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BIRMINGHAM MIDSHIRES MORTGAGE SERVICES LTD v SABHERWAL

General Principle:


An overreaching of equitable interest that results from proprietary estoppel is possible.


Name:


Birmingham Midshires Mortgage Services Ltd v Sabherwal (2000) 80 P & CR 256


Facts:


The defendant's children went into joint names when they purchased a home and had it registered in their names. In point of fact, this was the most recent acquisition in a string of transactions made by the family for both commercial and personal reasons. As a consequence of the defendant's financial contributions to these assets, the defendant now has a beneficial interest in the residence. After that, the home was mortgaged, and when the sons started falling behind on their payments, the mortgage company started the process of repossessing the property.


Ratio:


There S had argued, inter alia, that the abolition of the doctrine of conversion by s3 of the TALATA 1996 Act had rendered s2(1)(ii) of the 1925 Act (the overreaching provision) ineffective. In concluding that this argument could not be sustained, the Court emphasised that TALATA 1996 Act contained nothing to exclude the essential overreaching provisions set out in s2(1)(ii) of the 1925 Act. On the contrary, that provision had been amended so as to reflect the new terminology of the 1996 Act, and so was in effect confirmed (with that new terminology) by the 1996 Act. Accordingly, ‘two trustee’ overreaching has survived the 1996 Act.


The Court of Appeal confirmed in Birmingham Midshires Mortgage Services Ltd v Sabherwal the well established view that commercial equitable interests, but not family equitable interests, are exempt from the overreaching regime. The former equitable rules of notice have been greatly affected by the 1925 legislation. Since 1925 they continue to have a role to play in the protection of equitable interests in respect of unregistered land but it is much less significant than hitherto.


Application:


The LRA 2002 has still not removed the doctrine of overreaching which can create an enormous threat to beneficiaries which is evident from the case of City of London v Flegg. This is because it does not allow overriding interests to work if monies is paid to two trustees and as seen in the case of Flegg the legal owners could use the money for their own purposes and leave the beneficiaries with nothing. Overreaching can be argued to be a mechanism for breaking a trust and so stop any overriding interests emerging. Steps should be taken to protect overriding interests in situations like Flegg.


Birmingham Midshires Mortgage Services v Sabherwal

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