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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> City of London Building Society v Flegg [1987] UKHL 6 (14 May 1987)
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Cite as: [1988] 1 AC 54, [1987] UKHL 6, [1987] 3 All ER 435, [1988] AC 54

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JISCBAILII_CASE_PROPERTY

    Parliamentary Archives,
    HL/PO/JU/18/247

    City of London Building Society (Appellants)

    v.
    Flegg (A.P.) and others (A.P.) (Respondents)

    JUDGMENT

    Die Jovis 14° Maii 1987

    Upon Report from the Appellate Committee to whom was
    referred the Cause City of London Building Society against
    Flegg (A.P.) and others (A.P.), That the Committee had heard
    Counsel on Monday the 9th, Tuesday the 10th, Wednesday the
    11th and Thursday the 12th days of March last upon the
    Petition and Appeal of The City of London Building Society, of
    34 London Wall, London, EC2Y 5JD, praying that the matter of
    the Order set forth in the Schedule thereto, namely an Order
    of Her Majesty's Court of Appeal of 4 December 1985, might be
    reviewed before Her Majesty the Queen in Her Court of
    Parliament and that the said Order might be reversed, varied
    or altered or that the Petitioners might have such other
    relief in the premises as to Her Majesty the Queen in Her
    Court of Parliament might seem meet; as upon the Case of Edgar
    Edward Flegg and Joan Eileen Flegg lodged in answer to the
    said Appeal; and due consideration had this day of what was
    offered on either side in this Cause:

    It is Ordered and Adjudged, by the Lords Spiritual and
    Temporal in the Court of Parliament of Her Majesty the Queen
    assembled, That the said Order of Her Majesty's Court of
    Appeal of the 4th day of December 1985 complained of in the
    said Appeal be, and the same is hereby, Reversed, save as to
    Legal Aid Taxation, and that the Order of His Honour Judge
    Thomas of the 31st day of July 1985 be, and the same is hereby
    Restored: And it is further Ordered, That the First and Second
    Respondents do pay to the Appellants their costs in this House
    and in the Court of Appeal without prejudice to the
    Appellants' right to add their costs to the security; that the
    Order for costs against the First and Second Respondents be
    not enforced without leave of the Court; and that the costs
    of the First and Second Respondents be taxed in accordance
    with Schedule 2 to the Legal Aid Act 1974; And it is also
    further Ordered, That the Cause be, and the same is hereby,
    remitted back to the Chancery Division of the High Court of
    Justice to do therein as shall be just and consistent with
    this Judgment.

    Cler: Parliamentor

    Judgment: l4.5.87

    HOUSE OF LORDS

    CITY OF LONDON BUILDING SOCIETY
    (APPELLANTS)

    v.

    FLEGG AND OTHERS
    (RESPONDENTS)

    Lord Bridge of Harwich
    Lord Templeman
    Lord Mackay of Clashfern
    Lord Oliver of Aylmerton
    Lord Goff of Chieveley

    LORD BRIDGE OF HARWICH

    My Lords,

    I have had the advantage of reading in draft the speeches
    of my noble and learned friends Lord Templeman and Lord Oliver
    of Aylmerton. I agree with them and for the reasons they give I
    would allow the appeal and restore the order of Judge Thomas.

    LORD TEMPLEMAN

    My Lords,

    The appellants, City of London Building Society, are the
    mortgagee under a charge by way of legal mortgage of registered
    land held at the date of the charge by two trustees upon trust for
    sale and to stand possessed of the net proceeds of sale and rents
    and profits until sale upon trust for four tenants in common
    including the respondents, Mr. and Mrs. Flegg. The legal charge
    was entered into by the trustees in breach of trust, although the
    appellants were unaware of this. The respondents who were in
    actual occupation of the mortgaged land claim that the appellants'
    legal charge is subject to the respondents' overriding interest. The
    Court of Appeal declined to order the respondents to deliver up
    possession of the land to the appellants; hence this appeal.

    By a conveyance dated 18 October 1977 the land
    appropriately named Bleak House was conveyed to Mr. and Mrs.
    Maxwell-Brown in fee simple upon trust for sale and to stand
    possessed of the net proceeds of sale and rents and profits until
    sale upon trust for the Maxwell-Browns as joint tenants. In fact,
    the purchase price paid by the Maxwell-Browns for Bleak House,
    amounting to £34,000, had been provided as to £18,000 or more by
    the respondents who were the parents of Mrs. Maxwell-Brown. In
    consequence and notwithstanding the express trusts set out in the

    - 1 -

    conveyance, Bleak House was held by the Maxwell-Browns on trust
    for sale and to stand possessed of the net proceeds of sale and
    rents and profits until sale upon trust for the Maxwell-Browns and
    the respondents as tenants in common in the proportions in which
    they had respectively contributed to the purchase price. The
    respondents were entitled to occupy Bleak House together with the
    Maxwell-Browns as tenants in common under the trust for sale and
    all four beneficiaries duly went into occupation.

    By a legal charge by way of mortgage dated 8 January 1982
    the Maxwell-Browns charged Bleak House to secure £37,500
    advanced by the appellants to the Maxwell-Browns. The
    respondents knew nothing of the legal charge which was granted by
    the Maxwell-Browns for their own purposes and in breach of trust.
    The appellants knew nothing of the respondents.

    By section 27 of the Law of Property Act 1925 (as amended
    by the Law of Property (Amendment) Act 1926, Schedule):

    "(1) A purchaser of a legal estate from trustees for sale
    shall not be concerned with the trusts affecting the
    proceeds of sale of land subject to a trust for sale ... or
    affecting the rents and profits of the land until sale . . .
    (2) Notwithstanding anything to the contrary in the
    instrument (if any) creating a trust for sale of land or in
    the settlement of the net proceeds, the proceeds of sale or
    other capital money shall not be paid to or applied by the
    direction of fewer than two persons as trustees for sale,
    except where the the trustee is a trust corporation . . . ."

    By section 205 of the Act of 1925 the expression
    "purchaser" as used in sections 27 and 28 includes a chargee by
    way of legal mortgage and the sum of £37,500 advanced by the
    appellants to the Maxwell-Browns was capital money within the
    meaning of section 27(2) and was duly paid to two persons as
    trustees for sale.

    By section 28(1) of the Law of Property Act 1925, read in
    conjunction with section 71 of the Settled Land Act 1925, trustees
    for sale of land have powers to mortgage the land and:

    "... all capital money arising under the said powers shall,
    unless paid or applied for any purpose authorised by the
    Settled Land Act 1925, be applicable in the same manner as
    if the money represented proceeds of sale arising under the
    trust for sale."

    Section 17 of the Trustee Act 1925 provides that:

    "No purchaser or mortgagee paying or advancing money on
    sale or mortgage purporting to be made under any trust or
    power vested in trustees, shall be concerned to see that
    such money is wanted, or that no more than is wanted is
    raised, or otherwise as to the application thereof."
    .

    Thus the appellants advancing money in good faith to two
    trustees for sale on the security of a charge by way of legal
    mortgage of Bleak House were not concerned with the trusts
    affecting the proceeds of sale of Bleak House or with the

    - 2 -

    propriety of the trustees entering into the legal charge. As a
    result of the legal charge the interests of the beneficiaries in
    Bleak House pending sale were transferred to the equity of
    redemption vested in the Maxwell-Browns and to the sum of
    £37,500 received by the Maxwell-Browns from the appellants in
    consideration for the grant of the legal charge. The Maxwell-
    Browns did not account to the respondents for any part of the sum
    of £37,500 and defaulted in the performance of their obligations to
    the appellants under the legal charge. The appellants seek
    possession of Bleak House with a view to enforcing its security.

    The respondents resist the claim of the appellant to
    possession of Bleak House and rely on section 14 of the Law of
    Property Act 1925. Sections 27 and 28 of that Act which
    overreach the interests of the respondents under the trust for sale
    of Bleak House are to be found in Part I of the Act. Section 14
    provides that:

    "This Part of this Act shall not prejudicially affect the
    interest of any person in possession or in actual occupation
    of land to which he may be entitled in right of such
    possession or occupation."

