real property lecture 3: priorities in old system assoc prof cameron stewart

Real Property Real Property Lecture 3: Lecture 3:

Priorities in Old Priorities in Old SystemSystemAssoc Prof Cameron StewartAssoc Prof Cameron Stewart

What is old system title?What is old system title?

Title is a measure of ownershipTitle is a measure of ownership

Old system: the system prior to Old system: the system prior to Torrens system- 1% of land Torrens system- 1% of land holding in NSW and closing – holding in NSW and closing – sometime common law titlesometime common law title

ConveyancingConveyancing

Feoffment with livery of seisinFeoffment with livery of seisin Words spoken of intention to pass, Words spoken of intention to pass,

ceremony in public, door knob, lump ceremony in public, door knob, lump of earthof earth

Later Statute of Frauds – then in Later Statute of Frauds – then in Australia in the Conveyacning Act s Australia in the Conveyacning Act s 23B, S 23C s 23D23B, S 23C s 23D

Later the ceremony was abolished – Later the ceremony was abolished – deed of feoffment deed of feoffment

DeedsDeeds

Grants by deedGrants by deed Deed pollDeed poll Deed indentureDeed indenture

Collusive court action as a Collusive court action as a way of conveyancingway of conveyancing

Doe v Roe fictionsDoe v Roe fictions Collusive court actionsCollusive court actions Springing usesSpringing uses Conveyancing is very difficult!!!Conveyancing is very difficult!!!

Proving TitleProving Title

Title deeds: difficult to read, disgusting to Title deeds: difficult to read, disgusting to touch and impossible to understand: Lord touch and impossible to understand: Lord WestburyWestbury

Good root of title – an unbroken chain of Good root of title – an unbroken chain of ownership to the original Crown grant (post ownership to the original Crown grant (post 1788) – possible but difficult – in England 1788) – possible but difficult – in England impossible – the convention is an unbroken impossible – the convention is an unbroken chain of ownership of 30 years from present chain of ownership of 30 years from present contract for sale – was 60 years but amended contract for sale – was 60 years but amended under CAct s 53(1)under CAct s 53(1)

Proving titleProving title

Abstract of title – summary of title documents Abstract of title – summary of title documents – now common usage of chronology– now common usage of chronology

Security - no guarantee – if purchaser takes Security - no guarantee – if purchaser takes property subject to interest - mergerproperty subject to interest - merger

Covenants for title – s 78(1) CAct s 4 Covenants for title – s 78(1) CAct s 4 covenants –covenants –

Full power to conveyFull power to convey Quiet enjoymentQuiet enjoyment Freedom from encumbrancesFreedom from encumbrances Further assuranceFurther assurance

Priorities between competing Priorities between competing interests in Old systeminterests in Old system

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

Legal interest v legal Legal interest v legal interestinterest

When two or more legal interests in the When two or more legal interests in the land conflict the main principle is that a land conflict the main principle is that a person cannot convey an interest which person cannot convey an interest which he or she does not have (“nemo dat quod he or she does not have (“nemo dat quod non habet”)non habet”)

Partial eg where A leases to B – A then Partial eg where A leases to B – A then sells to C – C ‘s interest is taken subject sells to C – C ‘s interest is taken subject to the leaseto the lease

Wholly inconsistent – A sells to B and Wholly inconsistent – A sells to B and then sells to C: C receives nothingthen sells to C: C receives nothing

Equitable interest v Equitable interest v equitable interestequitable interest

General rule : the earlier interest General rule : the earlier interest has the better claim, if everyone has has the better claim, if everyone has acted in good conscienceacted in good conscience

NOTE: no nemo dat equivalent – NOTE: no nemo dat equivalent – equity is a court of conscience – equity is a court of conscience – many exceptions to the general many exceptions to the general principle – first in time principle is a principle – first in time principle is a last resortlast resort


Who has the best equity? Who has the best equity? Heid v Reliance Finance Corporation LtdHeid v Reliance Finance Corporation Ltd – the – the

better equity depends on the circumstances – better equity depends on the circumstances – look to the conduct of the partieslook to the conduct of the parties the question of negligence on the part of the the question of negligence on the part of the

prior claimantprior claimant the effect of any representations made by the the effect of any representations made by the

prior claimant which may give rise to an prior claimant which may give rise to an estoppelestoppel

did the conduct of the prior claimant enable did the conduct of the prior claimant enable such a representation to be made?such a representation to be made?


