Northern Bank Ltd v Henry

• Jurisdiction: Ireland
• Judge: PARKE J.,,KENNYJ.:,Henchy J.
• Judgment Date: 01 January 1981
• Date: 01 January 1981
• Docket Number: [1975 No. 3130P]
• Court: Supreme Court

1980 WJSC-SC 1545

THE SUPREME COURT

Henchy J.

Kenny J.

Parke J.

No. 313OP./1975

(175/1978)

NORTHERN BANK LTD. v. HENRY & ORS.

NORTHERN BANK LTD.

v.

THELMA HENRY, HARRY DESMOND HENRY AND FIRST NATIONALBUILDING SOCIETY

1 Judgment of Henchy J.delivered the 17th April 1980.

2 The contest in this case is between the plaintiff Bank and the wife of one of its customers. The wife is the first-named defendant. The husband, who was the customer, is the second-named defendant. He had granted a legal mortgage of the family home to the third-named defendant, a building society, in 1969.

3 In 1974 the husband's account with the Bank was heavily overdrawn and his finances generally were in disarray. It was a source of urgent worry to the Bank. It badly needed a collateral security for its debt. It needed it quickly, for there were other creditors of his and cheques drawn by him in favour of some of thosecreditors had been dishonoured by the Bank. The only substantial item of property he appeared to have vas the family home, and it was mortgaged to the building society. However, in the eyes of the Bank, as a security it was better than nothing. It required him to give a second mortgage on it. He agreed to do so.

4 The Bank doubtless felt it had to carry through the transaction swiftly. Advised by their legal department in Belfast, the Bank people took up the documents of title and saw the investigation of title that had been carried out when the mortgage to the building society was executed in 1969. But they did no further investigation of the title, other than to get a Dublin firm of solicitors to have a negative sear carried out in the Registry of Deeds. Having thereby established that no dealing with the property had been registered since 1969, they did not go into the title further, although they knew it was the family home and that the husband had ceased to use it as his address in his correspondence with them. A competent solicitor acting for a normal purchaser of the house would nothave been content to take the title on such a cursory investigation. But all the Bank wanted was a second mortgage, and its advisers probably felt that if they took time to investigate the title fully they might lose priority to another creditor. For that reason I do not wish to criticise them for telescoping the investigation in the interests of business expediency. So, with the title thus summarily looked at, they got the second mortgage executed.

5 As was later proved, the husband had no title whatsoever to the family home. If the Bank had pursued the matter by means of appropriate requisitions on title, it would have discovered not only that it was the wife who was in occupation of the house, but that she was in the process of formulating against the husband a claim that she was beneficially entitled to it. The High Court has since made a declaration to that effect and that decision stands unchallenged. What the Bank primarily seeks to establish in the present proceedings is that as purchaser for value without notice of the wife's title it should have priority overher. S. 3(1) of the Conveyancing Act, 1882, deprives it of that priority if the wife's entitlement "would have come to [the Bank's] knowledge if such inquiries and inspections had been made as ought reasonably to have been made". Counsel for the wife argues that the Bank ought reasonably to have inquired as to who was in occupation and as to whether there was any litigation threatened or pending affecting the property, and that if it had done so it would have learned of the wife's claim. Accordingly, the argument goes, the Bank should not be allowed to dislodge her from the family home which she admittedly owned at the time the Bank got the second mortgage of it, because its abstention from making the suggested inquiries fixed it with constructive notice of the wife's claim.

6 The answer depends on the scope of meaning that should be given the expression "such inquiries and inspections as ought reasonably to have been made" in s. 3(1)(i) of the Conveyancing Act, 1882.

