Real Property Lecture 3: Priorities in Old System

1. Real Property Lecture 3: Priorities in Old System Assoc Prof Cameron Stewart

2. 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 – sometime common law title

3. Conveyancing • Feoffment with livery of seisin • Words spoken of intention to pass, ceremony in public, door knob, lump of earth • Later Statute of Frauds – then in Australia in the Conveyacning Act s 23B, S 23C s 23D • Later the ceremony was abolished – deed of feoffment

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

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

6. 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)

7. 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

8. 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

9. 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

10. Equitable interest v equitable interest • General rule : the earlier interest has the better claim, if everyone has acted in good conscience • NOTE: no nemo dat equivalent – equity is a court of conscience – many exceptions to the general principle – first in time principle is a last resort

11. 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?

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. Prior equitable interest v legal interest • 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 valu 3 in good faith • Bona fide – no hint of conspiracy or unclean hands

25. 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

26. Prior equitable interest v legal interest The rule in Wilkes v Spooner Subsequent purchasers are in the same shoes as the legal estate holder even when the subsequent legal interest has notice or receives via gift

27. 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

28. 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

29. 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

30. Conveyancing Act and the Register of Deeds The effect of registration? • (a) Validity of the document – some instruments must be registered to have legal force eg short form of mortgage discharge, appointment of new trustee, powers of attorney • Registration for priority – s 184G – instruments affecting land, executed bona fide and for valuable consideration take priority over earlier instruments • Effect – earlier legal interest will be defeated by later legal interest upon registration of later interest and so on • However it only affects priority – will not perfect a fraudulent transaction, mistake or forgery

31. Requirements to have priority under s 184G • Valuable consideration Must be some value provided for interest in instrument. Nominal not enough. Part value of the property will suffice: Bassett v Nosworthy Bullen v A’Beckett Reflects equity will not assist a volunteer

32. Requirements to have priority under s 184G • Good faith • Unconscionability, eg Commercial bank of Australia v Amadio

33. Requirements to have priority under s 184G • Without notice • Notice is timed at the date of th execution of the instrument. If a purchaser gets a legal interest and registers without ntoice they can even defeat a trust • Notice received after execution but before registration does not prevent s 184G from giving priority: Burrows v Crimp • Pilcher v Rawlins

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

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

36. Example • Moonking Gee v Tahos • Tahos sold to Gee by contract 13 Nov 1958 • 11 february Thas sold land again to Wun. • Sale to Wun completed 6 March 1959 • 12 March 1959 Gee found out and registered his contract • Wun registered 11 days later

37. Example • Moonking Gee v Tahos • Gee sought specific performance of contract • His registration conferred priority

38. Problems with the deed registration system • Improved level of knowledge • Offered greater degree of protection • But • Did not grant a total security of interest • Purchasers took subject to unregistered interests which have not been documented • Purchasers take subject to unregistered instruments which they ought to have discovered • Purchasers title is still dependant on the chain of title and the risk that a prior interest may be invalidated breaking the chain of title and destroying the purchaser’s interest