GenerallyGenerally: the earlier equitable interest : the earlier equitable interest may be postponed to the later interest may be postponed to the later interest where:where:

(a)(a) the conduct of the earlier interest the conduct of the earlier interest holder has led to the later interest holder has led to the later interest holderholder acquiring an interest; acquiring an interest;

(b)(b) in the mistaken belief that the prior in the mistaken belief that the prior interest did not existinterest did not exist

If the equities are equal then first in timeIf the equities are equal then first in time


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

Look to the equities: Look to the equities: Able has an equitable lien over the propertyAble has an equitable lien over the property Clary has an equitable mortgageClary has an equitable mortgage


Both the equities are security Both the equities are security interests – no real difference interests – no real difference between them – However Able’s between them – However Able’s negligent conduct in giving the title negligent conduct in giving the title deeds and signing the certificate deeds and signing the certificate means that it was his fault that Clary means that it was his fault that Clary took his interest without notice- took his interest without notice- Hence Clary’s interest is superiorHence Clary’s interest is superior

See See Rice v Rice Rice v Rice (1853) 61 ER 646(1853) 61 ER 646


Exception: Exception: in the case of land held in the case of land held under a trust the beneficiaries will under a trust the beneficiaries will not lose their priority because of not lose their priority because of negligent or fraudulent conduct by negligent or fraudulent conduct by the trusteethe trustee

Shropshire Union Railways and Shropshire Union Railways and Canal Company v The QueenCanal Company v The Queen


Exception doesn’t apply unless Exception doesn’t apply unless the trust is properly formed or in the trust is properly formed or in cases where the trustee has cases where the trustee has failed to complete the trust be failed to complete the trust be receiving the trust propertyreceiving the trust property

Walker v LinomWalker v Linom

Mere EquitiesMere Equities Exception: Exception: Mere equities – personal right Mere equities – personal right

to a remedy – proprietary in nature but less to a remedy – proprietary in nature but less than a full equitable interestthan a full equitable interest

Examples: the right to have a document Examples: the right to have a document rectified, right to have a conveyance set rectified, right to have a conveyance set aside because of the grantee’s fraudaside because of the grantee’s fraud

Latec Investments Ltd v Hotel Terrigal Pty Latec Investments Ltd v Hotel Terrigal Pty LimitedLimited: Terrigal had granted a mortgage : Terrigal had granted a mortgage to Latec. Latec exercised the power of sale to Latec. Latec exercised the power of sale of the mortgage and sold it to a wholly of the mortgage and sold it to a wholly owned subsidiary, Southern – Southern owned subsidiary, Southern – Southern granted a further equitable interest to MLC granted a further equitable interest to MLC which had no notice of the Terrigal interestwhich had no notice of the Terrigal interest

Mere EquitiesMere Equities

Terrigal argued that the sale was fraudulent – Terrigal argued that the sale was fraudulent – not at arm’s length – both Southern and Latec not at arm’s length – both Southern and Latec had conspired to sell at a low pricehad conspired to sell at a low price

What was the priority between the interest What was the priority between the interest held by Terrigal and the interest held by held by Terrigal and the interest held by MLC? It was held that Terrigal had a bare MLC? It was held that Terrigal had a bare right to sue and have the transaction set aside right to sue and have the transaction set aside – a mere equity– a mere equity

A prior mere equity will not prevail over a A prior mere equity will not prevail over a later full-blown equitable interest that was later full-blown equitable interest that was taken without noticetaken without notice

Exception: tackingException: tacking Exception: Exception: tacking – tabula in naufragio – if a tacking – tabula in naufragio – if a

later equitable interest holder purchased for later equitable interest holder purchased for value and without notice and is later able to value and without notice and is later able to acquire the legal estate then the later interest acquire the legal estate then the later interest holder can tack its equity onto the legal estate holder can tack its equity onto the legal estate and jump priorityand jump priority

EG Mortgages – If Able grants a mortgage to EG Mortgages – If Able grants a mortgage to Bette then an equitable mortgage to Clary and Bette then an equitable mortgage to Clary and then another equitable mortgage to Donna – then another equitable mortgage to Donna – then the order of priority will normally be B, then the order of priority will normally be B, C, D – but if Donna can later buy the land off C, D – but if Donna can later buy the land off Bette then Donna equitable interest will be Bette then Donna equitable interest will be tacked to the legal estate and Clary will come tacked to the legal estate and Clary will come in lastin last

