Au Hon Kwong and Another v. Sure Woollen Yarns Co.Ltd.
Read the full judgment text of HCMP 3979/1992 on BabelCite. This High Court CFI judgment was delivered on 29 January 1993 before Godfrey J.
Vendor and purchaser – requisition on title – execution of mortgage by company – authentication of deeds – common seal – signature of directors – articles of association requiring signature by more than half of existing directors – whether mortgage validly executed by one of four directors – Conveyancing and Property Ordinance ss.23 and 52 – TCB Ltd v Gray – whether title impeachable. Property known as Flat A, 13/F, Jumbo Court, 3 Welfare Road, Aberdeen was sold by the plaintiffs to the defendant for HK$1,950,000 with completion due on 6 November 1992. The title derived from a 1987 assignment by Hang Seng Bank exercising its power of sale under a 1980 mortgage granted by Tri Tronic Limited, which bore the company's seal but was signed by only one of its four directors. Article 13 of the company's Articles required deeds to be sealed and signed by more than half of the existing directors, meaning at least three signatures were required. The purchaser raised a requisition on title concerning the defective execution. The vendors' solicitors advanced three answers, relying respectively on s.23 of the Conveyancing and Property Ordinance (authentication against a third party relying in good faith), the case of TCB Ltd v Gray (effectiveness as a document under hand and estoppel), and s.52 of the Conveyancing and Property Ordinance (improper or irregular exercise of power of sale). The court held that none of these answers met the requisition: s.23 did not cure the internal failure of execution, the document under hand conferred no power of sale on the bank, and s.52 concerned the exercise of the power of sale rather than the validity of the mortgage itself. The court further held that the risk of the title being successfully impeached by Tri Tronic Limited was real and not merely theoretical or fanciful. The court declared that the requisition had not been sufficiently answered and ordered the vendors to pay the purchaser's costs of the application, to be taxed if not agreed.
Legal issues: Validity of mortgage executed by only one director where articles require more than half of existing directors
Outcome: Declaration that the purchaser's requisition on title had not been sufficiently answered; the title offered was held to be impeachable.
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HCMP003979/1992 1992, No.MP3979 IN THE SUPREME COURT OF HONG KONG HIGH COURT MISCELLANEOUS PROCEEDINGS ____________
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____________ Coram : Godfrey, J. in Court Date of judgment : 29 January 1993 _______________ J U D G M E N T _______________ 1. This is a vendor and purchaser summons. The plaintiffs are the vendors; the defendant is the purchaser. I shall so refer to them. The property the subject of the contract dated 19th October 1992 between the vendors and the purchaser is a property known as Flat A, 13/F, Jumbo Court, 3 Welfare Road, Aberdeen, Hong Kong. The purchase price was HK$1,950,000. Completion was due to take place on or before 6th November 1992. 2. The title deeds were supplied by the vendor to the purchaser before the contract was made. On 2nd October 1992, the purchaser's solicitors, W.K. To & Co., raised some requisitions on title. The only one I need mention concerned a mortgage dated 10th July 1980 executed, or purported to be executed, by a company called Tri Tronic Limited. This company was expressed to mortgage the property to the Hang Seng Bank. In 1987, the Hang Seng Bank, purporting to act under the powers conferred on it by the mortgage, sold the property to the present vendors. 3. But the mortgage was executed by only one director for and on behalf of the company. It is this which is the subject of the requisition, which read as follows :-
That requisition was properly raised. The relevant article (in my judgment there are no other relevant articles) is Article 13 which reads as follows:-
The mortgage of 10th July 1980 bore the Seal of the Company. The problem is that Article 13 required it not only to be sealed with the Seal of the Company, but to be signed by more than half of the existing directors of the company as authorised by the Board of Directors. It is common ground that, at the date of the execution of the mortgage, the company had four directors. It follows that in order to be signed by more than half of the existing directors of the company, the mortgage had to be signed by all four or at least three of these directors; but, as I have indicated, it was in fact signed by only one director. 4. So the mortgage was plainly not validly executed and, accordingly, I turn to see how, if at all, the vendor attempted to get over this difficulty. 5. The vendors' solicitors, Y.T. Wong & Co., in a letter dated 16th October, 1992, said this :-
That was no answer to the requisition. It is precisely the failure duly to authenticate the mortgage which gives rise to the difficulty. 6. Subsequently, another firm of solicitors, Messrs. Woo, Kwan, Lee & Lo (to whom it appears Y.T. Wong & Co had appealed) expressed the opinion that they were of the opinion that although the mortgage might be ineffective as a deed, it was effective as a document under hand, and that the mortgagor was estopped from denying that it had been duly executed as a deed; and they cited TCB Limited v. Gray [1986] 1 All ER 587. That also was no answer to the requisition. No power of sale would have been conferred on the bank by the document under hand to which the solicitors referred. 7. Nothing daunted, Y.T. Wong & Co offered a further and different answer on 3rd November 1992. They said this :-
That too was no answer to the requisition. What is in question is not the propriety of the exercise of the power of sale, but the propriety of the execution of the mortgage itself, with which s.52 has nothing to do. 8. In these circumstances, I am of the opinion that the assignment of 20th January 1987 by which the bank purported to assign the property to the plaintiff is open to challenge; the company might well be entitled to apply to have the mortgage set aside if it had been improperly entered into by one director without the authority of the board of directors. Since no such authority has been proved, it follows that the title must be impeachable. It was sought to argue that the risk of the title being successfully impeached was theoretical or fanciful rather than real. If I had been satisfied that this was so, I should have felt able to pronounce in favour of the title offered, but I do not think that the risk, although perhaps slight, of a challenge to the title can possibly be described as merely theoretical and fanciful. I regard it as a real risk. 9. For the reasons I have endeavoured to state, I am bound to hold that the requisition raised by the purchaser has not been sufficiently answered and I propose to make a declaration accordingly. I will order that the costs of the purchaser of this application are to be taxed (if not agreed) and paid by the vendors to the purchaser.
Representation: Mr Alexander Wong, inst'd by M/s Y.T. Wong & Co. for the Plaintiffs Miss Maria Yuen, inst'd by M/s W.K. To & Co. for the Defendant |