– Protection of trusts of land from a mortgagee who takes the land as security for a loan.

The following example illustrates a case scenario where the interests of beneficiaries behind a trust of land are overreached through the payment of the loan amount to two trustees who hold the land in trust for them. It shows how an equitable interest in land may be protected even though it is not registrable neither in registered land nor in unregistered land. This protection means that their interest takes effect in the money that is paid to at least two or more legal trustees provided they all consent to the purchase or to the mortgage of the land.

A and B are holding land Q on trust on behalf of  C and D.

A and B together consent to a loan by X bank where the bank takes a mortgage on land Q . They default on the loan and X bank wants to sell the land to realize its money. What are the rights of C and D behind the trust of land as beneficiaries of the land?

Since the loan money has been legally received by two trustees the rights of C and D will be overreached by X bank meaning the bank can enforce it rights against both C and D and exercise its paramount rights as mortgagee so it can possess , or apply for an order for sale or appoint a receiver etc., Nonetheless C and D even though they lose their right to live inside the house they can find solace in the fact that at least the money received by A and B is held in trust for them, since the loan money is supposedly held in trust for their own interest.

OVERREACHING IS MAY BE LESS SAFE THAN IT SEEMS.

Note that the principle of overreaching illustrated in the hypothetical case applies in the same manner and has the same effects in both registered and unregistered land. However C and D’s rights will take effect in the proceeds of the loan money it’s just that they can be lawfully evicted. The system of overreaching comes with the risk that A and B may abscond with the loan money leaving C and D lawfully evicted due to overreaching,  with only a right to sue A and B for breach of trust and for damages. By then many practical considerations may thwart their hopes for recovering the money.

 ATTENTION !  MUST ALL THE TRSUTEES CONSENT OR ONLY AT LEAST A MINIMUM OF TWO IS NEEDED IN ORDER FOR OVERRERACHING TO APPLY.

This snippet explains how overreaching occurs and how s 27 of the LPA 1925 is commonly misinterpreted, resulting into errors over whether overreaching has actually occurred.  S 27 of the LPA 1925 restricts the powers of a trustee to overreach by setting a statutory minimum of two trustees in order for overreaching to take effect. The following example may illustrate the confusion that may be caused in someone’s mind resulting from a wrong interpretation of s 27 of the LPA 1925.

For practical considerations s 27 of the LPA 1925  is cited as follows:

“[F32(1)A purchaser of a legal estate from trustees of land shall not be concerned with the trusts affecting the land, the net income of the land or the proceeds of sale of the land whether or not those trusts are declared by the same instrument as that by which the trust of land is created.]

[F33(2)Notwithstanding anything to the contrary in the instrument (if any) creating a [F34trust] of land or in [F34any trust affecting the net proceeds of sale of the land if it is sold], the proceeds of sale or other capital money shall not be paid to or applied by the direction of fewer than two persons as [F34trustees], except where the trustee is a trust corporation, but this subsection does not affect the right of a sole personal representative as such to give valid receipts for, or direct the application of, proceeds of sale or other capital money, nor, except where capital money arises on the transaction, render it necessary to have more than one trustee”.

In the light of what has been said  above, let’s consider that there are three  trustees in a trust of land. Would that mean that according to section 27 that if the purchase money/mortgage loan money is paid to the two consenting  trustees by the purchaser /lender but the third has not consented to sale or mortgage that there is overreaching?

The answer is no, for overreaching to occur except for there to be a minimum of two trustees there must be a conveyance of the legal estate, as required by s 27. Likewise, for overreaching to occur all three trustees must consent to the purchase or mortgage of the land and not only a minimum of two.  The reason that all three must consent is that in order for there to be a legal mortgage or conveyance of the legal estate, all joint tenants must agree, otherwise legal title is not conveyed and without the conveyance of the legal estate there can be no overreaching.   Accordingly ,the mortgagee or purchaser will not be a purchaser of the legal estate in land as provided by s 27 of the LPA 1925a and overreaching is impossible.

S 27 (1)  of the LPA 1925 States:

 [F32(1)A purchaser of a legal estate from trustees of land shall not be concerned with the trusts affecting the land, the net income of the land or the proceeds of sale of the land whether or not those trusts are declared by the same instrument as that by which the trust of land is created.]

