Lloyds Bank v Carrick

Lloyds Bank plc v Carrick [1996] 4 All ER 630 is a Court of Appeal decision concerning the intersection of contractual interests in land, actual occupation, and the overriding interest provisions of the Land Registration Act 1925. The case arose from a domestic property transaction that remained incomplete and was subsequently complicated by the intervention of a commercial mortgagee, raising important questions about the priority of competing interests in registered land.

Mrs Carrick entered into a contract with her brother-in-law, Mr Carrick, for the purchase of a leasehold property. The transaction was conducted on informal terms, as is common in family arrangements. Mrs Carrick paid the full purchase price to her brother-in-law and took up actual physical occupation of the property. However, no formal transfer of the legal estate was ever executed and the transaction was never completed by registration in her favour. The legal title therefore remained vested in Mr Carrick throughout.

Mr Carrick subsequently mortgaged the property to Lloyds Bank as security for borrowing. The bank did not make enquiries of Mrs Carrick, who was in occupation of the property at the relevant time, nor did it discover the prior contractual arrangement. When Mr Carrick defaulted on his mortgage obligations, Lloyds Bank sought possession of the property with a view to exercising its power of sale.

Mrs Carrick resisted the possession claim on the ground that she had an equitable interest arising from the specifically enforceable contract of sale, and that this interest, coupled with her actual occupation of the property, constituted an overriding interest within the meaning of section 70(1)(g) of the Land Registration Act 1925. If her interest was overriding, it would bind Lloyds Bank notwithstanding the absence of any entry on the register and notwithstanding the bank's apparent lack of notice.

At first instance the court found in favour of Mrs Carrick. Lloyds Bank appealed to the Court of Appeal, contending that a purely contractual interest could not qualify as the kind of proprietary right capable of founding an overriding interest under section 70(1)(g), and that the decision below had impermissibly extended the protection afforded by the provision beyond its proper scope.

The primary issue before the Court of Appeal was whether an equitable interest arising under a specifically enforceable contract for the sale of registered land is capable of constituting a "right" for the purposes of section 70(1)(g) of the Land Registration Act 1925, and therefore capable of taking effect as an overriding interest binding on a subsequent registered proprietor or mortgagee.

A subsidiary but closely connected issue was whether Mrs Carrick's actual occupation of the property at the relevant time — that is, at the date of registration of the mortgage — satisfied the requirement of actual occupation within section 70(1)(g), particularly in the light of the temporal and qualitative requirements imposed by the House of Lords in Abbey National Building Society v Cann [1991] 1 AC 56.

A further ancillary issue concerned whether, even if Mrs Carrick's interest was in principle capable of overriding protection, it had been displaced or waived by reason of the informal nature of the original contractual arrangement or by the failure to protect the estate contract by registration as a minor interest on the charges register.

The Court of Appeal began by setting out the statutory framework. Section 70(1)(g) of the Land Registration Act 1925 provides that registered land is subject to, as overriding interests, "the rights of every person in actual occupation of the land or in receipt of the rents and profits thereof, save where enquiry is made of such person and the rights are not disclosed." The central interpretive question is the meaning of "rights" in this provision: specifically, whether the term encompasses equitable interests arising under a contract for sale, or whether it is confined to recognised property rights of a more traditional character.

The court placed considerable reliance on the foundational authority of Williams & Glyn's Bank Ltd v Boland [1981] AC 487, in which the House of Lords gave a broad and purposive construction to section 70(1)(g). In Boland, Lord Wilberforce held that a beneficial interest under a trust for sale, arising from a wife's contribution to the purchase price of the matrimonial home, was capable of constituting a right within section 70(1)(g). That decision established the principle that the word "rights" in the provision is not confined to legal rights or to rights of a strictly in rem character, but extends to any equitable interest that has a proprietary quality and is held by a person in actual occupation.

The court applied the reasoning in Boland to the present facts. The equitable interest arising under a specifically enforceable contract for the sale of land is a well-established proprietary right in English law. The maxim that equity regards as done that which ought to be done operates, upon the conclusion of a specifically enforceable contract, to vest in the purchaser an equitable interest in the subject matter of the contract. This principle derives from Walsh v Lonsdale (1882) 21 Ch D 9 and has been consistently applied in the law of real property. Accordingly, from the moment the contract between Mrs Carrick and her brother-in-law was concluded, she acquired an equitable interest in the property of a proprietary character.

Lloyds Bank argued that the position of a contractual purchaser was distinguishable from that of the beneficial owner of a trust interest considered in Boland. The bank submitted that a contractual purchaser's interest is essentially personal in nature prior to completion, and that to treat it as a right capable of binding third parties by operation of section 70(1)(g) would be to allow a contractual obligation to override the general principles of property law. The court rejected this submission. Once the contract is specifically enforceable — as a contract for the sale of land ordinarily is, given that land is unique — the purchaser's interest is properly characterised as proprietary rather than merely personal.

The court then addressed the question of actual occupation. The requirement of actual occupation is a factual one that must be satisfied at the relevant time, which, following Abbey National Building Society v Cann [1991] 1 AC 56, is the time of completion of the transaction in question rather than the time of registration. In Cann, the House of Lords held that a person who moves into a property at the same time as, or contemporaneously with, a mortgage transaction cannot claim an overriding interest as against the mortgagee, since the legal estate and the charge are created simultaneously and there is no scintilla temporis between the two events during which the purchaser could have been in actual occupation free of the mortgage.

