sign in sign up
<<
Home , Bona fide purchaser

LAWS2017:

Semester 2 2016

Facts: ⇒ Judgement: ⇒

TOPIC 1: FUNDAMENTALS OF LAND OWNERSHIP Doctrine of Tenure & Doctrine of Estates ( & ) Doctrine of Tenure • Land held directly/indirectly as tenant of the Crown • All land held by Crown who makes grants to tenants who hold estates in the land (colloquial owner is holding land as tenant of the Crown) • Imperial Acts Application Act 1969 (NSW): o S 36 (freely alienable inter vivos; no subinfeudation) o S 37 (free & common socage without incident of tenure for benefit of Crown)

Doctrine of Estates • Fee simple – right to exclusive possession forever • Life estate – exclusive possession for duration of the measuring life - temporal limitation on enjoyment of interest (own life or life of another) – at end of period, right to exclusive possession reverts back to grantor or passes by to holder of fee simple in remainder • Lease – exclusive possession for a defined term • – right of owner of nearby land to use or limit use of land • a prendre – right to enter land & remove soil or natural produce • (extinct in NSW: Act 1919, s 19, 19A) – automatically descended to linear heirs of grantee

Requirements for Creation of a (Particular) Proprietary Right Essential/Substantive Requirements • What package of rights has grantor intended to create? E.g. – o Fee simple [exclusive possession forever] o Life estate [exclusive possession for duration of measuring life] o Lease [exclusive possession for certain term] o Easement [right, accommodating dominant land to use, or restrain use of servient land in a manner not inconsistent with servient owner’s continuing ownership] o Profit a prendre [right to enter servient land & remove the soil or its natural produce]

Formal Requirements • How must that intention be manifested? • E.g. – must a document be used; if so, what type; is a particular form of words required? • Words of Purchase & Words of Limitation o Words of purchase = italics, Words of limitation = bold ⇒ “to A and his heirs” (cf “to A in fee simple”) ⇒ “to B and the heirs of her body” (gives fee tail) ⇒ “to C for life” (gives life estate) ⇒ “to D for the life of X” (gives life estate for life of X) ⇒ “to E” (gives life estate) o Default estate = life estate, need other words to create another type of estate o MODERN = Default interest = fee simple, grantee will get fee simple UNLESS contrary intention manifested o Now changed à s 47 Conveyancing Act

Conveyancing Act 1919 (NSW) s 47 (1) In a it shall be sufficient in the limitation of an estate in fee simple to use the words in fee or fee simple without the word heirs, or in the case of a corporation sole without the word successors, or to use the words in tail or in tail male or in tail female, without the words heirs of the body, or heirs male of the body, or heirs female of the body. (2) Where land is conveyed to or to the use of any person without words of limitation, such conveyance shall be construed to pass the fee simple or other the whole estate or interest the person conveying had power to dispose of by deed in such land unless a contrary intention appears by such conveyance. (3) This section applies only to executed after the commencement of this Act. • Only applies to deeds executed after 1 July 1930

Succession Act 2006 (NSW) s 38 (1) A disposition of real property to a person without words of limitation is to be construed as passing the whole estate or interest of the testator in that property to that person. (2) This section does not apply if a contrary intention appears in the will. • If I own fee simple in land & leave land to you in will, I don’t need to use words of limitation b/c you as beneficiary of will are presumed to get whole interest that I have (so if I have fee simple, that is what you are presumed to get, the exception being if there is a contrary intention that appears in the will)

Legal & Equitable Interests • Trustee is the legal “owner” of the land, holding the legal estate • NB: restrictive over land can ONLY exist in

Legal Interests • Deed: Conveyancing Act 1919 (NSW) s 23B(1) • Certain short-term leases: s 23D(2) • Implied leases & • Statutory tenancy: s 127

Equitable Interests • Written & signed instrument: s 23C(1)(a) o But s 41 RPA 1900 (NSW) • for the sale of land or to grant an interest in land o Which are enforceable: s 54A(1), (2); and o In respect of which equity would decree o E.g. – Lysaght v Edwards; Walsh v Lonsdale – where we have for sale of land & that contract is enforceable & equity would decree specific performance of contract, the contracted for arises – can only be invoked where contract is enforceable so need to satisfy s 54A • Declaration of trust: s 23C(1)(b) • Resulting or : s 23C(2) o E.g. – purchase price resulting trust, presumed where legal taken in a manner that does not reflect respective contributions to purchase price & no operable presumption of advancement • Vendor’s or purchaser’s o Equitable interest arises by operation of o Vendor’s lien = I own land, contract to sell land to you, settlement occurs, I transfer legal title to you but you don’t pay me everything that is owing, part of purchase price left outstanding, I have a lien (equitable interest in land) to secure your repayment of balance of purchase price ⇒ Heid v Reliance Corporation involved vendor’s lien o Purchaser’s lien = I contract to sell land to you, you pay part of the purchase price to me but legal title is not conveyed. If contract cancelled, you have a purchaser’s lien over the land which secures my repayment of purchase price to you. • Equity of redemption on grant of a general law mortgage