    The respondents were in actual occupation of Bleak House
    at the date of the legal charge. It is argued that their beneficial
    interests under the trust for sale were not overreached by the
    legal charge or that the respondents were entitled to remain in
    occupation after the legal charge and against the appellants
    despite the overreaching of their interests.

    My Lords, the respondents were entitled to occupy Bleak
    House by virtue of their beneficial interests in Bleak House and its
    rents and profits pending the execution of the trust for sale.
    Their beneficial interests were overreached by the legal charge and
    were transferred to the equity of redemption held by the Maxwell-
    Browns and to the sum advanced by the appellants in consideration
    of the grant of the legal charge and received by the Maxwell-
    Browns. After the legal charge the respondents were only entitled
    to continue in occupation of Bleak House by virtue of their
    beneficial interests in the equity of redemption of Bleak House and
    that equity of redemption is subject to the right of the appellants
    as mortgagee to take possession. Sections 27 and 28 did not
    "prejudicially" affect the interests of the respondents who were
    indeed prejudiced but by the subsequent failure of the trustees for
    sale to account to their beneficiaries for capital money received
    by the trustees. A beneficiary who is entitled to share in the
    proceeds of sale of land held on trust for sale relies on the
    trustees. Section 26(3) of the Act (as amended) requires trustees
    for sale to consult their beneficiaries and to give effect to the
    wishes of the majority of the beneficiaries "but a purchaser shall
    not be concerned to see that the provisions of this subsection have
    been complied with." If the argument for the respondents is
    correct, a purchaser from trustees for sale must ensure that a
    beneficiary in actual occupation is not only consulted but consents
    to the sale. Section 14 of the Law of Property Act 1925 is not
    apt to confer on a tenant in common of land held on trust for
    sale, who happens to be in occupation, rights which are different
    from and superior to the rights of tenants in common, who are not
    in occupation on the date when the interests of all tenants in

    - 3 -

    common are overreached by a sale or mortgage by trustees for
    sale.

    The Maxwell-Browns registered their title to Bleak House
    under the Land Registration Act 1925 with title absolute for a
    legal estate in fee simple in possession. They continued to hold
    Bleak House on trust for sale and to stand possessed of the net
    proceeds of sale and rents and profits until sale upon trust for the
    Maxwell-Browns and the respondents as tenants in common. By
    section 74:

    "... neither the registrar nor any person dealing with a
    registered estate or charge shall be affected with notice of
    a trust express implied or constructive, and references to
    trusts shall, so far as possible, be excluded from the
    register."

    By sections 2 and 18 proprietors of registered land may
    dispose of the land by transfer or by the creation of a legal
    estate including the grant of a legal charge by way of mortgage.
    Section 20(1) provides as follows:

    "(1) In the case of a freehold estate registered with an
    absolute title, a disposition of the registered land or of a
    legal estate therein, including a lease thereof, for valuable
    consideration shall, when registered, confer on the transferee
    or grantee an estate in fee simple or the term of years
    absolute or other legal estate expressed to be created in the
    land dealt with . . . subject - (a) to the incumbrances and
    other entries, if any, appearing on the register; and (b)
    unless the contrary is expressed on the register, to the
    overriding interests, if any, affecting the estate transferred
    or created, but free from all other estates and interests
    whatsoever . . . and the disposition shall operate in like
    manner as if the registered transferor or grantor were
    (subject to any entry to the contrary in the register)
    entitled to the registered land in fee simple in possession
    for his own benefit."

    Amongst the "other estates and interests" which do not affect the
    legal estate transferred or created are "minor interests" defined by
    section 2 (XV) as:

    " ... the interests not capable of being disposed of or
    created by registered dispositions and capable of being
    overridden (whether or not a purchaser has notice thereof)
    by the proprietors unless protected as provided by this Act,
    and all rights and interests which are not registered or
    protected on the register and are not overriding interests,
    and include -

    (a) In the case of land held on trust for sale, all
    interests and powers which are under the Law of
    Property Act 1925, capable of being overridden by the
    trustees for sale, whether or not such interests and
    powers are so protected; . . ."

    It follows that when the legal charge in the present case is
    registered, the appellants will take free from all the interests of

    - 4 -

    the beneficiaries interested under the trust for sale in the
    proceeds of sale and rents and profits until sale of Bleak House
    but subject to any overriding interest.

    Section 70(1) of the Land Registration Act 1925 defines
    overriding interests which includes

    "(g) The rights of every person in actual occupation of the
    land or in receipt of the rents and profits thereof, save
    where enquiry is made of such person and the rights are not
    disclosed."

    In my view the object of section 70 was to reproduce for
    registered land the same limitations as section 14 of the Law of
    Property Act 1925 produced for land whether registered or
    unregistered. The respondents claim to be entitled to overriding
    interests because they were in actual occupation of Bleak House
    on the date of the legal charge. But the interests of the
    respondents cannot at one and the same time be overreached and
    overridden and at the same time be overriding interests. The
    appellants cannot at one and the same time take free from all the
    interests of the respondents yet at the same time be subject to
    some of those interests. The right of the respondents to be and
    remain in actual occupation of Bleak House ceased when the
    respondents' interests were overreached by the legal charge save in
    so far as their rights were transferred to the equity of
    redemption. As persons interested under the trust for sale the
    respondents had no right to possession as against the appellants
    and the fact that the respondents were in actual occupation at the
    date of the legal charge did not create a new right or transfer an
    old right so as to make the right enforceable against the
    appellants.

    One of the main objects of the legislation of 1925 was to
    effect a compromise between on the one hand the interests of the
    public in securing that land held in trust is freely marketable and,
    on the other hand, the interests of the beneficiaries in preserving
    their rights under the trusts. By the Settled Land Act 1925 a
    tenant for life may convey the settled land discharged from all
    the trusts powers and provisions of the settlement. By the Law of
    Property Act 1925 trustees for sale may convey land held on trust
    for sale discharged from the trusts affecting the proceeds of sale
    and rents and profits until sale. Under both forms of trust the
    protection and the only protection of the beneficiaries is that
    capital money must be paid to at least two trustees or a trust
    corporation. Section 14 of the Law of Property Act 1925 and
    section 70 of the Land Registration Act 1925 cannot have been
    intended to frustrate this compromise and to subject the purchaser
    to some beneficial interests but not others depending on the
    waywardness of actual occupation. The Court of Appeal took a
    different view, largely in reliance on the decision of this House in
    Williams & Glyn's Bank v. Boland [1981] AC 487. In that case
    the sole proprietor of registered land held the land as sole trustee
    upon trust for sale and to stand possessed of the net proceeds of
    sale and rents and profits until sale upon trust for himself and his
    wife as tenants in common. This House held that the wife's
    beneficial interest coupled with actual possession by her
    constituted an overriding interest and that a mortgagee from the
    husband, despite the concluding words of section 20(1), took subject

    - 5 -

    to the wife's overriding interest. But in that case the interest of
    the wife was not overreached or overridden because the mortgagee
    advanced capital monies to a sole trustee. If the wife's interest
    had been overreached by the mortgagee advancing capital monies
    to two trustees there would have been nothing to justify the wife
    in remaining in occupation as against the mortgagee. There must
    be a combination of an interest which justifies continuing
    occupation plus actual occupation to constitute an overriding
    interest. Actual occupation is not an interest in itself.

    For these reasons and for the reasons to be given by my
    noble and learned friend, Lord Oliver of Aylmerton, I would allow
    this appeal and restore the order of Judge Thomas who ordered
    the respondents to deliver up Bleak House to the appellants.

    LORD MACKAY OF CLASHFERN

    My Lords,

    I have had the privilege of reading in draft the speeches
    prepared by my noble and learned friends Lord Templeman and
    Lord Oliver of Aylmerton, I agree with them that the appeal
    should be allowed for the reasons that they have given.

