CrossRefGoogle Scholar, and authorities discussed there.
86 Abbey National v Cann [1991] A.C. 56, 92.
87 Smith, “Mortgagees and Trust Beneficiaries”, 548.
88 Cf. Conaglen, “Mortgagee Powers Rhetoric”.
89 E. Durfee, “Priorities” (1959) 57 Mich. L. Rev. 459, 469–71.
90 Elitestone v Morris [1997] 1 W.L.R. 687, 691.
91 Reynolds v Ashby & Son [1904] A.C. 466.
92 As noted by Bridge, S., Cooke, E. and Dixon, M., Megarry & Wade: The Law of Real Property, 9th ed. (London 2019), [22–023]Google Scholar.
93 J.S. Rogers, “Negotiability, Property, and Identity” (1991) 12 Cardozo L. Rev. 471, 490.
94 See e.g. Jones v De Marchant (1918) 28 D.L.R. 561.
95 E.g. Meux v Smith (1843) 59 E.R. 931, 938; Bird v Philpott [1900] 1 Ch. 822, 830.
96 E.g. Re Connolly Bros (No 2) [1912] 2 Ch. 25, 31; Security Trust Co. v Royal Bank of Canada [1976] A.C. 503, 521; Abbey National v Cann [1991] A.C. 56, 92, 102; Whale v Viasystems Ltd. [2002] EWCA Civ 480, at [29], [73]; Scott v Southern Pacific [2014] UKSC 52, [2015] A.C. 385, at [115].
97 E.g. Re Connolly Bros (No 2) [1912] 2 Ch. 25, 31; Coventry Permanent v Jones [1951] 1 All E.R. 901, 903; Lloyds Bank plc v Rosset [1989] Ch. 350, 407; Abbey National v Cann [1991] A.C. 56, 89; Whale v Viasystems [2002] EWCA Civ 480, at [73]–[74]; Hardy v Fowle [2007] EWHC 2423 (Ch), at [102]; Scott v Southern Pacific [2014] UKSC 52, [2015] A.C. 385, at [110].
98 E.g. Fowkes v Pascoe (1874–75) L.R. 10 Ch. App. 343, 352–53.
99 J. Mee, “Presumed Resulting Trusts, Intention and Declaration” [2014] C.L.J. 86, 110.
100 E.g. Bull v Bull [1955] 1 Q.B. 234.
101 As in City of London Building v Flegg [1988] A.C. 54, 61, where a declaration in a conveyance that land was conveyed to purchasers as beneficial joint tenants did not affect the position of contributors who were not parties to the conveyance. Contrast Goodman v Gallant [1986] 2 W.L.R. 236, where the contributor was a party to the conveyance and the declaration in that conveyance was therefore taken as conclusive evidence of her intentions, capable of rebutting the presumption of resulting trust.
102 Smith, L., The Law of Tracing (Oxford 1997), 6–17Google Scholar.
103 It is disputed whether X's payment to Y is presumed to be pursuant to a declaration of trust, an unexpressed intention that Y take as a trustee, or an intention that Y must not take for his own benefit: Penner, J., “Resulting Trusts and Unjust Enrichment: Three Controversies” in Mitchell, C. (ed.), Resulting and Constructive Trusts (Oxford 2010), 237Google Scholar. Any of these characterisations justify X's claim to an interest in an asset acquired using the trust money, either because the substitution is authorised under the terms of the presumed declaration (or intention) or because it represents the traceable proceeds of an asset held on bare trust.
104 Nair, A., Claims to Traceable Proceeds: Law, Equity and the Control of Assets (Oxford 2018), 3.121–3.123CrossRefGoogle Scholar.
105 Dewar v Dewar [1975] 1 W.L.R. 1532; Re Sharpe [1980] 1 W.L.R. 219; Vajpayi v Yusaf [2003] EWHC 2339 (Ch), [2004] 1 P. & C.R. DG1. I am grateful to Professor William Swadling for drawing my attention to these cases and this objection.
106 Raczynska, M., The Law of Tracing in Commercial Transactions (Oxford 2018), [4.16]–[4.453]Google Scholar.
107 Cf. Foley v Hill (1848) 9 E.R. 1002, 1006–07.
108 Cf. Kirkham v Peel (1880) 43 LT 171, discussed by Nair, Claims to Traceable Proceeds, [6.12]–[6.15].
109 Twinsectra v Yardley [2002] 2 A.C. 164, 185–87. The trust in such a case may be characterised as a Quistclose trust, as in Twinsectra v Yardley itself, or as an ordinary express trust in favour of the lender, with a power in the borrower to apply the money for the purpose of the purchase.
110 Compare the looser intentions found to have accompanied the loans in Re Sharpe [1980] 1 W.L.R. 219, 221 (“I hoped that … he might be able to repay me”) and Vajpayi v Yusaf [2003] EWHC 2339, at [22] (“his obligation was to repay the money as and when he could”).
