Priority as between unwritten equitable interest and lender supplying funds to re-mortgage

Where A supplies part of the purchase price of property conveyed into B’s name then A is very likely to have an equitable interest under a common intention constructive trust or a presumed resulting trust.

When, however, the balance of the purchase price is supplied by a lender who takes a charge over the property, the charge has priority over the equitable interest. An intention is imputed to A that B’s charge should have priority over A’s interest (Bristol & West Building Society v Henning ([1985] 1 WLR 778 and  Abbey National Building Society v Cann ([1991] 1 AC 56).

In Equity & Law Home Loans Limited v Prestidge ([1992] 1 FCR 353) the English Court of Appeal held that this imputed intention also gave priority to any charge taken out to redeem the original charge  (but with this priority limited to the amount secured by the original charge).

Mrs Brown supplied part of the purchase price of a property conveyed into Mr Prestidge’s name. The Britannia Building Society provided the balance of the purchase price. Mr. Prestidge then re-mortgaged and used a loan from Equity & Law to redeem the Britannia’s charge.

The Court of Appeal decided that Mrs Brown was the sole beneficial owner of the property. The result of the Henning case was that her interest was postponed to that of the Britannia. There was no evidence of actual intentions. Mrs Brown had an imputed intention authorising Mr Prestidge to grant the charge to Britannia.

This imputed intention went further and extended to any charge replacing the Britannia charge (Mustill LJ at 359). This priority was limited to the amount originally secured by the Britannia charge.

Michael Lower

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