    LORD OLIVER OF AYLMERTON

    My Lords,

    On 12 January 1982 the appellant society, in the ordinary
    course of its business, lent to Mr. and Mrs. Maxwell-Brown a sum
    of £37,500. The Maxwell-Browns were the registered proprietors
    with title absolute of a freehold property known as Bleak House,
    Grange Road, Gillingham, Kent, registered at H.M. Land Registry
    under title number K467866. That property had been acquired by
    them by a conveyance dated 18 October 1977 at a price of
    £34,000 and the conveyance expressly provided that they were to
    hold the property on trust for sale for themselves as joint tenants
    beneficially and that, during the period of 21 years from the death
    of the survivor of them, the trustees should have all the powers of
    an absolute owner. There was no subsisting restriction entered on
    the proprietorship register at the date of the appellants' loan to
    the Maxwell-Browns and nothing on the registered title to suggest
    to the appellants that they were anything other than what they
    appeared to be, that is to say, joint tenants absolutely and
    beneficially entitled. In fact they were not. They were
    respectively the son-in-law and the daughter of the respondents,
    Mr. and Mrs. Flegg, and, as between the four of them, it is
    beyond dispute that Mr. and Mrs. Flegg had an equitable interest
    in the proceeds of the property which was, to a substantial extent,
    purchased with the proceeds of a bungalow at Rainham which they
    sold in 1977 and which, for some 28 years before that, had been
    their home. In the summer of 1977 they decided in conjunction
    with their daughter and son-in-law, to buy Bleak House, a larger

    - 6 -

    house in which it was the intention that all four of them should
    live. The respondents provided the deposit of £3,400 and paid a
    further sum of £14,600 out of the proceeds of their bungalow
    towards the purchase price of the property. At the trial of the
    action giving rise to this appeal, the judge, Judge Thomas, found
    as a fact that it was always the intention of the respondents and
    of Mr. and Mrs. Maxwell-Brown that the balance of the purchase
    price should be raised by means of a mortgage and this was in
    fact done, the money being raised by Mr. and Mrs. Maxwell-Brown
    alone on the security of a legal charge on the property in favour
    of the Hastings and Thanet Building Society. The respondents
    were professionally advised in connection with this transaction and
    the judge found as a fact that their solicitor had advised them
    that the conveyance of the property should be taken in the names
    of all four of them. They were, however, unwilling personally to
    assume any liability for repayment of the mortgage and the
    property was in fact conveyed to Mr. and Mrs. Maxwell-Brown
    alone and charged by them to the building society. The
    conveyance contains no reference whatever to any interest of the
    respondents. It was, as already mentioned, a simple conveyance to
    Mr. and Mrs. Maxwell-Brown as joint tenants beneficially and they
    were subsequently registered as proprietors with title absolute at
    H.M. Land Registry without any restriction being entered on the
    register.

    From a date shortly after the completion of the purchase
    the respondents occupied the property in common with their
    daughter and son-in-law and they spent considerable further sums
    on improving the property. By the end of 1981, however, Mr. and
    Mrs. Maxwell-Brown were in financial difficulties and have since
    been adjudicated bankrupt. They had already, without the
    knowledge or consent of the respondents, borrowed further sums on
    the security of charges on the property and on 8 January 1982
    they executed yet another charge by way of legal mortgage in
    favour of the appellants to secure a sum of £37,500. Some
    £26,199 of this was applied to discharging the mortgage in favour
    of the Hastings and Thanet Building Society and the balance for
    other purposes including the discharge of the further charges on
    the property which they had executed. Before advancing the
    money the appellants caused a search to be made at the Land
    Registry and an official certificate of search, giving priority until
    U January 1982, was issued on 30 November 1981. The legal
    charge was duly executed and the money advanced on 12 January
    1982, but the deed was not in fact lodged for registration until 26
    January 1982, by which time the priority period had expired.
    Although the judge found as a fact that the respondents knew
    nothing of this charge and would not have consented to it if they
    had known, it seems clear that they must at least have
    entertained a suspicion that their daughter and son-in-law were
    contemplating some sort of dealing with the land, because on 7
    December 1981, they applied for the entry of a caution on the
    register. In the result the appellants' charge has not yet been
    registered.

    Inevitably Mr. and Mrs. Maxwell-Brown defaulted in paying
    the instalments of principal and interest due under the legal
    charge and the appellants commenced proceedings to have the
    caution removed and for possession. Those proceedings were
    defended by the respondents on the ground that, as persons

    - 7 -

    beneficially entitled under a resulting trust in their favour to a
    share in the property or its proceeds of sale and as persons in
    actual occupation of the property at the date of the execution of
    the legal charge, they had an overriding interest which took
    priority to the interest of the appellants under the charge. The
    judge accepted that, following the decision of this House in
    Williams & Glyns Bank v. Boland [1981] AC 487, the respondents
    had, immediately prior to the advance by the appellants, an
    overriding interest pursuant to section 70(1)(g) of the Land
    Registration Act 1925 by virtue of their occupation of the
    property in common with the respondents, but he held that the
    charge by Mr. and Mrs. Maxwell-Brown, as the only two trustees
    of the property, had, under the provisions of the Law of Property
    Act 1925, the effect of overreaching any interest conferred on or
    preserved for the respondents by their occupation and that the
    overreaching of that interest was not affected by section 14 of
    that Act. From this decision the respondents appealed to the
    Court of Appeal which, on 4 December 1985, unanimously allowed
    the appeal, holding that the case was substantially indistinguishable
    from Boland's case and that, in any event, section 14 of the Law
    of Property Act 1925 had the effect of preventing the interest of
    the tenant in common in actual occupation of the land from being
    overreached without his consent.

    My Lords, ever since Boland's case [1981] AC 487 it has
    been widely assumed by those called upon to advise banks and
    building societies that, so long as capital monies arising from an
    exercise of their powers by trustees for sale holding on the
    statutory trusts have been paid in accordance with the statutory
    provisions to not less than two trustees or a trust corporation
    pursuant to the provisions of section 27 of the Law of Property
    Act 1925, a purchaser need not concern himself with the beneficial
    interest in the property even where one or more of the
    beneficiaries is or are in actual occupation of the property at the
    time of the transaction. That assumption was shared by the Law
    Commission in their report upon the implications of Boland's case
    presented to Parliament in August 1982 (Cmnd. 8636, para. 42).
    This appeal is, therefore, of very considerable importance not only
    to conveyancers but to anyone proposing to lend upon the security
    of property in respect of which there is any possibility of the
    existence of beneficial interests which have not been disclosed by
    the apparent absolute owner. If it be the case, as the Court of
    Appeal held, that the payment by the appellants in the instant
    case to two properly constituted trustees for sale, holding upon the
    statutory trusts, provides no sensible distinction from the ratio of
    the decision of this House in Boland's case, the legislative policy
    of the 1925 legislation of keeping the interests of beneficiaries
    behind the curtain and confining the investigation of title to the
    devolution of the legal estate will have been substantially reversed
    by judicial decision and financial institutions advancing money on
    the security of land will face hitherto unsuspected hazards,
    whether they are dealing with registered or unregistered land.

    My Lords, I propose to approach the problems raised by this
    appeal in four stages; first, by considering briefly the position of
    tenants in common of real estate prior to 1926 and, in particular,
    their rights in relation to occupation; secondly, by considering the
    effect which the 1925 property legislation had upon that position
    and the policy behind such legislation; thirdly, by considering what

    - 8 -

    would have been the result on the facts of the instant case, if the
    land concerned had, throughout, been unregistered land; and finally,
    by considering the impact upon that result of the provisions of the
    Land Registration Act 1925.

