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Orakpo v Manson Investments Ltd

[1978] AC 95, [1977] 3 All ER 1, [1977] 3 WLR 229, 35 P & CR 1, 121 Sol Jo 632

Court: HL

Judgment Date: circa 1978

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Catchwords & Digest


LIEN - EQUITABLE LIEN - VENDOR AND PURCHASER - VENDOR'S LIEN - TRANSFER OF LIEN - PURCHASE-MONEY ADVANCED BY MONEY-LENDER

The defendant moneylenders lent the plaintiff large sums of money for the purchase and development of certain properties, and for the redemption of legal and equitable charges on other properties. As security, the moneylenders took a first mortgage on the various properties. The memorandum of the contract omitted to state that the plaintiff was to pay the moneylenders' mortgage charges. Subsequently, the plaintiff, who was in arrears of repayments, claimed that the loan transactions were unenforceable because of the omission of an agreed term in the memorandum, contrary to the Moneylenders Act 1927 s 6(1). The moneylenders counterclaimed either for repayment of the loans and interest, or for a declaration that they were entitled by subrogation to the unpaid vendor's liens on the properties acquired by the plaintiff, for such part of the money lent as was applied to defray the purchase price, or to redeem prior charges affecting the properties. At first instance, the contracts were held to be unenforceable by virtue of s 6(1), but the moneylenders were found to be entitled by subrogation to the security represented by the unpaid vendors' liens. Accordingly, the sale of the properties was ordered. On appeal, the counterclaim was held to be time-barred by s 13 of the 1927 Act. On further appeal: Held (i) (Viscount Dilhorne dissenting), the legal transactions were unenforceable for the lack of a sufficient memorandum. A right of subrogation could only arise if both parties intended the money borrowed to be used to pay the unpaid vendors and holders of existing charges, and if the parties had intended such a term to be incorporated, the memorandum should have contained it. Accordingly, neither the legal mortgages nor rights claimed by subrogation were enforceable. (ii) Section 13 of the 1927 Act effectively time-barred any proceedings to enforce the subrogated rights, as the proceedings begun fell within the definition in the section of proceedings for the recovery by a moneylender of money lent by him.

LIMITATION OF ACTIONS - PARTICULAR CAUSES OF ACTION - CONTRACT, TORT AND OTHER ACTIONS - CONTRACT - SIMPLE CONTRACT - MONEY LENT - SPECIAL TIME LIMITS - RECOVERY OF MONEY LENT

The defendant moneylenders lent the plaintiff large sums of money for the purchase and development of certain properties, and for the redemption of legal and equitable charges on other properties. As security, the moneylenders took a first mortgage on the various properties. The memorandum of the contract omitted to state that the plaintiff was to pay the moneylenders' mortgage charges. Subsequently, the plaintiff, who was in arrears of repayments, claimed that the loan transactions were unenforceable because of the omission of an agreed term in the memorandum, contrary to the Moneylenders Act 1927 s 6(1). The moneylenders counterclaimed either for repayment of the loans and interest, or for a declaration that they were entitled by subrogation to the unpaid vendor's liens on the properties acquired by the plaintiff, for such part of the money lent as was applied to defray the purchase price, or to redeem prior charges affecting the properties. At first instance, the contracts were held to be unenforceable by virtue of s 6(1), but the moneylenders were found to be entitled by subrogation to the security represented by the unpaid vendors' liens. Accordingly, the sale of the properties was ordered. On appeal, the counterclaim was held to be time-barred by s 13 of the 1927 Act. On further appeal: Held (i) (Viscount Dilhorne dissenting) the legal transactions were unenforceable for the lack of a sufficient memorandum. A right of subrogation could only arise if both parties intended the money borrowed to be used to pay the unpaid vendors and holders of existing charges, and if the parties had intended such a term to be incorporated, the memorandum should have contained it. Accordingly, neither the legal mortgages nor rights claimed by subrogation were enforceable. (ii) Section 13 of the 1927 Act effectively time-barred any proceedings to enforce the subrogated rights, as the proceedings begun fell within the definition in the section of proceedings for the recovery by a moneylender of money lent by him.