In order for a legal estate to be obtained the consent of all trustees no matter what their number in total ( up to a statutory maximum of four) must be given. The reason for that is that they are considered to be joint legal trustees and therefore their actions can only have legal effect and therefore convey a legal estate if they only act as a unity.

A legal estate can only be conveyed when all joint tenants consent. Since the two or more co-owners are mandatorily joint legal tenants as provided by section 36 of the LPA 1925  they all must consent for the legal estate to be conveyed and thus for overreaching to occur.

 

It is important to know what interests may a caution be entered for and which not , in order to protect that interest from the effects of first registration of the unregistered estate. Hence, an owner of a freehold estate in land or a leasehold estate in land granted for a term of which more than seven years are unexpired ( but it may be an overriding interest under s 70 (1) (k) if it was granted for 21 years or less before the LRA 2002 came into force https://www.gov.uk/government/publications/overriding-interests-and-their-disclosure/practice-guide-15-overriding-interests-and-their-disclosure–2) is not allowed to apply for a caution against first registration and the same goes for someone who has acquired  such an estate through adverse possession ( s 15(3) LRA 2002). In order for such interests to be protected they need to be registered in their own right. However,  The prohibition only applies to such interests for which  cautions were registered since the LRA 2002 came into force. If cautions were entered for such interests before the LRA 2002 came into force under s 53 of the LRA 1925, they will not be affected by the prohibition in s 15 of the LRA 2002 as it has no retrospective effect.

WHERE THE PROHIBITION OF S 15(3) DOES NOT APPLY.

Exceptionally however the prohibition of s 15(3) allows for a two year deferment period so that a caution may be entered for the above mentioned interests if:

When An application for first registration for  of the unregistered estate is made before the 13th of october 2005 midnight, the caution will hold good against such registration. If an application is made beyond that date then a caution for such interests will be cancelled and the interest may be exposed to the effects of first registration.

 

 

A person who claims to have an interest which affect the relevant  land may lodge a caution against the registration of title to an unregistered legal estate that may be registered according to  s 3of the LRA 2002, those are ((a)an estate in land, (b)a rentcharge, (c)a franchise, and (d)a profit a prendre in gross. An unregistered estate may be freehold land or leasehold land. So someone who has an interest in an equitable lease or a contract for the sale of land, can apply for caution against first registration against the owner of the freehold land. so when the owner of the freehold land which is still unregistered applies to register it the registrar will have notice of this interest and may therefore enter it on the land registry so that his rights persists despite the first registration against the owner of the now newly registered estate in land and subsequently against subsequent purchasers for value of the registered estate or any disposition thereof. (if the registered disposition is not for value and the interest is not protected by notice it still retains its priority). Note that a caution may be applied only  to an unregistered estate that may be registered under s 3 of the LRA 2002. If the estate is not one that may be registered under the LRA 2002 then a caution cannot be entered since that interest is not capable of being registered in its own right.

– A landowner should not be enabled to exploit his ability for first registration of the land in order to  evade certain interests that burdened his land while the title was still unregistered.  This is so because  when a first registration of land occurs the land registry will register the land and any interests that do not appear on the title register unless they are overriding,  if not brought to the attention of the Registrar may potentially not be registered against the land and therefore not be binding  against the proprietor of the land and subsequent transferees of an estate or interest in that land. So the LRA 2002 in a forthcoming move give these interests a lifeline  technical by rendering them overriding. Arguably someone can say that overriding interests may be contrary to the whole concept of the LRA 2002 in its strife to render the land registry the a mirror image of the interests that burden a registered title. Conversely overriding interests neutralized or better yet remedy the potential injustice that may occur to an interest holder from compulsory first registration by section 4 of the LRA 2002 or voluntary registration. Overriding interests are not the only way in which certain interests may be protected from the effects of first registration of land. The LRA 2002  affords the right to people who claim to have an interest in the land to protect  it against first registration by the filing of  a “caution” against first registration of land. A caution against first registration is used where the interest is in an estate that is unregistered and the cautioner’s interest would entitle them to object to any application for first registration until their claim has been considered. S 15  of the LRA 2002 regulates the lodging of a caution against first registration. Cautions may be entered against first registration for some interests only. However an estate in land  if not an overriding interest must be registered in its own right in order to be protected, i.e. a leasehold estate that does not qualify as an overriding interest  under the LRA 2002 or under the LRA 1925 before the LRA 2002 came into force, out of a freehold estate in land  if it is not registered in its own right then it may not be protected by caution against first registration neither it may be protected against first registration or a registerable disposition if it does not fall under the category of an overriding interest under schedules 1 or 3 of the LRA 2002.