    Prior to 1926 the interest of a tenant in common, unless
    taking effect under a trust, was a legal estate and devolved as
    such. The one essential feature which tenants in common shared
    with joint tenants was unity of possession. Thus each co-owner
    was as much entitled to every part of the land as were his co-
    tenants and he had the right to occupy the land concurrently with
    them. If they were unable to agree, their remedy lay in partition
    under the Partition Act or, after the Partition Act 1868 (31 & 32
    Vict. c. 40), in obtaining from the court an order for sale of the
    property. The inconvenience of this is manifest. If the land was
    partitioned, the result was the fragmentation of estates into small
    holdings. If it was sold without partitioning, the purchasers were
    compelled to investigate the title of each co-owner. The 1925
    legislation achieved a measure of simplification by providing (in
    section 1(6) of the Law of Property Act 1925) that a legal estate
    should no longer be capable of subsisting or being created in an
    undivided share in land and by imposing in ail cases in which
    undivided shares existed or were created the statutory trusts set
    out in section 35 of that Act. The whole philosophy of the Act in
    relation to undivided shares was that a purchaser of the legal
    estate (which, by section 205(1)(XXI) includes a mortgagee) should
    not be concerned with the beneficial interests of the tenants in
    common which were shifted to the proceeds of sale. This is
    familiar material for conveyancers and it is unnecessary to do
    more than cite a few of the sections of the Act which have an
    immediate bearing on the problem raised by this appeal. Sections
    34 and 36 deal with express limitations in undivided shares or to
    persons as joint tenants respectively but there is no section dealing
    specifically with the case where, as here, land becomes held
    beneficially for tenants in common by means of a resulting trust.
    Nevertheless, section 34(1) provides that an undivided share shall
    not be capable of being created except as provided by the Settled
    Land Act 1925 or as thereinafter mentioned and section 36(4) of
    the Settled Land Act 1925 provides in terms that an undivided
    share in land shall not be capable of being created except under a
    trust instrument or under the Law of Property Act 1925, and shall
    then only taken effect behind a trust for sale. Having thus
    established the trust for sale as the conveyancing machinery
    through which effect is given to the interests of owners in
    undivided shares, those interests are, by virtue of the equitable
    doctrine of conversion, transferred to the proceeds of sale and the
    net rents and profits pending sale although, pending the exercise of
    the trustees' powers, they retain, by judicial construction, some of
    the incidents of the legal interests which they replaced. The Act,
    however, contains elaborate provisions for overreaching equitable
    interests and for exonerating purchasers from being concerned with
    them. Section 2(1) provides that a conveyance to a purchaser of a
    legal estate in land shall overreach any equitable interest or power
    affecting that estate, whether or not he has notice of it, if (inter
    alia):

    "... (ii) the conveyance is made by trustees for sale and
    the equitable interest or power is at the date of the
    conveyance capable of being overreached by such trustees.

    - 9 -

    . . and the statutory requirements respecting the payment of
    capital money arising under a disposition upon trust for sale
    are complied with."

    Under section 205(1)(ii) "conveyance" includes a mortgage. Section
    26(3), whilst obliging trustees for sale so far as practicable to
    consult the persons for the time being interested in possession in
    the rents and profits, specifically exonerates a purchaser from
    being concerned to see that the provisions of the subsection have
    been complied with. Similarly, section 27(1) provides that a
    purchaser is not to be concerned with the trusts affecting the
    proceeds of sale or the rents and profits until sale. Subsection (2)
    of the same section contains a mandatory requirement that
    (subject to an exception in the case of the sole personal
    representative) the proceeds of sale or ' other capital money shall
    not be paid to or applied by the direction of fewer than two
    persons as trustees for sale, except where the trustee is a trust
    corporation. Section 28 confers on trustees for sale the powers of
    the tenant life under the Settled Land Act 1925 and goes on to
    provide that those powers when exercised

    "shall operate to overreach any equitable interests or powers
    which are by virtue of this Act or otherwise made to attach
    to the net proceeds of sale as if created by a trust
    affecting those proceeds."

    Thus the trustees for sale are empowered to exercise the powers
    of a tenant for life to mortgage the land, which are contained in
    section 71 of the Settled Land Act 1925. At the same time
    section 17 of the Trustee Act 1925 provides that

    "No purchaser or mortgagee, paying or advancing money on
    a sale or mortgage purporting to be made under any trust
    or power vested in trustees, shall be concerned to see that
    such money is wanted, or that no more than is wanted is
    raised, or otherwise as to the application thereof."

    Thus far it is tolerably clear that the scheme of the Act is
    to enable a purchaser or mortgagee, so long as he pays the
    proceeds of sale or other capital monies to not less than two
    trustees or to a trust corporation, to accept a conveyance or
    mortgage without reference at all to the beneficial interests of
    co-owners interested only in the proceeds of sale and rents and
    profits until sale, which are kept behind the curtain and do not
    require to be investigated. There are, however, a number of cases
    in which the question has arisen between beneficiary and trustee
    as to the rights of the beneficiary in occupation, either alone or
    in common with his or her co-beneficiary, of the trust property
    pending sale, particularly where the property has been purchased
    with a view to its being occupied, for instance, as the matrimonial
    home of the parties. In Bull v. Bull [1955] 1 Q.B. 234, where a
    mother and son had together purchased as their residence a house
    which had been conveyed into the son's name alone, the Court of
    Appeal upheld the decision of a county court judge who had
    dismissed the son's claim for possession. Denning L.J., gave the
    leading judgment in which he quoted, at p. 237, the following
    passage from the judgment of Maugham J. in In re Warren [1932]
    1 Ch. 42, at p. 47:

    - 10 -

    "There is no doubt that, since the coming into force of the
    Law of Property Act 1925, the position of undivided owners
    is different from what it was before. That Act, for the
    purpose of simplifying the law, has introduced provisions for
    undivided shares, and has made partition actions unnecessary
    and obsolete. But in substance the beneficial interests of
    the undivided owners in regard to enjoyment so long as the
    land remains unsold have not been altered, and it is true
    to say that the ordinary layman possessed of an undivided
    share in land would be quite unaware of any alteration in
    his rights as the result of the Act."

    Denning LJ. [1955] 1 Q.B. 234, 238 continued:


    "My conclusion, therefore, is that, when there are two
    equitable tenants in common, then, until the place is sold,
    each of them is entitled concurrently with the other to the
    possession of the land and to the use and enjoyment of it in
    a proper manner; and that neither of them is entitled to
    turn out the other."

    That, of course, was sufficient to dispose of the case, which was a
    simple action for possession, and it was on that ground that the
    appeal was dismissed. Denning L.J. however went on to consider
    the way in which the mother was entitled to exercise her
    equitable interest in the following passage:

    "The mother is entitled to rely on her equitable interest as
    tenant in common, which is preserved by two sections of
    the Law of Property Act 1925. The first is section 14
    which provides that the Act 'shall not prejudicially affect
    the interest of any person in possession or in actual
    occupation of land to which he may be entitled in right of
    such possession or occupation.' The second is section 35
    which says that the trust for sale is subject to such
    provisions as may be requisite for giving effect to the rights
    of the persons interested in the land. The mother here is
    in possession and in actual occupation as equitable co-owner
    and by virtue of that interest she could not be turned out
    by the trustees except with her consent. In this situation if
    the trustees wish to sell with vacant possession the only
    thing they could do would be apply to the court under
    section 30 of the Law of Property Act 1925, on the ground
    that the mother's consent could not be obtained. The court
    could then make such order as it thought fit and this would
    include, I think, an order to turn the mother out if it was
    right and proper for such an order to be made: compare In
    re Buchanan-Wollaston's Conveyance
    [1939] Ch. 738 and In
    re Hyde's Conveyance
    (1952) L.J.N.SB.

    "My conclusion is, therefore, that the son, although he is
    the legal owner of the house, has no right to turn his
    mother out. She has an equitable interest which entitles
    her to remain in the house as tenant in common with him
    until the house is sold. . . ."

