Deeds of giftThe problems caused by ss.339 to 342 of the Insolvency Act 1986 (and the equivalent provisions relating to company insolvency), caused by the unfortunate wording of the provision supposedly protecting purchasers, have been with us for a number of years.

However, the Insolvency (No.

2) Act 1994 is designed to set matters right.Under ss.339 to 342 of the 1986 Act, a trustee in bankruptcy has the right to apply to court to recover property which has been the subject of a deed of gift or other transaction at an undervalue, if the donor becomes bankrupt with two (or in certain situations five) years of the deed of gift.A subsequent purchaser in good faith can take free of the trustee's right, but only if he has no knowledge of the relevant circumstances.

Unfortunately, the relevant circumstances are defined in such a way that a relevant circumstance is the existence of the deed of gift and, at least in relation to an unregistered title, a purchaser is bound to be aware of this from the epitome.The 1994 Act has sought to redress the situation by removing the requirement that a purchaser, to be protected, must have no knowledge of the relevant circumstances.

A purchaser will therefore be protected if he buys for value, in good faith.

The Act then provides that there will be a presumption that the purchaser is not in good faith if he has notice of the surrounding circumstances and of relevant proceedings.Surrounding circumstances are defined as the existence of the deed of gift (or transaction at an undervalue), and the Act provides that the purchaser will have notice of the relevant proceedings if he has notice of the fact that a bankruptcy petition has been presented against the donor or of the fact that the donor has been adjudged bankrupt.Thus a purchaser is no longer disqualified from protection merely because he is aware of the existence of the deed of gift (or transaction at an undervalue) although, if he or she also has notice of bankruptcy proceedings, there is a presumption of bad faith which would in turn remove the statutory protection.One would like to be able to say that the 1994 Act had resolved the issue conclusively.

Unfortunately it has left a number of loose ends, or at least has left a sufficient degree of uncertainty to worry those advising purchasers and mortgagees.The first problem concerns the position of a subsequent purchaser.

Let us say that purchaser one buys the property from a donee shortly after a deed of gift, at which time no bankruptcy proceedings have been commenced against the donor.

Purchaser one is clearly protected by the Act as he cannot possibly have notice of proceedings which do not exist.After a short while, and still within the period of two years from the deed of gift, purchaser one decides to sell the property to purchaser two.

By the time of the sale to purchaser two, bankruptcy proceedings have been commenced against the donor.

If purchaser two has notice of these proceedings, as well as notice of the existence of the deed of gift, it looks as though he is outside the protection given by the 1994 Act, in which case he will not buy the property.But consider the effect of this on purchaser one: he is clearly protected by the Act but now finds that, because of the donor's subsequent bankruptcy, he cannot dispose of the property.

This is surely an untenable situation.

The wording of s.342(2a) of the 1986 Act does seem to protect not only the initial purchaser in good faith, but also any other interest deriving from the interest of a purchaser in good faith.It is to be hoped that this means that, once a purchaser has bought with the protection of the 1994 Act, all future purchasers are thereby protected even though they may have notice of bankruptcy proceedings as well as of the deed of gift.Unfortunately, however, the 1994 Act simply does not indicate whether or not its provisions are to override the wording of s.342(2a) and produce the unfortunate result described in the previous paragraph.If one assumes the worst, and accepts that a subsequent purchaser may be unprotected if he has notice of proceedings as well as of the deed of gift, the question arises of how that notice can be acquired.

In particular, if bankruptcy entries are registered as land charges against the name of the donor, at a time after the donor has parted with the legal estate of the property, is the effect of s.198 of the Law of Property Act 1925 to fix a subsequent purchaser with notice of proceedings? Arguably it is not, and the purchaser is only affected by registrations made against the owner of a legal estate at the time of registration.However, the alternative view, that a purchaser is to be taken to have notice of proceedings registered against the donor after he has parted with the legal estate, will require future purchasers to search against the name of the donor in order to find out whether there were indeed any such registrations.

Of course having done the search, they would then be unable to argue that they did not have notice of any proceedings revealed by the search.It is regrettable that these doubts do exist in relation to what was supposed to be an Act to resolve the unintended difficulties in the 1986 Act.

However, if one is taking a cautious approach, one would probably advise that subsequent purchasers do make a land charges search against the donor, even though this will mean in practice that a previous purchaser in good faith will find the property unmarketable if bankruptcy proceedings are subsequently registered against the donor.This in turn means that, even if a purchaser is protected by the Act, he should still take out indemnity insu rance in case the donor does subsequently become bankrupt and the property becomes unmarketable.

This is the very scenario which the Act was presumably designed to avoid.

The sooner there is an authoritative statement indicating that subsequent purchasers are protected by a previous purchase in good faith, the better for all concerned.Two final points.