Prior legal interest v equitable Prior legal interest v equitable interestinterest

In cases where there has been no In cases where there has been no fraud on the part of the legal estate fraud on the part of the legal estate holder the prior legal estate prevails holder the prior legal estate prevails over the later equitable estateover the later equitable estate

Where the equities are equal the law Where the equities are equal the law prevailsprevails


Exceptions:Exceptions: Where the legal interest holder was Where the legal interest holder was

a party to the fraud that led to the a party to the fraud that led to the equitable interest being created equitable interest being created Northtern Counties v WhippNorthtern Counties v Whipp

Where the legal interest holder was Where the legal interest holder was grossly negligent in failing to inquire grossly negligent in failing to inquire after or obtain possession of the title after or obtain possession of the title deeds deeds Walker v LinomWalker v Linom


Exceptions:Exceptions: Where the legal interest holder entrusted Where the legal interest holder entrusted

the title deeds to an agent with limited the title deeds to an agent with limited authority to raise money by using the authority to raise money by using the property as a security interest, and that property as a security interest, and that agent exceeds authority by borrowing agent exceeds authority by borrowing more than was intended – legal interest is more than was intended – legal interest is bound to the full extent.bound to the full extent.

Brocklesby v Temperence Permanent Brocklesby v Temperence Permanent Building SocietyBuilding Society


Exceptions:Exceptions: Where the legal holder hands over a Where the legal holder hands over a

title document which is used by a title document which is used by a fraudster to create an equitable fraudster to create an equitable interest in another who takes on the interest in another who takes on the faith of the documentfaith of the document

Barry v HeiderBarry v Heider

Prior equitable interest v legal Prior equitable interest v legal interestinterest

The legal interest will prevail if it was acquired:The legal interest will prevail if it was acquired:

1. 1. by a purchaserby a purchaser:: Anyone who acquire an interest for value Anyone who acquire an interest for value

(lessee, fee simple owner, mortgagee)(lessee, fee simple owner, mortgagee)

2 2 for valuefor value Consideration in money – needs to be more than Consideration in money – needs to be more than

nominal amount but not market valunominal amount but not market valu

3 3 in good faithin good faith Bona fide – no hint of conspiracy or unclean Bona fide – no hint of conspiracy or unclean

handshands


44. without notice of the prior equitable interest. without notice of the prior equitable interest Can be actual, constructive or imputedCan be actual, constructive or imputed Actual:Actual: knowledge of the actual facts – real knowledge of the actual facts – real

knowledgeknowledge Constructive:Constructive: knowledge that would have come knowledge that would have come

into the person’s attention had they made into the person’s attention had they made reasonable inquiries eg case of land sold with a reasonable inquiries eg case of land sold with a tenant in possession – purchaser should have tenant in possession – purchaser should have checked the rights of the lessee - constructive checked the rights of the lessee - constructive noticenotice

Must be able to find the interest – old system title Must be able to find the interest – old system title allowed to go back 30 yearsallowed to go back 30 years

CAct s 164 CAct s 164 Imputed:Imputed: at law you are regarded as having been at law you are regarded as having been

notified eg where agent is notified by no principlenotified eg where agent is notified by no principle


The rule in Wilkes v SpoonerThe rule in Wilkes v Spooner

Subsequent purchasers are in the Subsequent purchasers are in the same shoes as the legal estate same shoes as the legal estate holder even when the subsequent holder even when the subsequent legal interest has notice or legal interest has notice or receives via giftreceives via gift

Registration SystemsRegistration Systems

Problems with fraudulent transactions Problems with fraudulent transactions in the early colonyin the early colony

1800 – order of Governor King that all 1800 – order of Governor King that all agreements concerning land be in agreements concerning land be in writing or entered into books kept at writing or entered into books kept at Sydney, Parramatta and HawkesburySydney, Parramatta and Hawkesbury

1802 – Judge Advocate’s office1802 – Judge Advocate’s office

Registration SystemsRegistration Systems

1817- Gov Macquarie – Fraudulent 1817- Gov Macquarie – Fraudulent against a bona fide purchaser for against a bona fide purchaser for valuevalue

1825 – Registration Act – 1825 – Registration Act – substantially amended over time and substantially amended over time and then repealed in 1984 and sections then repealed in 1984 and sections transferred into the Conveyancing transferred into the Conveyancing Act Act

Conveyancing Act and the Conveyancing Act and the Register of DeedsRegister of Deeds