    In the Court of Appeal in the instant case Dillon L.J.
    followed and adopted this passage and held that, quite apart from
    the provisions of the Land Registration Act, the respondents had

    - 11 -

    an equitable interest in the property protected by occupation which
    took priority over the appellants' mortgage by virtue of section U
    of the Law of Property Act 1925. My Lords, the ambit of section
    14 is a matter which has puzzled conveyancers ever since the Law
    of Property Act was enacted. It has been suggested that its
    purpose was to make it clear that the provisions of Part I were
    not prejudicially to affect the rights of occupiers of the land who
    either had or, by virtue of their occupation, were in the process
    of acquiring title by adverse possession. If so, the section seems
    unnecessary. Another suggestion canvassed during the course of
    the argument was that it might have been intended to preserve
    the right of, for instance, a statutory tenant under the Rent Act
    whose status could quite properly be said to arise "in right of" his
    occupation. For my part, I think that it is unnecessary for
    present purposes to seek to resolve the conundrum. What section
    14 does not do, on any analysis, is to enlarge or add to whatever
    interest it is that the occupant has "in right of his occupation"
    and in my judgment the argument that places reliance upon it in
    the instant case founds itself upon an assumption about the nature
    of the occupying co-owners' interest that cannot in fact be
    substantiated. The section cannot of itself create an interest
    which survives the execution of the trust under which it arises or
    answer the logically anterior question of what, if any, interest in
    the land is conferred by the possession or occupation. It is
    suggested in Wolstenholme and Cherry's Conveyancing Statutes vol.
    1, p. 69, that section 14 was designed to preserve the principle,
    exemplified by Hunt v. Luck [1902] 1 Ch 428, that a purchaser
    will have constructive notice of any rights reasonably discoverable
    from inspection of the property and, in particular, from enquiry of
    any occupier as to his interest and the terms on which he holds it.
    With that I respectfully agree. Leaving aside, however, the
    question whether the words "in right of such possession or
    occupation" have, as the judge thought and as the appellant has
    argued before your Lordships, the effect of limiting the interests
    to which the section applies to those which are conferred by the
    preceding fact of possession or occupation or whether, as the
    Court of Appeal held in effect, they mean merely "in respect of"
    or "associated with" possession or occupation, the section cannot,
    in my judgment, have the effect of preserving, as equitable
    interests in the land, interests which are overreached by the
    exercise of the trustees' powers or of bringing on to the title
    which the purchaser from trustees for sale is required to
    investigate the equitable interest of every beneficiary who happens
    to be in occupation of the land. That would be to defeat the
    manifest purpose of the legislature in enacting the sections to
    which reference has already been made. Looking at the interest
    of the tenant in common in actual occupation and considering for
    the moment only the position in relation to unregistered land, one
    has, as it seems to me, to bear in mind always the distinction
    between his rights as against his co-beneficiaries or against the
    trustee or trustees in whom the legal estate is vested and his
    rights against a purchaser of the legal estate from the trustees for
    sale. His interest is overreached and the purchaser is absolved
    from enquiry only if the statutory requirements respecting the
    payment of capital money arising under a disposition upon trust for
    sale are complied with (sections 2(l)(ii) and 27). Until that occurs,
    he remains entitled to assert against the trustees and, indeed,
    against any purchaser from the trustees who has not complied with
    the statutory requirements all the incidents of his beneficial

    - 12 -

    interest in the proceeds of sale of the property and in the net
    rents and profits until the sale. One of the incidents of that
    beneficial interest is, or may be according to the agreement
    between the beneficiaries or to the purpose for which the trust
    was originally created, the enjoyment of the property in specie
    either alone or concurrently with other beneficiaries. But the
    enjoyment in specie, whilst it may serve to give notice to third
    parties of the occupier's interest under the trust, is not a separate
    and severable right which can be regarded as, as it were, free
    standing. It is and has to be referable to the trust from which,
    and from which alone, it arises. It is the beneficial interest in
    the rents and profits pending sale that is the foundation of that
    enjoyment and there is nothing in the statute or in the cases -
    leaving aside, for the moment, the case of Boland [1981] AC 487
    which I shall have to come to a little later - to suggest that the
    enjoyment of the property in specie of itself confers some
    independent right which will survive the operation of the
    overreaching provisions of the Law of Property Act 1925. Indeed,
    the framers of that legislation would, I think, have been shocked
    and surprised to hear it asserted that a purchaser in proper form
    from the trustees of the statutory trusts was required to
    investigate the purposes for which the trust property had been
    acquired by the trustees or the terms of some private and
    unwritten agreement or understanding between the beneficiaries
    inter se or between one or more of the beneficiaries and the
    trustees. Bull v. Bull [1955] 1 Q.B. 234 was, of course, a case
    where the only question was whether a sole trustee was entitled to
    an order for possession against a beneficiary with a subsisting
    interest in the trust property who had been permitted to occupy
    it. In dealing with the occupying beneficiary's rights Denning L.J.
    was at pains to say that the entitlement to retain possession which
    he held to exist was "until the place is sold." The mother had, he
    said at p. 239, "an equitable interest which entitled her to remain
    in the house as tenant in common with him until the house is
    sold." Waller v. Waller [1967] 1 W.L.R. 451 and Barclay v.
    Barclay
    [1970] 2 Q.B. 677 were again cases where the question
    arose prior to sale between the sole trustee and an occupying
    beneficial tenant in common. Clearly when the question is
    whether the trustee or trustees shall execute the trust by selling
    or exercising their power to postpone as, for instance, in In re
    Buchanan-Wollaston's Conveyance
    [1939] Ch. 738, a court called
    upon to adjudicate at the instance of an opposing beneficiary or
    trustee is concerned to investigate all the circumstances with a
    view to considering whether a party opposing sale has some equity
    which renders an immediate execution of the trust unfair or
    unjust. But that is not because such a person has, by virtue of
    his occupation, some interest in the land which is incapable of
    being overreached but precisely because, in the absence of some
    intervention of the court, the effect of a sale in accordance with
    the statutory provisions will be to overreach it, the whole question
    being whether that would be an equitable result. The position of
    the occupying tenant in common of unregistered land is, in my
    judgment, lucidly and accurately summarised in Irani Finance Ltd,
    v. Singh
    [1971] Ch. 59 - a decision which was treated by the
    Court of Appeal in Boland's case [1979] Ch. 312 with perhaps
    rather less respect than it deserved having regard to the fact that
    it was both binding upon them and was a decision of four judges
    of unrivalled experience in the law of real property (Buckley J. at
    first instance and Russell, Cross and Widgery LJJ. in the Court of

    - 13 -

    Appeal). The question at issue was whether the interest of an
    occupying tenant in common (the joint tenancy having been
    severed), was an "interest in land" which could be made the
    subject-matter of a charging order under section 35(1) of the
    Administration of Justice Act 1956. Although the actual decision
    was confined to the meaning of the words "interest in land" in the
    particular context of the Act of 1956 and is therefore less than
    helpful in the context of the present enquiry, the case contains a
    useful general analysis of the rights of a beneficiary under the
    statutory trusts and I do not think that I can do better than to
    quote verbatim the following passage from the judgment of the
    Court of Appeal delivered by Cross L.J. at pp. 79-80 of the
    report:

    "The words 'interest in land' are no doubt capable in an
    appropriate context of including interests under trusts for
    sale of land, and though there is no need for us to express
    a concluded opinion on the point we certainly do not wish
    to be taken to be casting any doubt on the correctness of
    the dicta in Cooper v. Critchley [1955] Ch. 431, but for 100
    years before 1956 the words, or equivalent words, have been
    held in this field not to include interests arising under trusts
    for sale .... To turn finally to Bull v. Bull and Barclay
    v. Barclay;
    in the judgments in Bull v. Bull and Cook v.
    Cook [1962] P. 235, in which the principle laid down in Bull
    v. Bull
    was applied, the beneficiaries are in places described
    as 'equitable tenants in common' of the house in question.
    But the use of these words - which are apt enough to
    describe the physical situation - does not, we think,
    necessarily imply that the court considered that the
    interests of the beneficiaries were interests in realty and
    not interests in personalty. It is true that in his judgment
    in Barclay v. Barclay [1970] 2 Q.B. 677, Lord Denning M.R.,
    at p. 684, does refer to the interests that the beneficiaries
    in Bull v. Bull as equitable interests in land, but that
    expression of opinion was not necessary to the decision in
    any of the cases and, with respect, we cannot agree with it.
    No doubt such tenants in common are interested in the land
    in a general sense as was remarked by Russell L.J. in In re
    Kempthorne
    [1930] 1 Ch. 268, 292. But that is not the
    same thing as their being owners of equitable interests in
    the realty. The whole purpose of the trust for sale is to
    make sure, by shifting the equitable interest away from the
    land and into the proceeds of sale, that a purchaser of the
    land takes free from the equitable interests. To hold these
    to be equitable interests in the land itself would be to
    frustrate this purpose. Even to hold that they had equitable
    interests in the land for a limited period, namely, until the
    land is sold, would, we think, be inconsistent with the trust
    for sale being an 'immediate' trust for sale working an
    immediate conversion, which is what the Law of Property
    Act, 1925, envisages (see section 205(l)(xxix)), though, of
    course it is not in fact only such a limited interest that the
    plaintiffs are seeking to charge."