When is a consent requirement for the conveyance of land needed?

A consent requirement is usually needed where there is a trust of land and some of the equitable owners do not hold legal title. When all the equitable owners are also legal owners then there is no need for a consent requirement since in law the consent of all is required for a legal mortgage to be conveyed. If one of them does not consent or his consent is forged or either vitiated through eg., undue influence then a legal mortgage will not be obtained.  Importantly, no legal mortgage would be obtained or legal estate conveyed to a purchaser and the purchaser will acquire an  equitable interest in land to the extent of the valid consents of the remaining legal owners. Severance of the equitable joint legal title (since the joint legal title cannot be severed) does not require the consent of the other joint tenants and therefore a consent requirement will be useless if there are only legal owners of the land.

REGISTERED LAND

What happens if  there is overreaching, and a consent requirement  has been entered on the register against the title of the land?

Then regardless of overreaching the purchaser will not obtain  good title  if it registered  according to section 40 of the LRA 2002

 ” (1)A restriction is an entry in the register regulating the circumstances in which a disposition of a registered estate or charge may be the subject of an entry in the register.

(2)A restriction may, in particular—

(a)prohibit the making of an entry in respect of any disposition, or a disposition of a kind specified in the restriction;

(b)prohibit the making of an entry—

(i)indefinitely,

(ii)for a period specified in the restriction, or

(iii)until the occurrence of an event so specified.

(3)Without prejudice to the generality of subsection (2)(b)(iii), the events which may be specified include—

(a)the giving of notice,

(b)the obtaining of consent, and

(c)the making of an order by the court or registrar.

(4)The entry of a restriction is to be made in relation to the registered estate or charge to which it relates. “

 

 and 41 of LRA 2002

” 41 Effect

(1)Where a restriction is entered in the register, no entry in respect of a disposition to which the restriction applies may be made in the register otherwise than in accordance with the terms of the restriction, subject to any order under subsection (2).

(2)The registrar may by order—

(a)disapply a restriction in relation to a disposition specified in the order or dispositions of a kind so specified, or

(b)provide that a restriction has effect, in relation to a disposition specified in the order or dispositions of a kind so specified, with modifications so specified.

(3)The power under subsection (2) is exercisable only on the application of a person who appears to the registrar to have a sufficient interest in the restriction.”

Therefore his name will not be recorded on the HM register unless the consent restriction has been lifted through the consent of the equitable owners concerned.

What happens if there is overreaching in breach of a consent requirement expressed in the disposition but not entered as a restriction against the title of the land at the HM register?

The purchaser will obtain good title and prevail over the rights of the equitable owners regardless of the consent requirement expressed in the disposition. The reason is that registered land deemed to be conclusive evidence of any restrictions in dealing with the land, moreover see sections 23

” 23 Owner’s powers

 

(1)Owner’s powers in relation to a registered estate consist of—

 

(a)power to make a disposition of any kind permitted by the general law in relation to an interest of that description, other than a mortgage by demise or sub-demise, and

 

(b)power to charge the estate at law with the payment of money.

 and 26 of the LRA 2002.    

” 26 Protection of disponees

(1)Subject to subsection (2), a person’s right to exercise owner’s powers in relation to a registered estate or charge is to be taken to be free from any limitation affecting the validity of a disposition.

(2)Subsection (1) does not apply to a limitation—

(a)reflected by an entry in the register, or

(b)imposed by, or under, this Act.

(3)This section has effect only for the purpose of preventing the title of a disponee being questioned (and so does not affect the lawfulness of a disposition). “

Also in the case of Coleman and others v Bryant and another – [2007] All ER (D) 101 (Jul) it was made clear that in the absence of a consent requirement in a disposition the court will rarely order the imposition of such a requirement.