Section 184C – general register of deedsSection 184C – general register of deeds Open to public inspection – s 199Open to public inspection – s 199 Deliver original and copy to the Registrar – Deliver original and copy to the Registrar –

registered with a number – copy kept on registered with a number – copy kept on filefile

Any instrument affecting land or not can be Any instrument affecting land or not can be registered – not necessarily a “deed” as registered – not necessarily a “deed” as such such

Conveyancing Act and the Conveyancing Act and the Register of DeedsRegister of Deeds

The effect of registration?The effect of registration? (a)(a) Validity of the document – some Validity of the document – some

instruments must be registered to have legal instruments must be registered to have legal force eg short form of mortgage discharge, force eg short form of mortgage discharge, appointment of new trustee, powers of attorneyappointment of new trustee, powers of attorney

Registration for priority – s 184G – instruments Registration for priority – s 184G – instruments affecting land, executed bona fide and for affecting land, executed bona fide and for valuable consideration take priority over earlier valuable consideration take priority over earlier instruments instruments

Effect – earlier legal interest will be defeated by Effect – earlier legal interest will be defeated by later legal interest upon registration of later later legal interest upon registration of later interest and so on interest and so on

However it only affects priority – will not perfect However it only affects priority – will not perfect a fraudulent transaction, mistake or forgerya fraudulent transaction, mistake or forgery

Requirements to have Requirements to have priority under s 184Gpriority under s 184G

Valuable considerationValuable consideration

Must be some value provided for interest Must be some value provided for interest in instrument. Nominal not enough.in instrument. Nominal not enough.

Part value of the property will suffice: Part value of the property will suffice: Bassett v NosworthyBassett v Nosworthy

Bullen v A’BeckettBullen v A’Beckett

Reflects equity will not assist a volunteerReflects equity will not assist a volunteer


Good faithGood faith

Unconscionability, eg Unconscionability, eg Commercial Commercial bank of Australia v Amadiobank of Australia v Amadio


Without noticeWithout notice

Notice is timed at the date of th execution Notice is timed at the date of th execution of the instrument. If a purchaser gets a of the instrument. If a purchaser gets a legal interest and registers without ntoice legal interest and registers without ntoice they can even defeat a trustthey can even defeat a trust

Notice received after execution but before Notice received after execution but before registration does not prevent s 184G from registration does not prevent s 184G from giving priority: giving priority: Burrows v CrimpBurrows v Crimp

Pilcher v RawlinsPilcher v Rawlins


Without noticeWithout notice

Notice includes actual constructive Notice includes actual constructive and imputed noticeand imputed notice

Hunt v LuckHunt v Luck


Fraud in the document will not be Fraud in the document will not be cured by the registration of the cured by the registration of the instrumentinstrument

Re Cooper Re Cooper

ExampleExample Moonking Gee v TahosMoonking Gee v Tahos

Tahos sold to Gee by contract 13 Nov Tahos sold to Gee by contract 13 Nov 19581958

11 february Thas sold land again to 11 february Thas sold land again to Wun. Wun.

Sale to Wun completed 6 March 1959Sale to Wun completed 6 March 1959 12 March 1959 Gee found out and 12 March 1959 Gee found out and

registered his contractregistered his contract Wun registered 11 days laterWun registered 11 days later

ExampleExample

Moonking Gee v TahosMoonking Gee v Tahos

Gee sought specific performance of Gee sought specific performance of contractcontract

His registration conferred priorityHis registration conferred priority

Problems with the deed Problems with the deed registration systemregistration system

Improved level of knowledgeImproved level of knowledge Offered greater degree of protectionOffered greater degree of protection ButBut Did not grant a total security of interestDid not grant a total security of interest Purchasers took subject to unregistered interests Purchasers took subject to unregistered interests

which have not been documentedwhich have not been documented Purchasers take subject to unregistered Purchasers take subject to unregistered

instruments which they ought to have discoveredinstruments which they ought to have discovered Purchasers title is still dependant on the chain of Purchasers title is still dependant on the chain of

title and the risk that a prior interest may be title and the risk that a prior interest may be invalidated breaking the chain of title and invalidated breaking the chain of title and destroying the purchaser’s interestdestroying the purchaser’s interest

real property lecture 3: priorities in old system assoc prof cameron stewart

Documents

old system title

proving title title

measure of ownership

cact s

common law title slide

common law title old

deed of feoffment slide

lord westbury title