    If this is right, as I believe that it is, the reason why a
    purchaser of the legal estate (whether by way of outright sale or
    by way or mortgage) from a single proprietor takes subject to the
    rights of the occupying beneficiary is not because section 14 of

    - 14 -

    the Act confers upon the latter some interest in land which is
    incapable of being overreached but because, having constructive
    notice of the trust as a result of the beneficiary's occupation, he
    steps into the shoes of the vendor or mortgagor and takes the
    estate subject to the same equities as those to which it was
    subject in the latter's hands, those equities and their accompanying
    incidents not having been overreached by the sale under the
    provisions of section 2(1) and section 27 of the Act. Where the
    purchase has taken effect in accordance with those provisions, it is
    quite clear from the terms of the statute both that the purchaser,
    even with express notice, is not concerned with the beneficiary's
    interest in the proceeds of sale or the net rents and profits until
    sale and that that interest is overreached. The beneficiary's
    possession or occupation is no more than a method of enjoying in
    specie the rents and profits pending sale in which he is entitled to
    share. It derives from and is, as Mr. Lindsay has graphically put
    it, fathered by the interests under the trust for sale. Once that
    goes, as it does on the execution of the trust for sale, then the
    foundation of the occupation goes and the beneficiary has no
    longer any "interest ... to which he may be entitled in right of
    such . . . occupation." We are, of course, concerned here not
    with the execution of the trust by a sale of the land by the
    trustees, but with the exercise by the trustees of their power to
    raise capital money by creating a charge on the land. But the
    same principle must, in my judgment, apply, the "overreaching" in
    this case consisting in the creation by the trustees of a legal
    estate and of powers incidental thereto (including the mortgagee's
    power of sale) which have an absolute priority over the beneficial
    interests, although, no doubt, those beneficial interests and their
    accompanying incidents continue as against the equity of
    redemption which remains vested in the trustees. If I may say so
    respectfully, the reasoning of the Court of Appeal in the instant
    case starts at the wrong end by assuming that there is an interest
    conferred by occupation which, were it not for section 14, would
    be in some way prejudiced by the provisions of Part I of the Act,
    whereas in fact the occupier's interest in this instance is one
    which stems from, depends upon and is co-terminous with the
    interest in the rents and profits arising under those very provisions
    and which is displaced by the execution of the trust or the
    exercise of the trustees' powers to the same extent as that
    interest. For my part, I have found myself unable to accept the
    reasoning in this part of the judgment of Dillon L.J. If this were
    a case concerned solely with unregistered land, I am of opinion
    that the appellants' charge would take effect in priority to the
    respondents' interest which would be pro tanto overreached and
    which, so far as it can properly be considered as an equitable
    interest in land, would continue to subsist only in the equity of
    redemption.

    So to conclude, however, resolves only part of the question,
    for the land concerned was at the material time registered land
    and there remain to be considered two questions, viz.: first, how
    do the provisions of the Land Registration Act 1925 fit with the
    provisions of the Law of Property Act 1925 and, secondly, does
    the decision of this House in Boland's case [1981] AC 487, which
    was concerned with a transaction between a mortgagee and a sole
    individual trustee, falsify or otherwise affect the conclusion just
    stated?

    - 15 -

    My Lords, the Land Registration Act 1925 was by no means
    the first attempt to introduce into English conveyancing a system
    of land registration. Previous attempts in the Land Registry Act
    1862 (25& 26 Vict. c. 53), the Land Transfer Act 1875 (38 & 39
    Vict. c. 87) and the Land Transfer Act 1897, had not proved
    wholly popular or successful, although the Act of 1897 introduced
    for the first time the concept of compulsory registration and a
    system of registration had in fact been operative in the county of
    London from the turn of the century. The Act of 1925 was
    introduced as part and parcel of the overall property legislation
    enacted in that year and it introduced for the first time, in
    section 120, a power in the central government to designate areas
    in which registered conveyancing would be compulsory. Initially,
    however, there was built in a ten-year delay on the exercise of
    this power (section 120(2)) with the object of providing an
    experimental period during which it could be seen how a system of
    registered conveyancing operated alongside the amended system of
    unregistered conveyancing and which system it would be preferable
    to adopt over the country as a whole. Thus the philosophy behind
    both the Land Registration Act 1925 and the Law of Property Act
    1925 was that they should operate in parallel and it would,
    therefore, be surprising if it were found that the two systems
    were not constructed so as to dovetail into one another. In fact
    they do. The Land Registration Act 1925 came into operation on
    1 January 1926 but was (by section 148(2)) deemed to come into
    operation immediately after the remainder of the 1925 property
    legislation so that it operates against the background of the
    alterations effected by that legislation and, in particular those
    relating to interests in common. Section 3 incorporates many of
    the definitions from the Law of Property Act 1925 but the
    important definitions for present purposes are those contained in
    section 3(xi)(Legal estates); (xv)(Minor interests); (xvi)(Overriding
    interests). These are, so far as material, as follows:

    "(xi) 'Legal Estates' mean the estates interest and charges
    in or over land subsisting or creating at law which are by
    the Law of Property Act, 1925, authorised to subsist or to
    be created at law; and 'Equitable interests' mean all the
    other interests and charges in or over land or in the
    proceeds of sale thereof .... (xv) 'Minor interests' mean
    the interests not capable of being disposed of or created by
    registered dispositions and capable of being overridden
    (whether or not a purchaser has notice thereof) by the
    proprietors unless protected as provided by this Act, and all
    rights and interests which are not registered or protected on
    the register and are not overriding interests, and include -
    (a) In the case of land held on trust for sale, all interests
    and powers which are under the Law of Property Act, 1925,
    capable of being overridden by the trustees for sale,
    whether or not such interests and powers are so protected; -
    - -"' [Plainly here 'overridden' is used as embracing interests
    which are overreached under the provisions of section 2 of
    the Law of Property Act 1925.] "(xvi) 'Overriding interests'
    mean all the incumbrances, interests, rights, and powers not
    entered on the register but subject to which registered
    dispositions are by this Act to take effect ..."

    It should perhaps also be mentioned that a charge by way of legal
    mortgage, with which this appeal is concerned, is defined by

    - 16 -

    reference to the Law of Property Act 1925. Section 2 delimits
    the estates which are capable of being registered and is, so far as
    material, in the following terms:

    "(1) After the commencement of this Act, estates capable
    of subsisting as legal estates shall be the only interests in
    land in respect of which a proprietor can be registered and
    all other interests in registered land (except overriding
    interests and interests entered on the register at or before
    such commencement) shall take effect in equity as minor
    interests, but all interests (except undivided shares in land)
    entered on the register at such commencement which are
    not legal estates shall be capable of being dealt with under
    this Act . . . ;" -.

    There can be seen in the definition of minor interests the same
    philosophy as is apparent in the Law of Property Act of keeping
    behind the curtain those interests which are overreached by
    dispositions by the registered owner. This is again reflected in
    section 74 which is in the following terms:

    "Subject to the provisions of this Act as to settled land,
    neither the registrar nor any person dealing with a
    registered estate or charge shall be affected with notice of
    a trust express implied or constructive, and references to
    trusts shall, so far as possible, be excluded from the
    register."

    Again, section 103(1) contains provisions for compelling the
    registered proprietor to give effect to dispositions which create
    minor interests capable, if registered, of taking effect as legal
    estates but subject to the following proviso:

    "... (b) So long as the proprietor holds the land on
    trust for sale, no estate or charge shall be registered in
    respect of an interest which, under the Law of Property
    Act, 1925, or otherwise, ought to remain liable to be
    overridden on the execution of the trust for sale . . . . ."

