Approaches to competing interests
Three sets of rules:
• Competing legal interests
• Competing equitable interests
• Legal v equitable interests
Summary of priorities
1. Legal v Legal
• First in time
o Second interest can’t be legal if inconsistent with the first
2. Equitable v Equitable
• Look to merits
• First in time unless postponing conduct and no notice
o Ie look for postponing conduct.
o If there is, look to see if later interest had notice
3. Prior Equitable v Later Legal
• Later legal interest prevails IF
• Legal holder is:
- Bona fide purchaser (volunteer?)
- For Value
- Without notice
4. Prior Legal v Later Equitable
• Prior legal interest prevails UNLESS
o Postponing conduct by legal interest holder
- Fraud
- Gross Negligence
- Estoppel
o AND Later equitable interest holder has No notice?
Competing Legal Interests: First in Time wins
• When two or more legal interests in the one parcel of land are inconsistent with each other
• Note:
o Must use a deep to set up a legal interest (S23B Conveyancing Act)
- Exception where a legal leasehold interest may be created by parol if and only if it is: (Section 23D)
• at the best rent that can reasonably obtained without taking a fine
o look at benefits other than money, such as provision of services by tenant
• taking effect in possession
o cannot be lease commencing at future date
• for a term (including option to renew) not exceeding three years
Priority depends on date which the instruments creating the interests came into operation
o Date of execution
o In case of deed, when the deed is delivered
• Rule is nemo dat quod non habet
o A person cannot convey an interest which he or she does not have
• Example:
o If Owner (O) conveys fee simple to A and a week later to B
- B doesn’t get fee simple, as O conveyed his legal interest to A and has no legal interest left in order to convey it to B
o If owner gives legal lease to T and also conveys fee simple to B
- B’s rights are subject to the lease to T
- Ie T’s rights defeat Bs
o If O sells to B and then leases to L
- B’s rights prevail
Competing Equitable Interest: First in Time has stronger claim
• Where competing equitable interest in same parcel of land
Earlier interest has stronger claim than later: ‘qui prior est temper potior est jure’
• First in time maxim is a maxim of last resort rather than first resort
o Equity considers all the circumstances of the case to determine merits of parties
- Including nature of competing interest
- Matter of acquisition
- Conduct of parties
o First in time rule used only when the merits are in all respects equal, and no other sufficient ground exists for one interest over the other
• Rice v Rice
• Example:
o Owner gives equitable mortgage to T and then sells to P
- Mortgage to T prevails
No purchaser without notice doctrine for competing equitable interests
• Fact that later acquired equitable interest was purchased for value without notice of an earlier does not give later priority
• It is simply one of the circumstances to be taken into account
Exception where holder of earlier equitable interest was guilty of some act or omission which induced a belief in the later holder, at the time of acquiring later interest, that the earlier interest no longer existed
• Lapin v Abigail
A Beneficiary’s equitable interest under a trust is not postponed to a later equitable interest created by the trustees in breach of trust
• Shropshire Union v Railways and Canal Co v The Queen
This is because: Beneficiary is entitled to assume that trustees will not abuse their position to create interests inconsistent with that of the beneficiary
• Cory v Eyre
Beneficiary’s assumption is justified only where the trustees have possession on the title deeds
o If trustees neglect to obtain title deeds, and as a result equitable interests are created in favour of a third party, the beneficiary’s rights under the trust are no better than those of the trustee’s
- If the trustees legal estate is subject to the third party’s equitable interest, so too is the beneficiary’s equitable interest
• Walker v Linom
Competition between a mere equity and a later equitable interest:
o Equitable interest prevails if (and only if) acquired for value without notice of the mere equity
• Latec Investments Ltd v Hotel Terrigal Pty Ltd
o Ie competition between equitable interest arising from right to have transaction set aside and later normal equitable interest
- Later prevails through plea of purchaser of value
Principles regarding tacking of mortgages
• See mortgages section
• Rule against further advances
o Linked to mortgages – covered in that section
• Tabula doctrine –‘tabula in naufragio’
o Legal interest normally prevails over an equitable one
o If legal owner grants a legal mortgage and two equitable mortgages to others
- Suppose value of property will not cover the cost of the mortgages
• Usual order of repayments:
o Legal mortgagee, then first equitable mortgagee, then second equitable mortgagee
• Second equitable mortgagee can gain priority if they ‘tack’ their interest onto the legal mortgagee
o Done by buying (ie paying off) the legal mortgagee
o Equitable limitation on this practice
- You cannot prevail over an equitable interest that you knew at the time had precedence over yours
• Bailey v Barnes
- If the second equitable mortgagee knew of the existence of the rights of the first equitable mortgage at the time of tacking, their purported tacking is invalid
Earlier equitable vs Later Legal Interest
o Legal interest will prevail as long as acquired:
for value (reasonable price)
• more than nominal, but not necessarily full value
in good faith
without notice of the earlier equitable interest
o Ie New legal owner will take possession without that obligation
• Pilcher v Rawlins
SEE SECTION ON STATUTORY REGIMES FOR DISCUSSION OF THESE ELEMENTS
Onus on proving elements is on party claiming priority for the legal estate
• Re Nisbet and Pott Contract
Notice of equitable interest will vitiate legal interest’s dominance
The rule in Wiles v Spooner:
The priority enjoyed by a bona fide purchaser of the legal estate for value without notice extends to persons claiming through that purchaser, even persons who take with notice of the earlier equitable interest, or are mere volunteers.
