State Bank of India v Sood [1997] 1 All ER 169

Facts

• Mr. Sood was the sole registered proprietor of a property held on trust for himself and his wife.
• The property was mortgaged in favour of the State Bank of India.
• The bank sought to enforce its mortgage security.
• Mr. Sood contested the validity of the mortgage, arguing it was executed without his wife’s consent and that no capital payment had been received.
• The dispute centred on whether the absence of a capital payment precluded the overreaching of Mrs. Sood’s equitable interest in the property.

Issues

1. Whether overreaching under Sections 2 and 27 of the Law of Property Act 1925 requires the receipt of a capital payment.
2. Whether the absence of a capital payment invalidates the mortgage against a beneficiary’s equitable interest.
3. Whether proper execution by the requisite number of trustees is sufficient for overreaching, regardless of the transaction’s financial terms.

Decision

• The Court of Appeal held that overreaching does not require the receipt of a capital payment.
• The mortgage was valid and capable of overreaching Mrs. Sood’s equitable interest, provided statutory requirements were met.
• The court confirmed that focus should remain on the transaction's compliance with Section 2 and Section 27 of the Law of Property Act 1925, not on its financial structure.
• Requiring a capital payment would unnecessarily complicate and jeopardise the efficiency of property transfers.

Legal Principles

• Sections 2 and 27 of the Law of Property Act 1925 establish that overreaching occurs when property is dealt with by at least two trustees or a trust corporation, transferring equitable interests to the sale proceeds.
• Overreaching serves to protect purchasers by removing equitable interests from the land, making the land freely marketable.
• Overreaching operates as a matter of law and does not depend on capital payment or the specific financial details of the transaction.
• Compliance with statutory trustee requirements is fundamental to the effectiveness of overreaching.

Conclusion

The Court of Appeal clarified that overreaching under the Law of Property Act 1925 does not depend on the receipt of a capital payment, reinforcing the mechanism's protective function for purchasers and supporting certainty and efficiency in property transactions involving trust land.