    Section 25 of the Act confers on the registered proprietor the
    ability to charge the land by way of legal mortgage and the effect
    of a registered disposition is set out in section 20 which, so far as
    relevant, is in the following terms:

    "(1) In the case of a freehold estate registered with an
    absolute title, a disposition of registered land or of a legal
    estate therein, including a lease thereof, for valuable
    consideration shall, when registered, confer on the transferee
    or grantee an estate in fee simple or the term of years
    absolute or other legal estate expressed to be created in the
    land dealt with, together with all rights privileges and
    appurtenances belonging or appurtenant thereto, including
    (subject to any entry to the contrary in the register) the
    appropriate rights and interests which would, under the Law
    of Property Act, 1925, have been transferred if the land had
    not been registered, subject - (a) to the incumbrances and
    other entries, if any, appearing on the register; and (b)
    unless the contrary is expressed on the register, to the
    overriding interests, if any, affecting the estate transferred

    - 17 -

    or created, but free from all other estates and interests
    whatsoever, including estates and interests of His Majesty,
    and the disposition shall operate in like manner as if the
    registered transferor or grantor were (subject to any entry
    to the contrary in the register) entitled to the registered
    land in fee simple in possession for his own benefit."

    Finally, overriding interests are defined by section 70 which
    provides, for relevant purposes, that

    "(1) All registered land shall, unless under the provisions
    of this Act the contrary is expressed on the register, be
    deemed to be subject to such of the following overriding
    interests as may be for the time being subsisting in
    reference thereto, and such interests shall not be treated as
    encumbrances within the meaning of this Act, (that is to
    say):

    . . . . (g) the rights of every person in actual
    occupation of the land or in receipt of the rents and
    profits thereof, save where enquiry is made of such
    person and the rights are not disclosed; . . ."

    The respondents' submission, which succeeded in the Court
    of Appeal, is a very simple one. What is said is that the decision
    of this House is Boland's case [1981] AC 487 established the
    proposition that the interest of a tenant in common in occupation
    of registered land is, by reason of such occupation, an interest
    incapable of being overreached by a sale or other disposition of
    the land, save with the consent of the occupier; that section 70
    makes that interest an overriding one; and that, accordingly, the
    disposition by the registered proprietors in favour of the appellants
    takes effect subject to the right of the respondents to remain in
    occupation of the house indefinitely notwithstanding that (a) the
    appellants were specifically exonerated from enquiry into the trusts
    affecting the rents and profits of land pending sale by section 27
    of the Law of Property Act 1925, and (b) the capital monies
    raised by the registered proprietors were paid to two trustees in
    accordance with section 27(2). My Lords, if the first step in this
    composite proposition be correct, then the remainder follows as a
    matter of unassailable logic. The Court of Appeal concluded that
    it was correct by reference to an analysis of the speech of Lord
    Wilberforce in Boland's case. Dillon L.J. accepted that Lord
    Wilberforce’s observations were made in the context of a case
    where the dealing which was claimed as being subject to an
    overriding interest in the occupying beneficiary was with a single
    trustee and would not therefore overreach the beneficiary's
    interest. But in his view the reasoning did not depend upon the
    fact that in Boland there was only one registered proprietor of the
    land and therefore only one trustee for sale. It concentrated
    simply on the distinction between a minor interest and an
    overriding interest, the mere fact of occupation converting what
    would otherwise be a minor interest into an overriding interest.
    Thus he found the instant case indistinguishable from Boland's case
    in any material respect. The proposition is encapsulated in the
    following short passage from his judgment [1986] Ch. 605, 617:

    "... the reasoning of Lord Wilberforce concentrates on
    the distinction between the minor interest and the overriding

    - 18 -

    interest. This necessarily covers the case where there are
    two registered proprietors and so two trustees for sale,
    because the wording in the definition of 'minor interests' in
    section 3(xv): 'in the case of land held on trust for sale, all
    interests and powers which are under the Law of Property
    Act 1925, capable of being overridden by the trustees for
    sale . . . ' must refer to the case where there are two
    trustees for sale; indeed, only where there are two (or three
    or four) trustees for sale would the interests of the
    beneficiaries be overridden under the Law of Property Act
    1925. On a sale, what would otherwise have been a minor
    interest capable of being overridden under the Law of
    Property Act 1925 by two trustees for sale is, if protected
    by the fact of actual occupation of the land, elevated to
    the status of an overriding interest.

    In my judgment, therefore, the reasoning in Boland's case
    covers entirely the position of the parents in the present
    case. As no inquiry was made of the parents before the
    plaintiffs took their mortgage on the property, the parents
    have an overriding interest in the property which binds the
    plaintiffs."

    The fundamental criticism of this advanced by the appellants
    is that is fails to analyse the incidents of and limitations upon the
    interest which the court held to override the interest of the
    appellant. What section 70(1)(g) does is to define as an overriding
    interest the rights (whatever they may be) of every person in
    actual occupation and to subject the registered land to such
    overriding interests "as may be for the time being subsisting in
    reference thereto". It does not create or enlarge rights but
    merely operates, to use the words of Lord Wilberforce in National
    Provincial Bank Ltd, v. Hastings Car Mart Ltd
    . [1965] AC 1175,
    1260G-1261A,

    "to adapt the system of registration, and the modified form
    of inquiry which is appropriate to that system, to the same
    kind of right as under the general law would affect a
    purchaser finding a person in occupation of his land".

    One may, quoting again from the speech of Lord Wilberforce, in
    the same case, (at p. 1261D)

    "have to accept that there is a difference between
    unregistered land and registered land as regards what kind
    of notice binds a purchaser, or what kind of inquiries a
    purchaser has to make. But there is no warrant in the
    terms of this paragraph or elsewhere in the Act for
    supposing that the nature of the rights which are to bind a
    purchaser is to be different, excluding personal rights in one
    case, including them in another. The whole frame of
    section 70, with the list that it gives of interests, or rights,
    which are overriding, shows that it is made against a
    background of interests or rights whose nature and whose
    transmissible character is known, or ascertainable, aliunde,
    i.e. under other statutes or under the common law."

    With this preliminary caution in mind, therefore, I turn to
    consider whether, in fact, the decision of this House in Boland

    - 19 -

    [1981] AC 487 does lead to the conclusion that the occupying co-
    owner's interest under the statutory trusts is, by reason of his
    occupation, one which is incapable of being overreached. It has, I
    think, to be borne in mind when reading both the judgments in the
    Court of Appeal in that case and the speeches in this House that
    they were prepared and delivered against a background of fact
    which precluded any argument that the interests of Mrs. Boland
    and Mrs. Brown had been overreached under the provisions of the
    Law of Property Act 1925. Equally, the holding, contrary to the
    argument of the mortgagees, that Mrs. Boland and Mrs. Brown
    were in actual occupation ruled out any question of the
    mortgagees having taken their interest without notice of the
    occupier's rights, whatever those rights were. The mortgagees in
    that case were, therefore, quite simply purchasers from the owner
    of the legal estate with notice of the existence of whatever
    equitable rights the occupier was entitled to claim. Their claim
    to take free from them accordingly rested simply and solely on
    the fact that the land charged happened to be registered land, a
    feature which enabled them to claim, if they could substantiate it,
    that the beneficiaries' interests were minor interests and so
    overridden by a disposition by the registered proprietor. Thus, in
    the argument for the mortgagees before the Court of Appeal, it
    was contended that the argument for the appellants involved the
    proposition that even if two trustees or a trust corporation
    received the purchase money there would still be an overriding
    interest ([1979] Ch. 312, 319)). In the argument in reply this was
    countered by counsel for the appellants who pointed out that the
    rights of beneficiaries are not overreached by a sale by one
    trustee. In such a case, section 199 of the Law of Property Act
    1925 (relating to notice) applies. Counsel emphasised in this
    context that there was no inconsistency between the Law of
    Property Act and the Land Registration Act and went on to point
    out that the powers of management in section 28 of the Law of
    Property Act (and, in particular, the power to mortgage contained
    in section 71 of the Settled Land Act 1925) do not apply to one
    trustee who would have no power to borrow money. It is in the
    light of these arguments that one finds in the judgments of the
    Court of Appeal specific references to the fact that the
    transactions there in question were transactions in which the
    capital money was received by one trustee only so that the
    beneficiaries' rights were not overreached see [1979] Ch. 312 330B-
    E per Denning L.J.; p. 334B-D and 337G per Ormerod L.J. and p.
    340A-B and p. 341B C per Browne L.J. Dillon L.J. in the Court
    of Appeal regarded these references as merely part of the
    narrative but I am, for my part, unable to agree. They were, as
    it seems to me, an essential part of the reasoning upon which the
    judgments were based, for it was a critical feature of the
    appellants' argument that their interests were not overreached but
    were kept alive as against the purchaser, by notice in the case of
    unregistered land or by being overriding interests in the case of
    registered land. In the argument before your Lordships' House,
    one finds the same underlying thesis [1981] AC 487 at pp. 498D-E
    and pp. 499C-D in the respondents' argument and at p. 501D-E in
    the appellants' argument in reply. It was, indeed, this feature,
    namely that in each case the mortgage was effected by a single
    registered proprietor, which compelled the mortgagees to argue
    that the beneficiaries' interests in that case fell within the
    definition of minor interests, that "minor interests" and "overriding
    interests" were mutually exclusive categories and that an interest