What happens if  there is no overreaching, and a consent order has NOT been registered against the title in registered land?

The purchaser will surpass the consent requirement  since according to section 26 of the LRA  and despite s 8 of TOLATA but he will be subject to equitable interests that qualify as overriding under the LRA 2002 since by section 33 (a) i of the Act 11 they cannot be protected by notice at HM Registrty.

“ 33 Excluded interests

No notice may be entered in the register in respect of any of the following—

(a)an interest under—

(i)a trust of land, or

(ii)a settlement under the Settled Land Act 1925 (c. 18), ”

 

What happens if  there is no overreaching, and a consent order has been registered against the title in registered land?

If the land has been sold or mortgaged in breach of a consent restriction on the register, in registered land then the purchaser will be bound by the equitable owner’s interests in the land Since the restriction ( N. FORM ) will prevent any dealings with land unless the equitable owners consent is obtained. So if a legal owner /trustee will sell or mortgage the land in violation of the restriction his name simply will not appear on the title of the land and he will have acquired no good title against the equitable owners.

What happens when overreaching has not occurred and the land is sold in breach of a consent requirement included in the disposition and conveying documents of the land but not entered in the HM register?

If the land is registered, and the consent requirement has not been recorded on the title register  then the purchaser will be bound by the rights of the equitable owners if those interests qualify as overriding under the LRA 2002. Though it needs to be noted that if these interests do not qualify as overriding ( not in actual occupation) then it will be quite misfortunate for those equitable interest holders that they will not be afforded any kind of protection by the consent requirement since it has not been recorded in the HM registry. Though a person with an interest in the land can always apply for the consent requirement to be entered on the title of the land at HM Register as a restriction so it will prevent any dealings with the land beforehand since overriding interest cannot be protected by notice on the HM register.

UNREGISTERED LAND

What happens if there is overreaching in unregistered land in violation of a consent requirement in the trust deed?

Since we are dealing with unregistered land and a consent requirement cannot be registered under the Land Charges Act 1972, the doctrine of notice will come into play regarding only the consent requirement but not the interest in the land (since it is overreached). Therefore if the purchaser (or lender) has no actual notice of the interest he will take priority over the equitable owners.

What happens if there no overreaching in unregistered land in violation of a consent requirement in the trust deed?

Since we are dealing with unregistered land and a consent requirement cannot be registered under the Land Charges Act 1972, the doctrine of notice will come into play both regarding  the consent requirement and the interest in the land (since it is not overreached). Therefore if the purchaser (or lender) has no actual notice both of the interest and the consent requirement then he will have no priority over the equitable owners interests.

What happens if there is overreaching in unregistered land in violation of a consent requirement in the trust deed?

What happens if there is no overreaching in registered land but an equitable interest is not overriding? can this interest be  protected?

If there is no overreaching then the normal rules of registered conveyancing will apply and the purchaser will be bound if the interest is overriding. However if it does not qualify for the overriding status the purchaser will take priority unless the interest is protected in the form of a restriction in at the HM register, provided that there is a consent requirement in the disposition, if not then the interested party will have to apply for an order for the imposition of a consent requirement through s 14 of TOLATA. Though an imposition of such requirement is  unlikely these days following the decision of Coleman and others v Bryant and another – [2007] All ER (D) 101 (Jul).

What happens if there is no overreaching in unregistered land and a consent requirement in the trust deed?

If there is no overreaching in unregistered land an equitable interest will bind a purchaser according to the doctrine of notice , so he needs to have notice both of the consent requirement and of the interest in the land according to section 16 TOLATA which says

“16 Protection of purchasers. 3)Where the powers of trustees of land are limited by virtue of section 8—

 

(a)the trustees shall take all reasonable steps to bring the limitation to the notice of any purchaser of the land from them, but

 

(b)the limitation does not invalidate any conveyance by the trustees to a purchaser who has no actual notice of the limitation.”

. By contrast if there is overreaching since the interest in the land will be overreached he will only be bound by the interest in the land if he has notice of the consent requirement, that would be inherently difficult  though he will be considered to have at least read the trust deed first, gross negligence woundt protect him.