7 In my judgment, the test of what inquiries and inspections ought reasonably to have been made is anobjective test, depending not on what the particular purchaser thought proper to do in the particular circumstances, but on what a purchaser of the particular property ought reasonably to have done in order to acquire title to it. ("Purchaser" and "purchase" in this conte: have the meanings ascribed to them by s. 2 of the Conveyancing Act, 1881, and thus include "mortgagee" and "mortgage"). In a particular case, a purchaser, looking only at his own interests, may justifiably and reasonably consider that in the circumstances some of the normal inquiries and inspections may or should be dispensed with. The special circumstances, thus narrowly viewed, may justify the shortcut taken, or the purchaser may consider that they do so. In either event, such a purchaser is not the purchaser envisaged by s. 3(1)(i) of the Conveyancing Act, 1882. That provision, because it is laying down the circumstances in which a purchaser is not to be prejudicially affected by notice of any instrumental fact or thing, is setting as a standard of conduct that to be expected from a reasonable purchaser. Reasonableness in that context must be judged by reference towhat should be done to acquire the estate or interest being purchased, rather than by the motive for or the purpose of the particular purchase. A purchaser cannot be held to be empowered to set his own standard of reasonableness for the purpose of the subsection. He must expect to be judged by what an ordinary purchaser, advised by a competent lawyer, would reasonably inquire about or inspect for the purpose of getting a good title. If his personal preference or the exigencies of the situation impel him to lower the level of investigation of title below that, he is of course entitled to do so, but if he does so, he cannot claim the immunity which s. 3(1)(i) reserves for a reasonable purchaser. And a reasonable purchaser is one who not only consults his own needs or preferences but also has regard to whether the purchase may prejudicially and unfairly affect the rights of third parties in the property. In particular, a reasonable purchaser would be expected to make such inquiries and inspections as would normally disclose whetherthepurchase will fraudulently or unconscionably trench on the rights of such third parties in the property.

8 In this case, the Bank made no inquiry as to who was in occupation of the house. I consider that a reasonable purchaser would have done so. A minimum requirement for the proper investigation of a title is to see that the purchaser will either get vacant possession on completion, or, if the contract or the needs of the purchaser do not so permit or require, get evidence of any estate or interest that will stand between him and vacant possession. Considering the many ways, both at common law and under statute, in which a person in occupation may have an estate or interest adverse to that of the vendor, and which would not appear on an investigation of the vendor's paper title, I consider that the Bank as purchaser ought reasonably to have investigated this aspect of the title. Had the Bank done so, the fact of the wife's possession of the house would have come to light, as well as her well-founded claim to beneficial ownership of it.

9 Nor did the Bank make any inquiry as to whether any litigation was threatened or pending in respect of the property. I consider that this also was an inquiry which a purchaser ought reasonably to have made. The Bank knew that this was a "purchase" from the husband of the family home. Even if it was not a family home, it would be foolhardy for a purchaser not to inquire about pending or threatened litigation, particularly litigation stemming from statutory notices served under statutes such as the Housing Acts or the planning Acts, which might fatally flaw the title. This house was known to the Bank to be the family home. Notwithstanding that this purchase took place before the passing of the Family Home Protection Act, 1976(which makes a transaction of this kind void for want of the prior written consent of the wife), the Bank as purchaser ought reasonably to have adverted to the fact that there were decisions showing that a wife who had made payments towards the acquisition of the home or towards the payment of the mortgage instalmentson it acquired a corresponding share in the beneficial ownership. As a matter of ordinary care, therefore, an inquiry as to threatened or pending claims was called for. There was in fact such an impending claim by the wife. By not inquiring about its existence the Bank became an unwitting party to an unconscionable, if not an actually fraudulent, effort by the husband to mortgage the family home behind his wife's back at a time when he had no beneficial title to it. The Bank, by not making the normal inquiry as to threatened or impending litigation affecting the property - indeed by making no requisitions on title whatsoever - facilitated the husband in nefariously concealing his wife's well-founded claim to the ownership of the house. Because of that, the Bank cannot be said to have shown the care to be expected from a reasonable purchaser. It must be held, therefore, that knowledge of the wife's claim would have been acquired by the Bank if it had made the inquiries that ought reasonably to have been made.

10 The interpretation given in this judgment to s. 3(1)(i) does not amount to the imposition of any novel or unfair duty of investigation of title on purchasers. Well before the enactment of the Conveyancing Act, 1882, which aimed at setting statutory bounds to the existing doctrine of constructive notice, the Chancery judges had evolved this same test for determining whether a purchaser or mortgagee...