Real Property: Priorities in Old System

1. Real Property: Priorities in Old System Assoc Prof Cameron Stewart (c) Cameron Stewart 2009

2. What is property? Real & Personal • Real Property – realty, interests in land – land is three dimensional space located by reference to a point on the earth’s surface – fixtures – in the past only land was recoverable • Real Property is also split into two categories – corporeal and incorporeal hereditaments (a right capable of being devised to an heir)

3. What is property? Real & Personal • Personal Property – catchall • (a) Chattels real – leasehold and other interests in land that are less than freehold – distinction drawn because of an institutional definition of rights – only freeholds were enforceable by real actions for recovery • (b) Chose in possession – a movable corporeal thing – eg goods

4. What is old system title? • Title is a measure of ownership • Old system: the system prior to Torrens system- 1% of land holding in NSW and closing – sometimes ‘common law title’ – about 4000 titles left

5. Traditional conveyancing • Feoffment with livery of seisin • Words spoken of intention to pass, ceremony in public, door knob, lump of earth

6. Collusive court action as a way of conveyancing • Doe v Roe fictions • Collusive court actions • Springing uses • Conveyancing is very difficult!!!

7. Statute of Frauds Statute of Frauds – then in NSW in the Conveyancing Act 1919 s 23B, S 23C,s 23D, s 23E, s 54A

8. Deeds • Grants by deed • Deed poll • Deed indenture

9. Proving Title • Title deeds: difficult to read, disgusting to touch and impossible to understand: Lord Westbury • Good root of title – an unbroken chain of ownership to the original Crown grant (post 1788) – possible but difficult – in England impossible – the convention is an unbroken chain of ownership of 30 years from present contract for sale – was 60 years but amended under CAct s 53(1)

10. Proving title • Abstract of title – summary of title documents – now common usage of chronology • Security - no guarantee – if purchaser takes property subject to interest - merger • Covenants for title – s 78(1) CAct s 4 covenants – • Full power to convey • Quiet enjoyment • Freedom from encumbrances • Further assurance

11. Priorities between competing interests in Old system • What are “priorities”? – in some situations competing claims (both legal and equitable) will be made over the same piece of property – priorities are the rules to work out which interest takes precedence over other interests

12. Characterisation You must be able to characterise what form an interest takes: Is it legal or equitable or nothing (not property)? Was the interest created or transferred in accordance with either the rules of CL or Eq? If CL then LEGAL If Eq then EQ If neither then NOTHING

13. Case study 1: When contracts go bad • A (vendor) exchanges contracts with B (purchaser) • A gets a better offer from C (he knows about B’s offer) and completes the sale to C before B knows • Common law approach? Breach and damages – no property held by B • Equitable approach: breach and specific performance • But what about the property interests?

14. Case study 1: When contracts go bad In common law B is not the owner as the contract has not been completed so the property cannot be returned In equity, the rule in Lysaght v Edwards says that B gets an equitable interest from the exchange and that it is a form of constructive trust, which can be enforced against C (when he knows about B)

15. Henry and the purse strings Taxation in Tudor England – feudal tenures Primogeniture Devising land by will The legal remainder rules Case Study 2: Fat Henry and the problem of trusts

16. The use A --------------------------B --------------------C (Landowner) (feoffee to use ) (cestui que use) Legal estate Beneficial estate CL Equitable

17. The Statute of Uses 1535 • Collapse the use • Springing uses • The use on the use • Equity creates property where there was none before……

18. Case study 3: Part performance and the equitable ‘impersonation’ • A Lease for a factory – an agreement to create a deed • Or a mortgage created by deposit of title deeds • Or a promise to give a life interest if cared for in dotage…

19. The requirements for writing 23BAssurances of land to be by deed • No assurance of land shall be valid to pass an interest at law unless made by deed. 23CInstruments required to be in writing • Subject to the provisions of this Act with respect to the creation of interests in land by parol: (a)  no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by the person’s agent thereunto lawfully authorised in writing, or by will, or by operation of law, ….

20. The requirements for writing 54AContracts for sale etc of land to be in writing • No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action or proceedings is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto lawfully authorised by the party to be charged… CL says no deal

21. Prioritization • Once you have characterised the interest you can test is strength against other interests • There are only four types of priority dispute: • Legal vs legal • Equitable vs Equitable • Earlier Legal vs Later Equitable • Earlier Equitable vs Later Legal

22. Legal interest v legal interest • When two or more legal interests in the land conflict the main principle is that a person cannot convey an interest which he or she does not have (“nemo dat quod non habet”) • Partial eg where A leases to B – A then sells to C – C ‘s interest is taken subject to the lease • Wholly inconsistent – A sells to B and then sells to C: C receives nothing