 

 

 

 

REGISTERED LAND

it can be protected in registered land by the entry of a restriction at the HM register.

When is a consent requirement effective?

REGISTERED LAND

In registered land only when it is registered as a restriction on the title on the register.

If consent restriction is included in the trust deed do i need to apply to court for therestriction?

No you don’t need to apply for a court order and you are entitled to place a restriction on the title of the land by virtue of the consent requirement included in the trust deed.

CONSENT REQUIREMENT BY THE TRUSTEES IN DEALING WITH THE LAND.

How it may arise ?

It may arise by a limitation in the trust deed

Is that limitation enough to prevent overreaching?

– No in registered land the limitation needs to be registered against the title  of the land as a restriction.

– Yes In unregistered it will bind the purchaser if he has actual notice of it despite overreaching.

What if there is no consent limitation on the power of trustees? Can someone apply for a consent to be imposed by the court?

-Yes It is possible for someone to apply for a consent order to be imposed by the court under s 14 TOLATA:

” 14 Applications for order.

(1)Any person who is a trustee of land or has an interest in property subject to a trust of land may make an application to the court for an order under this section.

(2)On an application for an order under this section the court may make any such order—

(a)relating to the exercise by the trustees of any of their functions (including an order relieving them of any obligation to obtain the consent of, or to consult, any person in connection with the exercise of any of their functions), or

(b)declaring the nature or extent of a person’s interest in property subject to the trust,

as the court thinks fit.

(3)The court may not under this section make any order as to the appointment or removal of trustees.

(4)The powers conferred on the court by this section are exercisable on an application whether it is made before or after the commencement of this Act.

The question whether a defaulting party to a contract is allowed to counterclaim contributory negligence has been the subject of legal debate in previous times as deponents of this right support that in doing so we might be blurring the lines between tort and contract law.

Advocates against the concept of suing someone for contributory negligence under a breach of contract have argued that doing so would undermine the very certainty the law of contract aims to provide. More specifically, the party in default would be able to claim any wrong in the book so as to defeat the claimants action under contract as an escape route to their own contractual responsibilities. It is further claimed that this tactic would have an adverse effect on the dealings between business men and open the floodgates for a series of abusive counter-claims, totally out of base with the concepts and rationale which the law of contract aims to promote. This is why the Law reform Act 1945 aimed to correct this grey area between tort and contract law and restore faith in the these two popular areas of civil law.

The Law reform Act 1945 drew a middle line between these the legal factions and their arguments and made explicit that when a breach of an obligation is  purely contractual then the relevant Act will not assist a claim for breach of negligence. Nevertheless when the claim brought is for negligence then the party in default may rightfully counterclaim for a contributory negligence claim.

In the recent case of Mueller Europe Ltd v Central Roofing (South Wales) Ltd [2013] EWHC 237 (TCC) (22 February 2013 the defaulting party argued that the damages claimed should be reduced because the obligations breached where not purely contractual, citing to this effect the case of Forsikringsaktieselskapet Vesta v Butcher [1986] 2 All ER 488 (Hobhouse J), [1989] AC 852 (CA). However, the high court steered clear of these argument by stating that since the 4 obligations claimed to be breached by  the claimant (Mueller) did not depend on reasonable care and skill then they fall to be strictly contractual, thus not entitling the defendant to claim contributory negligence.

It further stated that whilst there was an underlining duty to exercise reasonable care and skill regarding obligation (b) ” “[Central] … will within its scope of Work promptly take all reasonable and necessary precautions against risk of loss, theft or damage by vandalism, sabotage or otherwise, to all or any part of the Work.”, obligation (a) “[Central] will conduct all operations under the Contract Documents in a manner to avoid … risk of loss, theft or damage by vandalism, sabotage or otherwise, to all or any part of the Work” was not limited to just taking promptly reasonable precautions but to more than that. Hence, it required a lower threshold thus indicative of purely contractual obligations, of breach than the one concerning reasonable care and skill. Instead of the High court focused on the principles of causation in order to decide which was the dominant cause of the breach of contract.