General Law Priority Rules (Competition b/w Legal Interests, Equitable Interests & Legal & Equitable Interests) • Remember these don’t just apply to land • Grant priority to one interest over another with reference to a number of factors • Rules take form of principles • Set of rules based upon: o Order of the creation of interests and o Nature of competing interests: legal, equitable, or a “mere” equity

Sources of Priority Rules • General law priority rules o Categorised by reference to order of creation of interests & the nature of the interest (legal; equitable; mere equity) • Subject to registration schemes: o Conveyancing Act 1919 (NSW) s 184G [old system land] o Real Property Act 1900 (NSW) ss 41 – 43A, 45, 118 [ land]

General Law Priority Rules • Prior legal v later legal • Prior legal v later equitable o Walker v Linom - If holder of prior legal interest doesn’t get in title deeds & that lets third party to go into world to represent themselves as true owner of property & someone takes an equitable interest from third party, then holder of prior legal interest who didn’t get in title deeds is postponed • Prior equitable v later legal o Rule in Wilkes v Spooner o Holder of later legal interest prevails if taken bona fide for value without notice o Most common way in which it arises is where s 43A RPA applies • Prior equitable v later equitable o Most common in torrens context o Usually unregistered interests are equitable o Court searches for better equity – which of two holders has more meritorious claim • Prior mere equity v later equitable (or legal)

• Notice: Conveyancing Act s 164 – where holder of later interest has notice of earlier interest, earlier interest will have priority (narrow range of exemptions = caveat lodged giving notice of interest & then withdrawn suggesting interest no longer exists) o Actual – if you know about notice o Constructive – if you would have had actual notice if you made reasonable inquiries ⇒ “searches…inquires…& inspections….[that] ought reasonably to have been made by the purchaser” ⇒ Requires consideration of what inspections & inquiries a purchaser/or anyone taking an interest ought to have made w.r.t land ⇒ Search of the title documents: § For old system land, search of title deeds back to a good root of title at least 30 years old: Conveyancing Act s 53 § Inspection of the land to ascertain who is in possession (e.g. – a tenant) or who is using it (e.g. – holder of an easement): rule in Hunt v Luck o Imputed – where your notice has actual/constructive notice of my interest

Conveyancing Act 1919 (NSW) s 164 Restriction on constructive notice A purchaser shall not be prejudicially affected by notice of any instrument, fact, or thing, unless: (a) it is within the purchaser’s own knowledge, or would have come to the purchaser’s knowledge, if such searches as to instruments registered or deposited under any Act of Parliament, inquiries, and inspections had been made as ought reasonably to have been made by the purchaser, or (b) in the same transaction with respect to which a question of notice to the purchaser arises, it has come to the knowledge of the purchaser’s counsel as such, or of the purchaser’s solicitor or other agent as such, or would have to come to the knowledge of the purchaser’s solicitor or other agent as such, if such searches, inquiries, and inspections had been made as ought reasonably to have been made by the solicitor or other agent.

Hierarchy of Interests 1. Legal Interest o E.g. – for old system land: s 23B, 23D(2); o Unregistered Torrens: s 43A 2. Equitable Interest o E.g. – for old system land: s 23C(1)(a): Walsh v Lonsdale, Lysaght v Edwards; vendor’s lien; mortgagor’s equity of redemption (note, this is not a mere equity) § Vendor’s lien: you own land and I contract to purchase land from you, we come to time of settlement and you use a debt or in Torrens land a transfer in registrable form, you hand that to me when I hand you purchase money but if I don’t pay you all the money I am required to, equity says in addition to you having a chose in action against me in the form of a debt, you have a lien in the land (i.e. – a security interest which secures the repayment of the money I owe you as purchaser) o Unregistered Torrens – transaction behind instrument o Beneficiary’s interest under a trust 3. “Mere” Equity (or simply “an equity”) o “The critical difference them, is between an “equity” – an in personam right in equity – which requires the intervention of the court to flower into a full equitable estate, & an equitable interest which does not b/c it already consists of such estate.” (Westpac Banking Corporation v Ollis [2008]) o “…a mere equity is a claim to have an equitable interest which can only be enforced by succeeding in some claim to a court for equitable relief (such as a claim for , a claim to set aside a conveyance obtained by fraud or (as I think) a claim the enforcement of which depends upon the doctrine of part performance…” (Bryson J in Double Bay Newspapers v AW Holdings (1996)) o If relying on part performance to get performance & interest, then arguably interest mere equity rather than equitable interest b/c you need to go to court to accept that you have performed sufficient acts of part performance o A right to go to court to get some sort of equitable relief o Before you obtain court’s order/assistance, you only have a mere equity, upon which after court’s assistance you have an equitable interest o Claim to rectify deed – Smith v Jones [1954] o Claim to set aside a transfer on the basis of fraud – Latec Investmetns Ltd v Hotel Terrigal Pty Ltd (1965) o Claim to enforce contract based on part performance?? § “The mortgage [document] taken by the plaintiff does not identify what debt or other obligation is charged upon the land, & does not set out what agreement was made for the time of payment. It is defective in that it does not comply with the statutory provisions which require interests in land to be created or in writing.” [Either requires rectification or enforcement on the basis of part performance] – Double Bay Newspapers o Can be devised by will – Stump v Gaby (1852) cited in Latec Investments

General Law Priority Rules • Prior legal v later legal • Prior legal v later equitable • Prior equitable v later legal • Prior equitable v later equitable • Prior mere equity v later equitable (or legal) • After Double Bay Newspapers – where the mere equity is the later interest?