The court distinguished Cann on the facts. Unlike the claimant in Cann, Mrs Carrick had been in actual occupation of the property for a substantial period prior to the creation of the mortgage in favour of Lloyds Bank. There was no question of her occupation being simultaneous with or preparatory to the mortgage transaction. She was already in actual, physical occupation at the time Lloyds Bank took its charge, and that occupation was sufficient to satisfy the requirements of section 70(1)(g). The temporal gap between her entry into occupation and the grant of the mortgage was clear and unambiguous.

A significant element of the court's reasoning concerned the failure of Lloyds Bank to make inquiries of Mrs Carrick before accepting the mortgage. Section 70(1)(g) provides a saving provision in favour of a mortgagee who makes enquiry of the person in actual occupation and the rights are not disclosed. Lloyds Bank had not made such enquiry. The court held that where a mortgagee fails to make enquiry of a person in obvious occupation of the mortgaged property, it cannot subsequently complain that an overriding interest of which it would have learned had it made enquiry should not bind it. The protection of the saving provision is available only to a mortgagee who actually takes steps to inquire.

The bank also argued that Mrs Carrick's estate contract should have been protected by registration as a minor interest on the charges register, and that her failure to register meant that the interest was not binding on a registered proprietor or chargee for value. The court acknowledged that an estate contract in registered land is registrable as a minor interest, and that registration would have afforded full protection. However, the court reasoned that the provisions relating to minor interests and those relating to overriding interests operate as parallel and alternative modes of protection. The failure to register a minor interest does not automatically preclude an interest from being an overriding interest under section 70(1)(g), provided the relevant conditions are met. The two regimes are not mutually exclusive.

This aspect of the reasoning is doctrinally significant and has attracted academic commentary. It might be argued that permitting an interest that could have been, but was not, registered as a minor interest to take effect instead as an overriding interest undermines the coherence of the registration system and the principle that the register should be a complete and reliable record of all interests affecting registered land. The court did not accept this critique, preferring a broad and protective interpretation of section 70(1)(g) consistent with the approach taken in Boland.

The court also considered whether the informal nature of the original transaction, a family arrangement conducted without the benefit of formal conveyancing documentation, affected the quality or enforceability of Mrs Carrick's interest. The court held that it did not. Provided that the essential requirements of a binding contract were established — offer, acceptance, consideration, and the formal requirements of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, or its predecessor provision — the interest arising from the contract was as fully proprietary as any interest arising from a professionally drafted sale agreement. The informality of the arrangement between family members did not diminish its legal effect.

The court further noted that Mrs Carrick had paid the full purchase price, reinforcing the specifically enforceable character of her contract and strengthening the proprietary quality of her interest. The payment of the price by a purchaser in equity is a material factor in determining the extent to which the court will treat the vendor as holding the property on constructive trust for the purchaser. The court observed that, upon payment of the price and entry into occupation, Mrs Carrick's position was in many respects equivalent to that of an equitable owner of the property, even though the legal formalities of transfer had never been completed.

Having regard to all these considerations, the Court of Appeal affirmed the conclusion that Mrs Carrick's equitable interest as contractual purchaser, combined with her actual occupation of the property at the date of the mortgage, constituted an overriding interest under section 70(1)(g) that bound Lloyds Bank as chargee of the legal estate.

The Court of Appeal held that Mrs Carrick had an overriding interest within section 70(1)(g) of the Land Registration Act 1925 that bound Lloyds Bank. Her equitable interest, arising from a specifically enforceable contract for the sale of registered land under which she had paid the full purchase price, constituted a "right" within the meaning of the provision. Her actual occupation of the property at the date of the creation of the mortgage satisfied the occupational requirement. Lloyds Bank's appeal was accordingly dismissed.

The court further held that the failure to register the estate contract as a minor interest did not preclude it from operating as an overriding interest, since the two forms of protection in the Land Registration Act 1925 operate independently and in parallel. A person who could have registered a minor interest but did not is not thereby disentitled from relying on actual occupation as an alternative ground of protection under section 70(1)(g), provided the conditions of that provision are otherwise satisfied.

The decision confirmed that the bank could not rely on the saving provision in section 70(1)(g) regarding undisclosed rights, since it had not made any enquiry of Mrs Carrick before taking the mortgage. Had such enquiry been made, Mrs Carrick would have been bound to disclose her interest, and her failure to do so would have rendered her interest unenforceable against the bank. In the absence of any inquiry, however, the bank was bound by her overriding interest.

Lloyds Bank v Carrick is an important authority in the law of registered land for its confirmation that the equitable interest of a contractual purchaser in actual occupation qualifies as an overriding interest under section 70(1)(g) of the Land Registration Act 1925. The decision extends the broad protective approach established in Williams & Glyn's Bank Ltd v Boland [1981] AC 487 to a new category of interest-holder, namely the person who has entered into a specifically enforceable contract for the purchase of registered land, paid the price, and entered into occupation, but has not completed the transaction by registration.

The case raises important issues about the coherence of the registered land system and the relationship between the minor interest and overriding interest regimes. Critics of the decision argue that it creates a perverse incentive: a purchaser who fails to protect an estate contract by registration as a minor interest may nonetheless