Assignment What is an assignment? Assignment is the act of granting or transferring to someone else your rights under a contract or transfering interest in land. So for example if I have contracted with someone to build an block of flats, I could assign the rights under the contract to a third party who could sue for the benefit accrued under the contract being either the money to be paid (debt owed under the building contract) or respectively if i am the purchaser, the benefit of having a certain obligation fulfilled namely, the building of the block of flats. The rule relating to assignments is that only rights or benefits may be assigned and not obligations, however the common law circumvents this rule through certain doctrines which consider the transfer of an obligation as a part and parcel with the benefit conferred in the aftermath of the assignment of certain rights which are conditional upon a performance by an assignor. Similarly the obligation of the assignor may be discharged by the counter party under the contract by providing consideration in the form of release of the assignor from his obligations and accepting the assignees promise of performance. Does an assignment require the acceptance of an assignee? Yes, an assignment must be accepted by an assignee. Why is assignment important? Because it is used as a vehicle for the transfer of rights in the fast paced world of commerce, it may be used for the creation of security for a loan and it is also occurs when someone dies or goes bankrupt where his rights under a contract or debt may be assigned by operation of law to his executor or official receiver respectively. As the person who dies or went bankrupt is banned from performing business deals with others subsequently the liabilities and obligations artificially pass to the above persons, it is said that artificially since they are not personally liable for these debts but have to pay those funds out of the bankrupt’s or deceased’s estate. Assignment also may be used in order to circumvent Privity of Contract usually in complex by-partisan relationships affecting the same business project like for example a funder requiring an assignment of the rights of the contract between the developer and the contractor, as a form of security. Furthermore, the purchaser of a house maybe vested with the rights to sue against the contractor by virtue of an assignment of such rights by the developer. What are the prerequisites of an assignment? There needs to be an intention to transfer the rights in question. The product of assignment must be readily identifiable and clear. The assignment must be unequivocal. There must be notice to the obligor.

UNCERTAINTY BY THIRD PARTIES IN LENDING MONEY TO CO-OWNERS.

The effect of overreaching has proven to be a useful and protective tool that third parties such as banks and lenders may safely rely on when the lend money on co-owned land. Overreaching of the rights of equitable owners according to s 27 (2) LPA 1295 when there are at least two or more trustees of the land. When there is only one legal owner overreaching won’t occur, however when in the conveyance the equitable owners are expressed ( Goodman v Gallant 1986)  then the third party will know about their existence and a possible conflict of interests that may arise from their occupation of the house since overreaching will not occur and they may possibly bind the third party either by virtue of having an overriding interest  and thus binding the third party regardless of the fact that the party had no notice of their interest (LRA 2002) or when the land in unregistered through the doctrine of notice. Since the bank will know of their existence it may seek their consent before it grants the mortgage loan to the legal owner. Things however are not that easy for banks when the equitable owners are not expressed in  the conveyance, then there is no way of finding out for a bank or a purchaser if there are any equitable owners in existence. In such a case it is said that the trust may have arisen informally either through an express agreement between the legal owner/proprietor to hold the land in trust for himself and the other party ( Bull v Bull 1995) or a contribution of money towards the acquisition of the property. The bank won’t ever know if there is such an arrangement unless it is told so, thus it won’t seek to obtain their consent before the purchase of the house. When their equitable interest arises informally then it will bind the bank which will actually not be able to enforce its security against the equitable owner who will have priority over the mortgage. Those problems usually arise in cases where there is a husband and wife or a proprietor where his lover claims equitable ownership in the land, so that there is only one trustee/legal owner ( for example the husband) and overreaching cannot occur since the bank may not obtain good title to the land. In order to beat an informal equitable owner the bank must make sure that it will not give out any loan on the land unless it has obtained the consent of all existing or future equitable owners. Notably an equitable owner who knows that the legal owners will take out a mortgage but does not impliedly or expressly consent does not lose his priority over the land the mortgagee lender.

 However when the equitable owner participates, or when the equitable owner knows that without the mortgage the land cannot be purchased so that the land was purchased by virtue of the mortgage and since he did nothing to stop it the equitable owners is bound by it.

