Legal and Equitable Interests
Legal Interest:
• Created by:
o Deed for old system title
o Registration for Torrens title
• Legal interests are traditionally recognised by common law courts
Equitable interest
• Creation:
o Generally requires writing
o Created by the need for an equitable remedy
• Equitable interests are traditionally recognised by courts of equity
o Equitable interest arises out of the need for a remedy
- See need for remedy then make up equitable interest
o Only trustees were recognised by the courts as owning land, not those for whom they held the land (Traditionally, in common law,
o Equitable interest developed as a means of protecting against a trustee selling the land to a third party
- Both trustee and buyer could be liable
- If buyer unaware that land being held in trust, he could keep the land
• Equitable relief can be precarious
o Doctrine of bona fide purchasor for value without notice evolved
- Purchaser takes on equitable obligations if notice?
Old System Creation
• To create legal interest
o Use a deed (s23B Conveyancing Act)
• To create equitable interest
o Need writing (s23C Conveyancing Act)
Torrens System Creation
• Register to create legal interest
Creation of Types of Legal Interest
Freehold
• Old System Title
o Deed: Section 23B(1) Conveyancing Act
• Torrens Title
o Registration of standard form transfer: Section41(1), 46 Real Property Act
Leasehold
• Requires certain term, exclusive possession etc as in summary
• Old system title
o Deed: Section 23B(1) Conveyancing Act
o Exception: Short term lease under 3 years not made by deed is an implied tenancy at will, cancellable with one month’s notice
- Section 23D(2) Conveyancing Act
• Torrens Title
o Over three years
- Registered in Approved form: Section 53 Real Property Act
o Under three years: If not registered, tenancy at will as above
Mortgage
• Old System Title
o Conveyance by deed (Section 23B(1)) with proviso for reconveyance if repaid by date
• Torrens Title
o Registered in approved form: Section 56 Real Property Act
Easement or Profit a Prendre
• Old system title – by deed
• Torrens Title - Registered
Creation of Equitable Interest
• Must be in writing and signed: Section 23C(1) Conveyancing Act
• Exceptions
o Resulting, implied or constructive trust
- Section 23C(2) Conveyancing Act
o Exception for oral leases under 3 years if at best rend
- Section 23D(2) Conveyancing Act
o Adverse Possession
- Section 23E(c) Conveyancing Act
o If Part Performance
- Section 23E(d) Conveyancing Act
Mere Equity
• Equity that is an interest in the land, binding on a third party who has notice
o Less than equitable interest in the land, which in turn are less than legal interest
• Eg:
o Right to have a document rectified or have transaction put to one side where it has been entered into by mistake, or procured by fraud
• Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265
o FACTS
- Hotel owned old property block of land, and borrowed from Latec in registered mortgage
- Hotel defaulted on mortgage
- Latec exercised right of sale, and sold land to S, a wholly owned subsidiary of Latec, which constituted to an improper exercise of the power of sale
- S gave an equitable mortgage to MLC (without any notice of rights), before Hotel brought proceedings against Latec
o HELD
- MLC had priority
- Hotel’s equitable interest came to an end when L exercised the power of sale
- Hotel only had mere equity – a right to go to a court to have the sale set aside
- MLC’s later equitable interest purchased for value and without notice of the more equity prevailed
Equitable Estate
• Estate which is enforceable on in a court of equity
o Beneficiary only has an equitable estate
Equitable interest not in trusts
• Equitable interests in land are not limited to interests under expressly created trusts
• Also includes:
o Constructive trusts
• Arise when to prevent inequitable or unfair dealing, equity declares one person a trustee for another
Trusts
• Same piece of land, division in interest
o Trustee possesses legal interest in land
o Beneficiary only has equitable interest
• In Common law, only the trustee has ownership rights
Mortgages and equity
• Common law only recognised the lender
o Once owner gives a legal mortgage, they are left with an equitable interest
• First legal mortgage is the only legal mortgage
o Any later mortgage is an equitable mortgage, as there can only be one legal mortgage (as once there is a legal mortgage, the owner only has an equitable interest)
• A mortgage by deposit of title, but without signed deed is an equitable mortgage
o Section 23C Conveyancing Act
• Agreement for mortgage is equitable mortgage
• Ineffectual legal mortgage is almost always equitable
Conveyances: Vendor and Purchaser for the Sale of Land
• When a vendor agrees to sell to a purchaser:
o Vendor maintains legal interest
o Purchaser has equitable interest
- Purchaser gets later legal interest in deed of conveyance
• If vendor sells to third party, and third party knows of previous arrangement, the third party takes on board that equitable interest
• If third party does not know of the previous arrangement, they do not take on board that equitable obligation
Liens
• Security interest but not giving right to possession
o Vendor lien
- Equitable interest when vendor conveys legal fee simple but hasn’t yet been paid by the purchaser
o Purchaser lien
- Equitable interest when paid full purchase price but not yet received conveyance of the legal interest in return
Wills
• Upon death, when probate granted (but before administration)
o Executor recognised by common law as the legal owner until land is administered
o Beneficiaries have equitable interest
• When will administered
o Beneficiaries acquire legal interest
Leases
• If lease granted by deed
o Legal interest
• If lease in writing, but not in form of deed
o Equitable interest
o If less than 3 years may be a legal interest (s23D(2) Conveyancing Act)
Easement over land
• Generally legal interest
• If created by deed
o Legal interest
• If not,
o Equitable interest
Restrictive Covenant
• (ie what you can and can not do on your land)
• Uniquely equitable
Bona fide purchaser for value without notice
• When purchaser purchased the interest for value with no knowledge (notice) of the beneficial interest
Equitable Maxims
• Those who seek equity must do equity
• Those who come to equity must come with clean hands
• Where the equities are equal the law prevails
• Equity assists those who are diligent, not the trady
• Equity is equality
• Equity looks to the intent, not the form
• Equity considers as done that which ought to be done
• Equity follows the law
• Equity will not assist a volunteer
• Equity acts in personam
• Equity imputes an intention to fulfil an obligation
• Equity will not suffer a wrong to be without a remedy