111 R. v Waya [2012] UKSC 51, [2013] 1 A.C. 294, at [48]–[53].
112 Boscawen v Bajwa [1996] 1 W.L.R. 328; Target Holdings v Redferns [1996] A.C. 421; AIB Group (UK) plc v Redler [2014] UKSC 58, [2015] A.C. 1503; Lloyds TSB Bank Plc v Markandan & Uddin [2012] EWCA Civ 65, [2012] 2 All E.R. 884.
113 Re Connolly Bros (No 2) [1912] 2 Ch. 25, 31.
114 Nolan, R., “Property in a Fund” (2004) 120 L.Q.R. 108, 115Google Scholar.
115 A. Televantos, “Overreaching and Trusts of Land” [2018] C.L.J 516, 518–19.
116 Divergent views on this question are expressed by Penner, J., “Duty and Liability in Respect of Funds” in Lowry, J. and Loukas, M. (eds.), Commercial Law: Perspectives and Practice (London 2006), 207Google Scholar; Nolan, “Property in a Fund”; and Raczynska, Law of Tracing, [4.16]–[4.453].
117 E.g. Scott v Surman (1742) 125 E.R. 1235, 1237–48; Taylor v Plumer (1815) 105 E.R. 721, 725–26; Buhr v Barclays Bank [2001] EWCA Civ 1223, [2002] 1 P. & C.R. DG7, at [39]–[44].
118 Raczynska, Law of Tracing, [4.26]–[4.27].
119 See Tucker, L. et al. , Lewin on Trusts, 20th ed. (London 2020), [3–054]–[3–064]Google Scholar.
120 D. Fox, “Overreaching” in P. Birks and A. Pretto-Sakmann (eds.), Breach of Trust (Oxford 2002), 95, 96; Nolan, “Property in a Fund”, 114.
121 J. Penner, “The (True) Nature of a Beneficiary's Equitable Proprietary Interest under a Trust” (2014) 27 Can. J.L. & Jurisprudence 473, 493.
122 Ibid., at 476–84.
123 Nair, Claims to Traceable Proceeds, [3.61]–[3.66].
124 This may also explain why, in cases where the lender's money is used to pay off a debt owed to another creditor without its consent, subrogation to the rights of that creditor is available without the need for a separate agreement: see Menelaou v Bank of Cyprus Plc [2015] UKSC 66, [2016] A.C. 176, at [111]–[117], [133]–[140] (Lord Carnwath J.S.C.).
125 Cf. Kerakoose v Brooks (1860) 15 E.R. 376.
126 Boadle, “Purchase Money Security Interest”.
127 There may be circumstances where an authorised substitution by an agent gives a principal a common law title to the purchased asset: Geva, B., “Authority of Sale and Privity of Contract: The Proprietary Basis of the Right to the Proceeds of Sale at Common Law” (1980) 25 McGill L.J. 32Google Scholar. However, these arguments are only relevant where legal title to the original asset remains vested in the principal and are not engaged where that title is transferred to a trustee.
128 Law of Property Act 1925, s. 87.
129 Ibid., s. 52.
130 Land Registration Act 2002, s. 27(2)(f).
131 Foskett v McKeown [2002] 1 A.C. 102, 132.
132 As in Coventry Permanent v Jones [1951] 1 All E.R. 901, Woolwich Equitable v Marshall [1952] Ch. 1, Universal Permanent Building Society v Cooke [1952] Ch. 95, Mornington Permanent BS v Kenway [1953] Ch. 382, Church of England Building Society v Piskor [1954] 1 Ch. 553, Grace Rymer Investments Ltd. v Waite [1958] 1 Ch. 831.
133 As in Lloyds Bank v Rosset [1989] Ch. 350 (C.A.) and Abbey National v Cann [1991] 1 A.C. 56.
134 Cf. Allen v Longstaffe (1887) 37 Ch. D. 48, 50.
135 Abbey National v Cann [1991] 1 A.C. 56, 66–67.
136 Overruling Church of England Building Society v Piskor [1954] 1 Ch. 553.
137 Abbey National v Cann [1991] 1 A.C. 56, 101.
138 Cf. Taylor v Russell [1892] A.C. 244.
139 Cf. Capital Finance Co. Ltd. v Stokes [1969] 1 Ch. 261.
140 Capital and Counties Bank v Rhodes [1903] 1 Ch. 631.
141 Land Registration Act 2002, s. 29(1) and sch. 3, para. 2.
142 Abbey National v Cann [1991] 1 A.C. 56, 101.
143 Ali v Dinc [2020] EWHC 3055, at [337].
144 (1989) 57 P. & C.R. 381, 391.
145 E.g. Barclays Bank plc v Zaroovabli [1997] Ch. 321.
146 Cf. the Universal Commercial Code, Article 9, [9–322].