Alternate Ordering of the Rules (do not use these categories in exam) • Category A: where, in the hierarchy, the earlier interest is lower than the later interest à Earlier interest has priority unless later interest was taken bona fide for value without notice o Prior equitable v later legal o Prior mere equity v later equitable (or legal) • Category B: where, in the hierarchy, the earlier interest is higher than or equal to the later interest à Earlier interest has priority unless the holder of that interest is guilty of some form of “postponing conduct” o Prior legal v later legal o Prior legal v later equitable o Prior equitable v later equitable ⇒ What constitutes postponing conduct may vary depending upon whether the prior interest is legal or equitable ⇒ This is a higher hurdle for the holder of the later interest to clear than the bona fide purchaser for value without notice test in Category A

Wilkes v Spooner [1911] Facts: ⇒ Father carried on business of a pork butcher at Premises #1 under a lease that restricted him to that use. Father carried on business as a general butcher at Premises #2 under a lease from a different landlord. ⇒ Father assigned the lease and sold the business in regard to Premises #2 to his Apprentice. Father granted to the Apprentice a restrictive covenant (form of equitable interest) in respect of his lease of Premises #1 limiting the use to that of a pork butchery. ⇒ Father negotiated with Landlord of Premises #1 a surrender of his lease and the grant of a new lease to Son, allowing use of the land as a general (and not just a pork) butchery. ⇒ I hold prior equitable interest in land & you take subsequent legal interest in land. When will your subsequent legal interest have priority over my prior equitable interest? If you are a bona fide purchaser for value without notice. ⇒ Question is, if someone takes a legal interest from you, either, not giving value (i.e. - they are a volunteer) or they have notice of my prior equitable interest, do they take priority over me?

Judgement: ⇒ Was Son bound by the Father’s restrictive covenant burdening his lease of Premises #1 in favour of Premises #2? No. ⇒ The surrender of the lease of Premises #1 to the Landlord was a transfer of the legal lease to the Landlord. The Landlord was a bona fide purchaser of that legal estate for value (the grant of a new lease to the Son) without notice of the equitable interest of the Apprentice in the lease (the benefit of the restrictive covenant). ⇒ The Landlord took free of the restrictive covenant, as did the Son, who took a legal interest from the Landlord (the new Lease). The Son could “shelter” behind the protection of the Landlord even though the Son did have notice of the Apprentice’s equitable interest. ⇒ Landlord has legal interest in lease ⇒ Protection afforded can be transferred to one who takes legal estate from a person if they have notice of the interest or if a volunteer – rationale is that you being a bona fide purchaser for value without notice, having priority, will want to deal with your land in a particular manner & that may be granting an interest to someone who is a volunteer or who has notice (rationale that it would unduly restrict your rights as legal owner if you weren’t allowed to grant an interest who could not get priority on their own merits) ⇒ Landlord takes legal lease of Premises #1 bona fide for value without notice of earlier restrictive covenant. Landlord has given value b/c he has agreed to take the surrender of the lease & grant a new lease to the son. In contest b/w prior equitable interest of Apprentice & the later legal interest of the Landlord, the Landlord has priority as a bona fide purchaser of property without notice. Landlord then transfers legal lease to son. Son had notice of restrictive covenant in favour of Apprentice, but under this rule in Wilkes v Spooner, son could shelter behind the protection obtained by the Landlord as the bona fide purchaser for value without notice. Even though son’s legal estate standing on its own would have been taken subject to equitable interest of Apprentice b/c Son had notice, b/c Son claiming through Apprentice, Son took priority over Apprentice. ⇒ Subsequent purchaser (or volunteer) from bona fide person can hide behind the protection given even with notice of the original interest.

Extension of Protection – The rule in Wilkes v Spooner [1911] ⇒ If I can claim protection as bona fide purchaser for value without notice, anyone claiming through me can also claim that protection ⇒ The protection afforded to a bona fide purchaser for value without notice of an earlier equitable interest can also be claimed by [can “shelter”] someone taking a legal estate from such a person, even if the successor had notice of the equitable interest (or was a volunteer). See Vaughan Williams LJ at 483; Fletcher Moulton LJ at 485; Farwell LJ at 488. ⇒ “ ... in justice to the owner of the land who had no notice when he acquired the land, it would not be right to hamper his power of dealing with his own land, because certain persons, who possibly would be his only customers for the land likely to pay the best price, have such notice.” – Farwell LJ at 487. ⇒ But protection cannot be claimed by a trustee repurchasing property sold in breach of trust or fraudulent party repurchasing property acquired by fraud and then sold to a bona fide purchaser: Vaughan Williams LJ at 483 – 484.