• The rule in Wilkes v Spooner [1911] 2 KB 473
o Rationale
- ‘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 the only customers for the land likely to pay the best price, have such notice’
o FACTS
- A sells property to P for value without notice of B’s earlier equitable interest
- P sells to D who has notice of B’s interest
- B seeks to have interest given priority
o HELD
- D takes property free of Bs earlier equitable interest
Exception: where purchaser seeking the shelter is a trustee re-acquiring the property which he or she has disposed of in breach of trust to a purchaser without notice of trust, or is otherwise endeavouring to take advantage of his or her own fraud by reacquiring the property from someone to whom he or she sold it for value and without notice
• Re Stapleford Colliery Co
Three Kinds of Notice
1. Actual Notice
o Actual knowledge of the earlier equitable interest
o Notice is not actual unless its source is someone with an interest in the property
- A purchaser is not put on actual notice by rumours or statements from persons with no interest in the property
• Barnhart v Greenshields
Continued on page 2
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2. Constructive Notice
• Notice of things that would have come to your attention if you made the inquiries a prudent person in your position would have made
• ‘Objective’ Test
• A person who knows any person is occupying the property – whether or not a tenant, and whether or not the vendor is occupying the property – ought to enquire (of both the vendor and the occupant) what rights the occupant has in the property
A purchaser ought to seek out all occupants and users of the land and enquire of them (and of the vendor) what their rights are, on the pain of being fixed with notice of those rights
• Clyne v Lowe
• Sometimes called the rule in Hunt v Luck
Failure to seek out all occupants and users of land (as above Clyne) puts the purchaser on notice of the occupant’s rights, including rights to an equitable interest in the property
• William & Glyn’s Bank v Boland
Overt use of a right of way puts a purchaser of the servient land of constructive notice of the dominant owner’s rights to use the way
• Jensen v Hawksley
Applicable Statute Law regarding constructive notice:
• Purchaser (anyone who acquires an interest in a property for valuable consideration) is not affected prejudicially by notice of any instrument, fact or thing unless it is within the purchaser’s own knowledge, or would have come to the purchaser’s knowledge had the purchaser made searches, inquiries and inspections as he or she ought reasonably to have made
o Section 164 Conveyancing Act
• Purchaser is not affected with notice of matters that would be discoverable by an investigation into the title earlier than the good root of title at least 30 years old, unless the purchaser actually makes such an investigation
o Section 53(3) Conveyancing Act
3. Imputed Notice
• Notice that an agent has received for their principal
• Can be imputed to the principal regardless of whether the agent has actually passed it on
• Also applies whether the agent has actual or constructive knowledge
Imputed notice for any instrument, fact or thing is precluded unless, in the same transaction in which the question of notice arises, knowledge of the instrument, fact or thing has come to the agent or would have come to the agent if the agent had made such searches, inquiries and inspections as he or she ought reasonably to have made
• Section 164(1)(b) Conveyancing Act
Prior legal interest followed by equitable interest
Postponing Conduct
Legal interest prevails, except:
(i) If legal mortgagee committed fraud which led to the creation of the equitable interest, the equitable interest prevails
- Northern Counties of England Fire Insurance Co v Whipp
(ii) Where legal interest holder, although not fraudulent, was grossly negligent in failing to inquire after, obtain or retain possession of the title deeds to the land, thereby allowing another person to pose as the legal owner and create later interests in the land
- Walker v Linom
o Mere carelessness is not sufficient to postpone:
- Negligence must be gross
• Evans v Bicknall
- In the sense of being so culpable as to make it inequitable for the legal holder to rely upon the interest against an equitable interest that would not have been created but for the condict concerning the deeds
• Walker v Linom
(iii) If legal interest consents to later equitable interest prevailing
(iv) Where legal interest holder handed another person a document appearing to give that other a beneficial interest in the land an that other purported to create an equitable interest in favour of a third person, who relied on the document
• Walker v Linom
• Background to cases (Cases next page):
o Legal mortgage usually takes possession of title deed to protect themselves
o Under old system, title deeds often included documents going back many years
- Therefore, often included hundreds of pages of material
• Northern Counties of England Fire Insurance Co v Whipp (1884) 26 Ch D 482
o FACTS
- Company manager borrowed money from company by way of mortgage (Company becoming legal mortgagee)
- Company took title deeds and locked them in a safe
- Manager removes deeds and used them to raise money on another mortgage (Which can only be equitable)
- Equitable mortgagee claimed legal mortgagee was negligent, and therefore legal mortgage should not be honoured before the equitable one
