Birmingham Midshires Mortgage Services Ltd v Sabherwal

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Birmingham Midshires Mortgage Services Ltd v Sabherwal [2000] 80 P & CR 256

Whether an interest created by proprietary estoppel can be overreached.

Facts:

The defendant’s sons bought a house and registered it in the sons’ joint names.  In fact this was the latest of line of purchases for the family for business and domestic purposes. The defendant made financial contributions to these properties and obtained a beneficial interest in the house as a result. Subsequently the house was mortgaged and, when the sons fell into arrears, the mortgage company began possession proceedings.

Issues:

The defendant claimed that she had an overriding interest binding on the mortgage company under s.70(1)(g) Land Registration Act 1925 as she had an equitable interest in the property and was in actual occupation when it was mortgaged. Such an interest can be overreached if money is paid to two trustees or a trust corporation, per City of London Building Society v Flegg [1988] AC 54. The mortgagee had dealt with the sons and, therefore, with two trustees. However, the mother argued that her interest arose not under a trust but by proprietary estoppel and so could not be overreached in this way.

Held:

The Court of Appeal accepted that an overriding interest could arise from a proprietary estoppel as this created an equitable interest in property. However, Walker LJ said that it was still possible to overreach such an interest, but only in family matters, not commercial matters, as a commercial interest cannot realistically be transferred to the proceeds of sale, but a family interest can, as the proceeds can be used to buy another home. Consequently, the mother’s interest was overreached by the two trustees.

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