Uncertainty over equity ownership

Uncertainty for third parties such as lenders and bankers dealing with the land may not only arise in the form of an informal trust but also when they lend money to joint legal owners. In such a case the maxim ” equity follows the law ” means that both legal joint tenants are presumed to hold the land jointly in equity. This is important for a bank or a purchaser since if it lends money on the land it needs to be certain that in the absence of a declaration of the equitable ownership, they hold in equity whatever they hold in law, that is 50/50 jointly. However in the recent case of stringer the Court decided that equity does not necessarily follow the law. In that case both son and mother being joint legal tenants mortgages their house for a loan but it transpired that the son had unduly influenced the mother to sing the mortgage. Therefore the  legal mortgage was void since there were two join legal tenants being joint their consent of both was required. It was also found that the son had no equity in the land, holding it only to enable a mortgage to be made on the land. Therefore the bank was left with nothing as the son had no equity in the land.

WHAT HAPPENS WHEN THE BANKS MORTGAGE IS SET ASIDE BECAUSE ONE OF THE LEGAL OWNERS SIGNATURES WAS THE PRODUCT OF UNDUE INFLUENCE?

The law is full of cases in which a husband or wife take out a mortgage by forging the other’s signature or by exerting some of influence known in law as undue influence on the other legal owner resulting to him or her singing the mortgage.

It is wise to consider the rights of a lender or a seller which has been conveyed the land to his name either by means of a mortgage or a purchase of the house. Is he left without security simply because of one the legal owner’s signature was the result of fraud or misrepresentation by the lender or even by the other legal owner?

As a starting point, since we are dealing with joint legal owners of the title of the land there is an implicit need for a mortgage to be in both names since joint legal owners have the so called unity of title thus treated as each owning the whole of the land and therefore both their consent and signatures are required for a legal mortgage or for an estate in land to be conveyed to a purchaser of the land since they are a considered to be a unity. When one of the legal owners mortgages the land without telling the other or either forges his or her signature (so as his or consent does not count) or even masterminds to sell the house as part of a mortgage fraud plan) this will operate as an act of severance of the legal title. The legal mortgage will not subsist since as explained above joint legal owners act as a unity and both their legitimate consent is a must for a legal estate in land to pass to a lender or a seller. Though the lender will not have a legal mortgage, he will have an equitable charge over the interest of the co-owner who mortgaged the land only. So if the husband forged his wife’s signature for the mortgage the bank will have an equitable charge over his interest whatever that may be. As previously said when the husband or wife mortgages his share of the property without the other’s consent then since the legal joint tenancy cannot be severed  and operate as a tenancy in common( s 36(2) (2)No severance of a joint tenancy of a legal estate, so as to create a tenancy in common in land, shall be permissible, whether by operation of law or otherwise, but this subsection does not affect the right of a joint tenant to release his interest to the other joint tenants, or the right to sever a joint tenancy in an equitable interest whether or not the legal estate is vested in the joint tenants: LPA 1925) the equitable joint tenancy is severed and he or she becomes a tenant in common in relation to his or her share in the land. Consequently the lender becomes an equitable chargee over that equitable interest. The downside of this occurrence is that lender cannot seek possession of the land against the innocent legal co-owner as has no estate in land being an equitable chargee and not even an equitable mortgagee. the lender though can still apply for an order of sale under section 14 of TLATA, however a sale might be impeded or be postponed for year and cannot match the potency of a possession order. Moreover, the since the chargee’s interest takes effect in equity and not in law he will be entitled only to the interest of the legal co-owner ho mortgaged his land by consent, this interest in equity could vary from 100% ownership to nothing. This is because equity does not always follow the law, thus in the case of Abbey National Bank Plc v Stringer & Ors [2006] EWCA Civ 338 (07 April 2006) it was decided that the two joint legal tenants where not tenants in equity each holding the land as a whole. Therefore when the joint tenancy was severed by the son who took a mortgage by exercising undue influence on his mother, the bank was not even left with an equitable mortgage of a 50%  interest of a tenancy in common after the severance of the equitable joint tenancy, since the whole equitable share belonged to the mother, the son was jointly holding the land with her in law for practical considerations. What is disturbing about the finding of this case is that the bank could do nothing but assume that the a joint equitable tenancy followed the joint legal tenancy thus each tenant held in equity a 50%  and after severance of the joint equitable title a 50% each as tenants in common. However this assumption turned out to be wrong  since the son had no interest in the land, and there was nothing the bank could do about it.