City and London Building Society v Flegg [1988] AC 54

House of Lords

Basic Facts: Mr and Mrs F contributed £18,000 towards the purchase of a house that was registered in the names of Mr and Mrs B. The house was held on a resulting trust for Mr and Mrs F. Mr and Mrs B remortgaged the house and defaulted. C sought possession.

Issue for the Court: How do third parties' rights get affected by trustees' default?

Held: The House of Lords held that overreaching applies when trustees sell property, meaning beneficiaries’ equitable interests are transferred to the purchase money, protecting the buyer from the beneficiaries' claims.

 Lord Templeman:

• Overreaching vs. Overriding Interests: Mr and Mrs F argued they were entitled to resist possession based on actual occupation under LPA 1925 s.14. However, s.14 does not protect equitable interests if they are overreached. Once overreached, the equitable interests cease to be overriding interests, as the rights of occupation are linked to the equity of redemption but not to possession.

Lord Oliver:

• Rights of Occupants: S.14 does not preserve equitable interests after they are overreached. The rights of persons in occupation are limited to the equity of redemption and do not extend to overriding interests.