23. Equitable interest v equitable interest • Moffett v Dillon [1999] 2 VR 480, at 491, it was stated by Brooking JA (Buchanan JA concurring, at 506) that the resolution of priority disputes in the context of competing equitable interests in property could be resolved by applying either of two distinct rules. The first rule is that, generally, if the holder of the second equitable interest takes with notice of the first equitable interest, he or she takes that interest subject to the first equitable interest. The second rule is that, prima facie, the equitable interest first created prevails. However, this prima facie rule can be displaced if the holder of the second equitable interest has a ‘better equity’. The onus of proof in such cases is upon the holder of the second equitable interest to displace the prima facie priority of the first equitable interest holder: Platzer v Commonwealth Bank of Australia [1997] 1 Qd R 266, at 279

24. Equitable interest v equitable interest • Who has the best equity? • Heid v Reliance Finance Corporation Ltd – the better equity depends on the circumstances – • look to the conduct of the parties • the question of negligence on the part of the prior claimant • the effect of any representations made by the prior claimant which may give rise to an estoppel • did the conduct of the prior claimant enable such a representation to be made?

25. Equitable interest v equitable interest • Generally: the earlier equitable interest may be postponed to the later interest where: • (a) the conduct of the earlier interest holder has led to the later interest holder acquiring an interest; • (b) in the mistaken belief that the prior interest did not exist • If the equities are equal then first in time

26. Equitable interest v equitable interest EG Able agrees to sell his land to Barb. Able gives the title deeds to barb and signs a receipt for the purchase money even though he has yet to be paid. Barb proceeds to grant an equitable mortgage over the land to Clary. How has the better interest? • Look to the equities: • Able has an equitable lien over the property • Clary has an equitable mortgage

27. Equitable interest v equitable interest • Both the equities are security interests – no real difference between them – However Able’s negligent conduct in giving the title deeds and signing the certificate means that it was his fault that Clary took his interest without notice- Hence Clary’s interest is superior • See Rice v Rice (1853) 61 ER 646

28. Equitable v Equitable In JNJ Investments Pty Ltd v Sunnyville Pty Ltd [2006] QSC 138, a vendor of property contracted to sell property to a purchaser. On the day of settlement of this contract, the vendor completed a sale of the property to a second purchaser for a higher price. The first purchaser, upon becoming aware of what had happened, lodged a caveat to prevent registration of the second purchaser’s transfer. The second purchaser commenced proceedings to have the caveat removed. The issue before the court was whether the first purchaser had priority over the second purchaser. Mullins J, at [70], held that the first purchaser had priority because the second purchaser ‘had notice of the first [purchaser’s] equitable interest at the time of the acquisition of its interests’.

29. Equitable interest v equitable interest • Exception: in the case of land held under a trust the beneficiaries will not lose their priority because of negligent or fraudulent conduct by the trustee • Shropshire Union Railways and Canal Company v The Queen

30. Equitable interest v equitable interest • Shropshire Union Railways and Canal Company v The Queen • In that case Holyoake, as trustee of shares for Shropshire, held all title documents relating to the shares. In breach of trust Holyoake borrowed from Robson and gave Robson the share certificate as security for the loan. Robson held the shares but did not have them registered into his name on the company register. The issue before the court was whether Shropshire’s earlier equitable interest as beneficiary under the trust of the shares was defeated by Robson’s later equitable mortgage over the shares. The House of Lords ruled that Shropshire’s earlier equitable interest had priority.

31. Equitable interest v equitable interest • Exception doesn’t apply unless the trust is properly formed or in cases where the trustee has failed to complete the trust be receiving the trust property • Walker v Linom

32. Mere Equities • Exception: Mere equities – personal right to a remedy – proprietary in nature but less than a full equitable interest • Examples: the right to have a document rectified, right to have a conveyance set aside because of the grantee’s fraud • Latec Investments Ltd v Hotel Terrigal Pty Limited: Terrigal had granted a mortgage to Latec. Latec exercised the power of sale of the mortgage and sold it to a wholly owned subsidiary, Southern – Southern granted a further equitable interest to MLC which had no notice of the Terrigal interest

33. Mere Equities • Terrigal argued that the sale was fraudulent – not at arm’s length – both Southern and Latec had conspired to sell at a low price • What was the priority between the interest held by Terrigal and the interest held by MLC? It was held that Terrigal had a bare right to sue and have the transaction set aside – a mere equity • A prior mere equity will not prevail over a later full-blown equitable interest that was taken without notice

34. Exception: tacking • Exception: tacking – tabula in naufragio – if a later equitable interest holder purchased for value and without notice and is later able to acquire the legal estate then the later interest holder can tack its equity onto the legal estate and jump priority • EG Mortgages – If Able grants a mortgage to Bette then an equitable mortgage to Clary and then another equitable mortgage to Donna – then the order of priority will normally be B, C, D – but if Donna can later buy the land off Bette then Donna equitable interest will be tacked to the legal estate and Clary will come in last