    - 20 -

    under a trust for sale was incapable of constituting an overriding
    interest. They could not deny that they had constructive notice,
    so that if they were to succeed at all it could only be because
    the land was registered land and the provisions of section 20(1) of
    the Act enabled them to take free from minor interests. It is
    this argument to which the relevant part of Lord Wilberforce's
    speech was directed and he pointed out at the inception, in
    considering whether the provisions of section 70(l)(g) could afford
    protection to the interests of the tenant in common in equity, that
    the effect of a disposition by two trustees or a trust corporation
    would be to overreach the trusts with the result that a purchaser
    would take free from them, whether or not he had notice (see p.
    503D-E). Thus, the only question, it being common ground that
    there had not, in fact, been any overreaching, was whether the
    respondents' interests, although capable of being overreached by
    appropriate machinery and so within the definition of minor
    interests, could also be overriding interests by reason of the
    beneficiaries' occupation of the land. That question is answered
    by Lord Wilberforce in the following passage in his speech, at p.
    507:

    "How then are these various rights to be fitted into the
    scheme of the Land Registration Act 1925? It is clear, at
    least, that the interests of the co-owners under the
    'statutory trusts' are minor interests - this fits with the
    definition in section 3(xv). But I can see no reason why, if
    these interests, or that of any of them, are or is protected
    by 'actual occupation' they should remain merely as 'minor
    interests.' On the contrary, I see every reason why, in that
    event, they should acquire the status of overriding interests.
    And, moreover, I find it easy to accept that they have
    satisfied the opening, and governing, words of section 70,
    namely, interests subsisting in reference to the land."

    My Lords, if I may respectfully say so, this is plainly right,
    but it has to be read in the context of the facts in Boland's case.
    Quite clearly the interests of the respondents in that case were
    subsisting. Nothing had occurred which had the effect of
    overreaching them. I cannot, however, for my part, read Lord
    Wilberforce's words as applying to a case which was not before
    the House where the effect of the transaction in question was
    precisely that to which he himself had alluded in his outline of the
    legal framework within which the appeals before the House fell to
    be decided, that is to say a conveyance by two trustees involving
    the consequence that the purchaser took free from, the trusts
    regardless of notice.

    Considered in the context of a transaction complying with
    the statutory requirements of the Law of Property Act 1925 the
    question of the effect of section 70(l)(g) of the Land Registration
    Act 1925 must, in my judgment, be approached by asking first
    what are the "rights" of the person in occupation and whether they
    are, at the material time, subsisting in reference to the land. In
    the instant case the exercise by the registered proprietors of the
    powers conferred on trustees for sale by section 28(1) of the Law
    of Property Act 1925 had the effect of overreaching the interests
    of the respondents under the statutory trusts upon which depended
    their right to continue in occupation of the land. The appellants
    took free from those trusts (section 27) and were not, in any

    - 21 -

    event, concerned to see that the respondents' consent to the
    transaction was obtained (section 26). If, then, one asks what
    were the subsisting rights of the respondents referable to their
    occupation, the answer must, in my judgment, be that they were
    rights which, vis-à-vis the appellants, where, eo instante with the
    creation of the charge, overreached and therefore subsisted only in
    relation to the equity of redemption. I do not, for my part, find
    in Boland's case [1981] AC 487 anything which compels a
    contrary conclusion. Granted that the interest of a co-owner
    pending the execution of the statutory trust for sale is, despite
    the equitable doctrine of conversion, an interest subsisting in
    reference to the land the subject matter of the trust and granted
    also that Boland's case establishes that such an interest, although
    falling within the definition of the minor interest and so liable to
    be overridden by a registered disposition, will, so long as it subsists,
    be elevated to the status of an overriding interest if there exists
    also the additional element of occupation by the co-owner, I
    cannot for my part accept that, once what I may call the parent
    interest, by which alone the occupation can be justified, has been
    overreached and thus subordinated to a legal estate properly
    created by the trustees under their statutory powers, it can, in
    relation to the proprietor of the legal estate so created, be any
    longer said to be a right "for the time being subsisting." Section
    70(l)(g) protects only the rights in reference to the land of the
    occupier whatever they are at the material time - in the instant
    case the right to enjoy in specie the rents and profits of the land
    held in trust for him. Once the beneficiary's rights have been
    shifted from the land to capital monies in the hands of the
    trustees, there is no longer an interest in the land to which the
    occupation can be referred or which it can protect. If the
    trustees sell in accordance with the statutory provisions and so
    overreach the beneficial interests in reference to the land, nothing
    remains to which a right of occupation can attach and the same
    result must, in my judgment, follow vis-à-vis a chargee by way of
    legal mortgage so long as the transaction is carried out in the
    manner prescribed by the Law of Property Act 1925, overreaching
    the beneficial interests by subordinating them to the estate of the
    chargee which is no longer "affected" by them so as to become
    subject to them on registration pursuant to section 20(1) of the
    Land Registration Act. In the instant case, therefore, I would, for
    my part, hold that the charge created in favour of the appellants
    overreached the beneficial interests of the respondents and that
    there is nothing in section 70(1)(g) of the Land Registration Act
    1925 or in Boland's case which has the effect of preserving against
    the appellants any rights of the respondents to occupy the land by
    virtue of their beneficial interests in the equity of redemption
    which remains vested in the trustees.

    There is a further point which was argued before your
    Lordships. As already mentioned, the appellants' charge, although
    executed within the protected period provided by the official
    search, was not in fact lodged for registration until 26 January
    1982, by which time the respondents' caution had been entered on
    the register. As a result, the appellants have still not been
    registered as the proprietor of the legal charge in the charges
    registered. It is submitted on behalf of the respondents that
    since, under section 20(1) of the Land Registration Act 1925, the
    legal estate is conferred on a purchaser only when registered, the
    present position is that there is a contest between two competing

    - 22 -

    equities in which the respondents, as the first in time, are entitled
    to prevail. I am not persuaded by this argument. The fact is that,
    whether or not the respondents had an overriding interest, the
    appellants were and are entitled to be registered. The trustees'
    power to mortgage the land was exercised when the charge was
    executed and the money was advanced and it was, under section
    28 of the Law of Property Act 1925, at this point that the
    interests of the appellants was overreached.

    I would therefore allow the appeal and restore the order for
    possession in favour of the appellants made by Judge Thomas in
    the Chancery Division.

    LORD GOFF OF CHIEVELEY

    My Lords,

    I have had the advantage of reading in draft the speeches
    of my noble and learned friends Lord Templeman and Lord Oliver
    of Aylmerton. I agree with them and for the reasons they give I
    too would allow the appeal and restore the order of Judge Thomas.

    - 23 -


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