o HELD
- Negligence and carelessness does not postpone the earlier legal mortgagee to the later equitable mortgagee
- Only gross negligence will suffice
• Company negligent but not grossly negligent
• Legal mortgagee not postponed
• Walker v Linom [1907] 2 Ch 104
o FACTS
- Person who had legal mortgage failed to get hold of all of the title deeds
- Owner used remnants to raise mortgage with third party
o HELD
- Earlier legal mortgage was postponed to later equitable mortgage
• Where legal mortgagee entrusted title deeds to agent with authority to raise small amount of money by giving a security intended to bind legal interest, if agent created a security for a larger sum with a person who had not notice of the limitation
o Legal interest bound by the interest created to its full extent
• Where legal mortgagee does not part with title deeds, but gives another person a document appearing to give that other person a beneficial interest in the land, or the right to acquire the legal interest, and that other person purported to create an equitable interest in favour of a third person, who took on the faith of the document
Statutory regimes on priorities
• Optional old register system after 1820s afforded priority for interests that were registered over interests that were not registered
o Overturns common law method of prioritising
o Now, first to register gets priority
- Under section 184G and applied in Goodwin v Fuller
Section 184G Conveyancing Act: The instrument registered first prevails subject to two requirements:
(i) For ‘valuable consideration’
• Consideration may be valuable despite being inadequate
- Gannon v Spinks
- Can even be grossly inadequate, as long as it is not so inadequate to be nominal only
o Nominal consideration is consideration that is:
- So low as to be manifestly illusory
• Bullen v a’Beckett
- Fictional in the sense of being declared by the instrument to be consideration but not in fact paid or payable
• Midland Bank Trust v Green
(ii) ‘Bona fide’ and without notice
o Bona fide means ‘in good faith’
- Which in Australian law is ‘without notice’
o Motives must not be fraud or deceit
o Connotes more than mere personal integrity or honesty
- Wilde v Spratt
o Not bona fide if person taking it had notice of the earlier interest over which priority is sought by registration
- For purposes of this section
o Notice may be actual, constructed or imputed
- Scholes v Blunt
o Eg purchaser who takes knowing that someone other than the vendor is in possession of the land, but fails to inquire into the possessor’s rights is fixed with notice of those rights, and cannot defeat them by registration
- Marsden v Campbell
o Mortgagee who takes knowing that some portion of the land has been contracted to be sold to a purchaser, but fails to inquire which portion, cannot by registration defeat the purchaser’s rights
- Sydney and Suburban Mutual Building v Lyons
o Notice received before an instrument is executed precludes the instrument from gaining priority by registration
- Jones v Collins
o Notice received after the instrument is executed but before it is registered does not preclude it from gaining priority by registration
- Scholes v Blunt (1916) 17 SR (NSW) 36
Relevant time of knowledge is at time of conveyance
• Scholes v Blunt (1916) 17 SR (NSW) 36
o FACTS
- Unregistered right of way
- Purchaser had no notice of the arrangement when he signed a contract which, not being a proprietary agreement, only constituted an equitable exchange
- At time of legal conveyance of fee simple he had notice
- Issue whether this would allow registration to apply
o HELD
- Did not allow registration, as at time of conveyance the purchaser knew of the interest
Limitations to the Conveyancing Act, Section 184G
Legislation only relevant when there are competing instruments
• It is possible for two registered (or even one registered and one non-registered) interests to stand together
Instruments do not mean ‘interests’
• You can have an interest without an interest
o Eg mortgage on title deed without a signed document
- Equitable interest
o Eg legal lease without an instrument that is less than 3 years old
- See section 23D of Conveyancing Act
• Only applies to interests embodied in, or evidenced by instruments
o Interest created without instrument is not defeated by the later registration of an instrument affecting the same land
- Ie legal instrument will not prevail over legal instrument as a consequence of registration
- Usual common law principles apply
Registration gives strict priority even to an equitable interest over a legal one
• Eg if Owner grants legal interest to A, then later to B, who grants interest to C
o If C is the first to register, he obtains the right over A
• Moonking Gee v Tahos [1963] SR (NSW) 935
o FACTS
- Tahos owned Old system titled property
- Sold to purchaser A and contract exchanged
- Tahos exchanged contracts to sell land with another purchaser
• Conveyance officially completed, but never registered
- First purchaser found out about situation and rushed off and registered contract
o HELD
- By registering the contract first, the equitable interest prevailed over the legal interest
- Second purchaser had to give up his legal interest
o NOTE: Under Torren’s system, registration confers priority but it also goes further to validate interests that are otherwise invalid
- Even a forgery van be cured by registration
- This could never happen under the old system