35. Prior legal interest v equitable interest • In cases where there has been no fraud on the part of the legal estate holder the prior legal estate prevails over the later equitable estate • Where the equities are equal the law prevails

36. Prior legal interest v equitable interest • Exceptions: • Where the legal interest holder was a party to the fraud that led to the equitable interest being created Northtern Counties v Whipp • Where the legal interest holder was grossly negligent in failing to inquire after or obtain possession of the title deeds Walker v Linom • Mere carelessness on the part of the holder of the legal interest is not enough to constitute postponing conduct: Evans v Bickell (1801) 31 ER 908, at 1005–6. ‘Gross negligence’ in the sense of a special degree of lack of care or prudence is needed for this exception to arise.

37. Prior legal interest v equitable interest • Exceptions: • Where the legal interest holder entrusted the title deeds to an agent with limited authority to raise money by using the property as a security interest, and that agent exceeds authority by borrowing more than was intended – legal interest is bound to the full extent. • Brocklesby v Temperence Permanent Building Society

38. Prior legal interest v equitable interest • Exceptions: • Where the legal holder hands over a title document which is used by a fraudster to create an equitable interest in another who takes on the faith of the document • Barry v Heider

39. Prior equitable interest v legal interest • Pilcher v Rawlins (1872) LR 7 Ch 259, at 268. The legal interest will prevail if it was acquired: 1. by a purchaser: • Anyone who acquire an interest for value (lessee, fee simple owner, mortgagee) 2 for value • Consideration in money – needs to be more than nominal amount but not market value 3 in good faith • Bona fide – no hint of conspiracy or unclean hands:Midland Bank Trust Co Ltd v Green [1981] AC 513, at 528

40. Prior equitable interest v legal interest 4. without notice of the prior equitable interest • Can be actual, constructive or imputed • Actual: knowledge of the actual facts – real knowledge • Constructive: knowledge that would have come into the person’s attention had they made reasonable inquiries eg case of land sold with a tenant in possession – purchaser should have checked the rights of the lessee - constructive notice • Must be able to find the interest – old system title allowed to go back 30 years • CAct s 164 • Imputed: at law you are regarded as having been notified eg where agent is notified by no principle

41. Prior equitable interest v legal interest The rule in Wilkes v Spooner [1911] 2 KB 473: Subsequent purchasers are in the same shoes as the legal estate holder even when the subsequent legal interest has notice or receives via gift: [I]n 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 the only customers for the land likely to pay the best price, have such notice.

42. Registration Systems • Problems with fraudulent transactions in the early colony • 1800 – order of Governor King that all agreements concerning land be in writing or entered into books kept at Sydney, Parramatta and Hawkesbury • 1802 – Judge Advocate’s office

43. Registration Systems • 1817- Gov Macquarie – Fraudulent against a bona fide purchaser for value • 1825 – Registration Act – substantially amended over time and then repealed in 1984 and sections transferred into the Conveyancing Act

44. Conveyancing Act and the Register of Deeds • Section 184C – general register of deeds • Open to public inspection – s 199 • Deliver original and copy to the Registrar – registered with a number – copy kept on file • Any instrument affecting land or not can be registered – not necessarily a “deed” as such

45. Conveyancing Act and the Register of Deeds Are there competing instruments? Are the documents expressed to be subject to each other? Is the instrument created or recorded on paper?

46. Requirements to have priority under s 184G • Valuable consideration: In Bullen v a’Beckett (1863) 15 ER 684, a conveyance for 10 shillings was held to be for nominal consideration and thus not entitled to the benefits of the legislation. • Part value of the property will suffice: Bassett v Nosworthy (1673) 23 ER 55 Reflects equity will not assist a volunteer

47. Requirements to have priority under s 184G • Good faith • Unconscionability, egCommercial bank of Australia v Amadio • The onus of proving good faith is upon the person asserting priority based upon registration of his or her instrument: Jones v Collins (1891) 12 LR (NSW) L 247

48. Requirements to have priority under s 184G • Without notice • Notice received before the execution of the instrument upon which priority by registration is based precludes priority based upon registration of that instrument: Scholes v Blunt (1917) 17 SR (NSW) 36. Notice received after execution of the instrument but before its registration does not preclude priority based upon registration of that instrument: Burrows v Crimp (1887) LR (NSW) L 198, at 210.

49. Requirements to have priority under s 184G • Without notice • Notice includes actual constructive and imputed notice • Hunt v Luck

50. Requirements to have priority under s 184G • Fraud in the document will not be cured by the registration of the instrument • Re Cooper