Paddington Building Society v Mendelsohn

Paddington Building Society v Mendelsohn (1985) 50 P & CR 244

The equitable interests of occupiers depends on their intention.

Facts:

The defendants, a mother and her son, agreed to buy the leasehold of the mother’s flat. The mother contributed to the purchase price but they agreed to pay the balance by way of a mortgage. Since the mother was too old to get a mortgage they agreed that the son would take the transfer of the flat and take out the mortgage. The building society had no notice of the mother’s interest. When the mortgage repayments fell into arrears the society obtained an order for possession. The mother applied for this to be set aside.

Issues:

The mother claimed that she had an overriding interest in the flat. As someone who had contributed to the purchase price the mother had an equitable interest in the property. Under s.70(1)(g) Land Registration Act 1925 the interest of someone who is in actual occupation of the land overrides a registered disposition. The mother was already in occupation. Therefore, she claimed that her equitable interest would override the building society’s charge.

Held:

The appeal was dismissed. The court stated that an equitable interest could be overreached in the manner of Williams & Glyn’s Bank v Boland [1981] AC 487 or there had to be an express agreement that the trust would not bind the mortgagee. However, the nature of the mother’s interest depended on her and her son’s intention at the time.  Because they knew a mortgage would be needed to buy the flat, it was implied that the mother consented to the mortgage and could not have intended her interest to bind the building society. Consequently, the building society were allowed to obtain possession.