Mother and sons purchasing property – Legal title vesting in sons jointly – Sons taking out loan secured by way of legal charge – Mother giving consent without proper legal advice – Application for possession by mortgagee – Whether mother’s interest overreached by charge – Proprietary estoppel – Human rights – Application allowed – Appeal dismissed
In May 1987 the third defendant, S, and her two sons, the first and second defendants, purchased a property known as 5 Moreland Drive, Gerrards Cross, Buckinghamshire. The property was registered in the joint names of the two sons. On 24 July 1990 the sons applied for loans from the claimant society in order to raise capital to fund their businesses. The society agreed to advance £140,000 and £115,000 to be secured on the property, which sums were to be used, in part, to discharge a previous charge in favour of Barclays Bank plc in the sum of £175,202.49. A solicitor was instructed to obtain consent, and, on 19 June 1990, the solicitor sent consent forms to the sons. The eldest son obtained S’s signature on a form. It was common ground that the solicitor neither met S nor gave her advice about the form of consent before she signed it. On 24 July 1990 the charges were executed and the money duly advanced.
Subsequently, the sons defaulted on the mortgage repayments, and, in 1993, the society sought an order for possession of the property, which the sons did not defend. The judge found that the form of consent should be set aside, as it was procured by the presumed undue influence of the elder son, of which the bank had constructive notice in the sense defined in Barclays Bank plc v O’Brien [1994] AC 180, and that the transaction was manifestly disadvantageous to the defendant. However, the judge held that the otherwise resurrected equitable interest of S under section 70(1)(g) of the Land Registration Act 1925 could not override that of the society, by virtue of the decision of City of London Building Society v Flegg [1988] AC 54, which applied because the legal charge had been created by the sons as two trustees for sale. Accordingly, S’s beneficial interest was overreached, in that it was translated into the proceeds of sale. On that basis, the judge granted an order for possession, with a declaration that the beneficial interest of S was overreached by the charges granted in favour of the society.
S appealed and sought to distinguish Flegg (supra) on two grounds. The first ground was that the specific relationship between S and her two sons gave rise to proprietary estoppel originating from a promise of occupation for life that impliedly incorporated the requirement that the property could not be potentially jeopardised by charging the land without S’s formal consent. It was argued that, since the form of consent had been set aside for undue influence, S’s specific equitable interest could not be overreached under section 2 of the Law of Property Act 1925. The second ground was on the basis of Article 8.1 of the European Convention, which provided that: “Everyone had the right to respect for his private and family life, his home and his correspondence . . .”.
Held: The appeal was dismissed.
1. It was clear that S had made a substantial financial contribution to the property. Accordingly, she could rely on a resulting trust, and there was no need for her to rely upon proprietary estoppel, in so far as they were distinct. If S had made no financial contribution but had acted to her detriment on reliance of the sons’ promises, then she might have obtained a proprietary interest in the property. However, it would be remarkable if the latter, more precarious, right could not be overreached on the basis of section 2(1) of the Law of Property Act 1925 Act. In the type of family situation in which S occupied the property, any interests created by proprietary estopppel were equivalent to those under the resulting trust, and both were interchangeable. Thus, it was not a ground on which Flegg (supra) could be distinguished: Grant v Edwards [1986] Ch 638 and ER Ives Investment Ltd v High [1967] 2 QB 379 considered.
2. The submission that Article 8 of the Convention influenced the construction of section 2 of the Act was erroneous. Article 8 of the Convention was of no assistance to the appellant. It was not yet a part of domestic law, and the Human Rights Act 1998 was not yet in force. Further, the society was not a public authority. Accordingly, the judge’s order had been made in accordance with the law and in accordance with the claimant’s rights as secure lender.
Marc Beaumont (instructed by Jethwa & Co, of Southall) appeared for the claimant; Nigel Jones QC and Peter Kirby (instructed by Eversheds, of Cardiff) appeared for the defendant.
Thomas Elliott, barrister
