Equity & Law v Prestidge [1992] 1 All ER 909 (CA)

Facts

• The property in question was jointly owned by Mr. and Mrs. Prestidge, with Mrs. Prestidge holding a beneficial interest under a trust.
• The property was originally mortgaged to a building society.
• Mr. Prestidge later remortgaged the property to Equity and Law, without Mrs. Prestidge's knowledge or consent.
• Proceeds of the remortgage were used to discharge the original mortgage; surplus funds were retained by Mr. Prestidge.
• Mrs. Prestidge argued that her equitable interest was not overreached by the remortgage and that Equity and Law had constructive notice of her interest.
• The central dispute concerned whether the remortgage could override Mrs. Prestidge’s equitable interest in these circumstances.

Issues

1. Whether the remortgage by Mr. Prestidge could override Mrs. Prestidge's existing equitable (beneficial) interest under a trust.
2. Whether Equity and Law had constructive notice of Mrs. Prestidge’s equitable interest.
3. Whether the statutory requirements for overreaching under the Law of Property Act 1925 were satisfied in this remortgage transaction.

Decision

• The court held that the remortgage did not override Mrs. Prestidge’s equitable interest, as the requirements for overreaching were not met.
• It was found that the remortgage proceeds were not paid to trustees as required by statute, so the beneficial interest of Mrs. Prestidge was not displaced.
• The court emphasized that lenders must make reasonable inquiries to identify possible equitable interests, especially in cases involving joint ownership or family homes.
• The judgment clarified that having the property registered in one name does not automatically defeat the interests of a non-registered beneficial owner.
• Actual, constructive, or imputed notice of an equitable interest may bind a lender in such circumstances.

Legal Principles

• The doctrine of notice requires that a lender may be bound by an equitable interest if it has actual, constructive, or imputed notice.
• Overreaching under the Law of Property Act 1925 allows a legal estate to be transferred free from equitable interests only if the statutory requirements (e.g., payment to at least two trustees) are satisfied.
• A remortgage will not overreach a beneficial interest if proceeds are not paid in accordance with statutory requirements.
• Lenders must exercise due diligence and conduct reasonable inquiries to identify existing equitable interests before providing a charge over a property.

Conclusion

The Court of Appeal confirmed that a remortgage cannot override an existing equitable interest unless the statutory rules for overreaching are met, and lenders must be diligent in investigating potential equitable claims where joint ownership or family occupation exists.