MONEY - LOANS OF MONEY; CONTROL OF MONEYLENDERS - STATUTORY CONTROL OF MONEYLENDERS - RELIEF OF BORROWERS AND ACTIONS BY MONEYLENDERS - ACTIONS BY MONEYLENDERS - PROCEEDINGS FOR RECOVERY OF MONEY LENT - PROCEEDINGS FOR ENFORCEMENT OF SECURITY - ACTION BY MONEYLENDER IN EXERCISE OF SUBROGATED RIGHTS

On various dates in 1972 and 1973 the borrower entered into eight contracts of loan with the lenders. The purpose of those contracts was to enable him to acquire a good freehold or long leasehold title to eight different dwelling-houses which he proposed to convert for multiple occupation. Each loan was to be secured by a first legal charge in favour of the lenders on the property in respect of which the loan was made. In two cases the money was required to pay on completion the purchase price of houses which the borrower had contracted to purchase. In other cases it was required to pay off prior legal or equitable charges on the property. In respect of each of the contracts of loan it was the common intention of both parties that the money lent should be so applied and, to ensure that, completion of the various transactions by which the title of the borrower was to be perfected and the new legal charges in favour of the lenders executed, were carried out on behalf of both parties by their solicitors pursuant to certain instructions and undertakings. Each loan was applied to its intended purpose; the borrower acquired legal title to the properties and the legal charges in favour of the lenders, as mortgagees, were duly executed. Through inadvertence, however, the written memorandum of each contract left out one of the terms of the contract. That omission made the contracts for the repayment of the loans and the legal charges given as security for the loans unenforceable under s 6(1) of Moneylenders Act 1927. The borrower, who had fallen behind in his interest payments, brought an action for a declaration that each of the contracts was unenforceable, and for an injunction restraining the lenders from taking steps to sell or otherwise dispose of the properties subject to the legal charges. The lenders counter-claimed as alternative remedies either (1) repayment of the loans and interest, or (2) a declaration that they were entitled to a lien on the properties for such part of the money lent as had been applied to defray the purchase price or to redeem prior charges affecting the properties in question. Walton J: Held that since the written memorandum did not contain all the terms of the contracts both the contracts and the legal charges were unenforceable. Nevertheless, on the counterclaim, he held that to the extent that the money lent had been applied to defray the purchase price or to pay off prior charges affecting the properties, the lenders were entitled by subrogation to the security represented by the previously existing unpaid vendors' liens and equitable charges. He accordingly declared that the lenders were entitled to such liens and to such equitable charges and ordered that the properties be sold to enable those securities to be realised. The borrower appealed against the judgment given against him on the counterclaim. The Court of Appeal allowed the appeal on the ground that the counterclaim was time-barred under s 13(1) of 1927 Act, in that the cause of action in respect of the alleged subrogated securities had arisen more than 12 months before the date on which the counterclaim had been served, and that the counterclaim to enforce the securities to which the lenders had been subrogated were 'proceedings ... for the recovery by a moneylender of any money lent by him', within s 13(1). The lenders appealed: Held the appeal would be dismissed because (1) the lenders were not entitled to enforce the subrogated rights which they had asserted against the borrower because (a) (per Lord Diplock) if it was not a term of any of the contracts between the borrower and the lenders that the moneys advanced to the borrower should be used by him to discharge his secured liabilities to the chargees or vendors of the properties in question, the lenders were not entitled to be subrogated to the secured rights of the chargees and vendors by reason of the fact that it was the expectation of the parties that the moneys advanced should be so used, even though the moneys had been so used; (b) (per Lord Salmon and Lord Keith of Kinkel) subrogation was the legal result of carrying out the contract entered into whether it was an express term of the contract that the money lent should be used to pay off the existing charges or it was the common intention of the parties that the money should be so used, for in the latter case the common intention would be a term of the contract. If (Lord Diplock concurring) such a term had been incorporated in the contract, not only should it have been expressly set out in the memorandum, but also the subrogated rights constituted a 'security given by the borrower', within s 6(1), and therefore the defects in the memorandum had the effect under s 6(1) of rendering unenforceable not only the legal mortgagees taken by the lenders, but also the secured rights to which they had subsequently been subrogated; (c) (per Lord Salmon and Lord Edmund-Davies) the contract and legal charges obtained by the lenders, although unenforceable under s 6, were nonetheless valid and the lenders were not entitled to claim relief in equity under the doctrine of subrogation for, by doing so, they could not avoid setting up their own breach of s 6 to support that claim. In any event, since the legal charges obtained by the lenders were valid, although unenforceable, once those charges had been duly executed and delivered to the lenders, latter were to be treated as having abandoned their claim to the subrogated rights for they had obtained all that they had bargained for under the contract; (2) in any event since the lenders' cause of action had accrued more than 12 months before the date of the counterclaim, latter was time-barred under s 13(1) of 1927 Act because (Lord Diplock dissenting) the words 'proceedings ... for the recovery ... of ... money lent' in s 13(1) were not limited to proceedings for the recovery of the debt itself but included all proceedings by which, either directly or indirectly, the recovery of the money lent was sought; alternatively, the equitable charges by subrogation were securities taken in respect of the lenders' loan and the counterclaim therefore constituted 'proceedings ... for the enforcement of any ... security taken ... in respect of any loan made by' the lenders, within s 13(1).