First, it has been suggested that where a purchaser of a registered title has notice of a deed of gift or transaction at an undervalue (which is fairly unlikely), a land charges search should be made against the name of the donor, as for an unregistered title;this assumes that the name of the donor can be ascertained.

Whilst the position is far from clear, it does seem unlikely that a court would give land charges registration such significance in relation to a registered title.Secondly, where the donee or transferee at an undervalue holds the property subject to a mortgage, the mortgagee appears to have the same level of protection as a subsequent purchaser.If the mortgage was in existence prior to the deed of gift and the property was transferred subject to it, one can argue that the property which was transferred was the property subject to the existing mortgage, and that this is the only property which the donor's trustee in bankruptcy can recover; in other words the mortgagee has priority over the trustee.

If the mortgage was created at the time of or subsequent to the deed of gift, there seems no reason why the mortgagee should not be protected in the same way as a subsequent purchaser.Acting for mortgageesReaders will be well aware of the current concern over the desirability or otherwise of separate representation for borrowers and lenders.

Quite apart from the New Zealand case of Clark Boyce v Mouat [1993] 4 All ER 268, in which the Privy Council introduced the concept of informed consent where there is a potential conflict, there have been two other recent cases in the English courts which have highlighted the position of the solicitor acting for the lender.In Mortgage Express Limited v Bowerman & Partners [1994] 34 EG 116, solicitors acting for a purchaser and for a mortgagee knew that the purchase was a sub-sale at £220,000, although the price in the head contract was only £150,000.

The mortgagee advanced £180,150 against a valuation of £199,000.The mortgagee subsequently sold the property at a loss; the open market value at the time of the original purchase was in fact only around £120,000.

The solicitors were held to be negligent for not having informed the mortgagee of the circumstances and in particular of the doubt over the value of the property raised by the purchase price in the head contract.In Target Holdings Limited v Redferns [1994] 2 All ER 337, solicitors acting for a purchaser and its mortgagee were again aware of transactions immediately preceding the purchase under which the consideration was substantially less than the price being paid by the purchaser.

The purchaser had, in effect, agreed to buy the property for £775,000 but had interposed two intermediate transactions as a result of which the eventual purchase price was £2,000,000.

The mortgagee advanced £1,525,000.

Again, there was a subsequent sale, at a severe loss, by the mortgagee.However, in this case the solicitors had handed over the mortgage advance at a point when no executed transfer or mortgage was yet in existence, although completion did subsequently take place.

The solicitors were held liable, in breach of trust, to reimburse the full amount of the mortgage ad vance which had been wrongfully handed over, less the amount recovered by the mortgagee on its sale.Mortgage Express raises questions as to the duty of a solicitor acting for a mortgagee and, quite apart from the issue of separate representation, it is clearly important to clarify the scope of the solicitor's duty to a mortgagee.

It does seem that some institutional mortgagees are being unrealistic in their demands of solicitorsComputer printed possession summonsesIn Nationwide Building Society v Shillbeer, heard before His Honour Judge Russell Vick QC on 24 June 1994 at the Medway County Court, it was held that district judges should accept computer printed pro forma possession summonses notwithstanding variations from the prescribed form contained in the new County Court Rules and reproduced as form N120 in the 1994 Green Book.County courts should exercise discretion in relation to any variations from the prescribed form in each case and should recognise that the rules permit variation according to the circumstances.

Strict compliance in the use of forms should not be used as the basis of the refusal of the possession in future.Sale by surviving joint tenantThe Law of Property (Miscellaneous Provisions) Bill has now been enacted (see p.22 for feature).

One of its effects will be to reform the law relating to the post-completion liability of a seller.

Instead of selling as beneficial owner, trustee or in some other capacity, the sale will be with limited or full guarantee (or no guarantee at all).The Act will be the subject of more detailed treatment in a future property points, but it is worth mentioning the effect of this change on the protection given by the Law of Property (Joint Tenants) Act 1964 to a purchaser of unregistered title from a sole surviving beneficial joint tenant.As one of the conditions for this protection, the surviving joint tenant must either sell as beneficial owner or the conveyance must contain a statement that he is solely and beneficially entitled.

Given that in the future the survivor will not be selling as beneficial owner, the statement that the survivor is solely and beneficially entitled should be expressly incorporated in the conveyance.There is one possible gap in the protection given by the 1964 Act which arises where the sale is not by the surviving joint tenant, but by the surviving joint tenant's personal representatives after the survivor too has died.

If the personal representatives make an assent in favour of a beneficiary, the beneficiary cannot be protected by the Act as he is not a purchaser.However, the personal representatives should still make a statement in the assent, that the now deceased survivor was solely and beneficially entitled at his death, in order that this statement may protect a future purchaser.

However, it is unclear whether a future purchaser would in fact be protected by such a statement in the assent and on a sale by the assentee, the contract ought to provide that the purchaser raise no requisitions on this point.