Week 4 Readings

Chpt 7 - Old system and priorities

Introduction
7.1
- priority disputes arise where there have been multiple dealings with a particular proprietary interest
- therefore, when A (owner of the fee simple in a parcel of land) enters into a specifically enforceable
contract to sell it to B, and
later enters into a similar contract to sell that same interest to C, both B + C can claim an interest over
the property
- impossible for both claims to be satisfied, therefore, there is a question as to which of them has the
prior right to enforce
settlement of their contract, and thus acquire possession and title to the land
- possible to have diff priority disputes, such as those between 2 legal interest holders, a legal interest
holder and an equitable
holder and so on
- these multiple dealings may be fraudulent, as in the case where a vendor seeks to acquire double
consideration, but they also
arise in situations where the vendor or transferor is quite innocent
- e.g. where proprietor of a fee simple estate which is subject to an earlier, but unknown, interest such
as an easement, purports
to transfer it free of that interest

7.2
- priority disputes over old system land are governed by 2 sets of principles:
i) rules of CL and equity
ii) statutory scheme of registration of the instruments that has led to the creation of particular interests
- statutory scheme operates as a gloss on the former, significantly changing the tests for priority
- more info but unsignificant

Common law and equity

7.3
Earlier legal interest VS later legal interest
- the basic principle that governs a competition between 2 legal interests is the nemo dat rule:
- no one can give what he/she does not have - nemo dat quod non habet
- thus, if A transfers the legal fee simple of Blackacre to B, and later purports to transfer the same
interest to C, B will get priority
- A, having transferred the legal estate to V, has nothing left to transfer to C
- in a sense, this is not really a priority dispute at all because C receives nothing and, therefore, has no
interest to form the basis of
a competition
- nonetheless, language of priority is used for the purposes of describing the basis of Cs claim
- notwithstanding the grant of the earlier legal interest, the holder of a later equitable interest can still
prevail

7.4
- another way in which the language of competition offers conceptual clarity in this area is in relation to
the contest between 2
legal interests where the later is not the same as the former, but greater
- in such cases, a later interest holder will only be defeated to the extent of the grant of the earlier
interest
- if A grants a legal interest to B, such as a 5 yr legal lease, and then grants the legal fee simple to C, C
is bound by the lease in
accordance with the nemo dat rule
- however, he/she will acquire a reversionary interest in the fee simple that will fall into possession at
the expiry of the lease
after 5 years
- same principle applies in respect to encumbrances
- so if A grants a perceptual legal easement over his property to his neighbour B, a later purported
transfer of the unencumbered
 legal fee simple of the property to C would be subject to the easement
- same rule applies in relation to legal interests acquired by adverse possession: any attempt to
overreach them in a later transfer
will be ineffective
- there is one exception to this general rule:
- if holder of the 1st legal interest has been guilty of some conduct that in equity would be considered
as justifying postponement,
such as gross negligence, then equity will prevent the earlier legal interest holder from retaining
priority - Walker v Linom 1907
- in this case, later interest would be considered equitable in the narrow sense that it required the
assistance of equity to afford
it priority; the legal estate, in accordance with the nemo dat rule, would remain in the earliest
interest holder

7.5
Earlier legal interest VS later equitable interest
- the basic rule that applies to a competition between a legal and an equitable interest is that where the
equities are equal, the
law prevails - Bailey v Barnes (1894)
- in this context, equality means the non-existence of any circumstance which affects the conduct of one
of the rival claimants,
and makes it less meritorious than that of the other - Bailey v Barnes (1894)
- if the legal interest has in fact been transferred, then how is it possible to create a later equitable
interest, any more than a later
legal interest, given that the grantor has already parted with his/her entire interest in the land?
- may be explained by the operation of equitable doctrine
- equity will intervene to prevent a legal owner from taking priority due to some inequitable conduct on
his/her part
- in this way, the later interest is equitable in so far as it is given force by equitable intervention
- thus, where the owner of a legal fee simple estate transferred legal title to trustees to hold on certain
trusts, and the trustees
were unaware that, when the deeds were advanced to them, one deed in the chain of title was
missing (namely, the deed
whereby the property had been conveyed to the settlor), and the trustees failed to make enquiries
about the missing deed,
they were postponed to a later equitable interest holder subsequently created by the settlor - Walker
v Linom (1907)
- reason for this rule is that the omission on the part of the trustees in failing to acquire all the deeds:
ought to be sufficient to postpone him [the trustee] to a subsequent equitable estate the
creation of which has only been
rendered possible by the possession of deeds, which but for such conduct would have passed into the
possession of the owner
of the legal estate - Walker v Linom (1907)

7.6
- later equitable interest will attain priority only if there is some conduct justifying the intervention of
equity
- relevant case law in this area can be divided into 3 basic categories:
1) cases where the mortgagee or purchaser, having obtained possession of the deeds, relinquished
possession of them
2) cases where the mortgagee or purchaser failed to obtain possession of the title deeds in the first
place; and
3) cases involving conduct which had the effect of postponing the earlier legal interest holder,
regardless of whether he/she took
possession of the title deeds in the first place
1)
- a legal mortgagee will lose priority where he/she lends the title deeds to the mortgagor to allow
him/her to raise money on
them, and the mortgagor then conceals the earlier interest - Briggs v Jones (1870)
- however, where the mortgagee gave the relevant title deeds to a mortgagor to assist a sale of the
property, and the mortgagor
subsequently sold the property while concealing the existence of the prior encumbrance, the legal
mortgagee retained priority
on the basis that the purchaser had independently discovered the existence of the earlier mortgage -
Martinez v Cooper (1826)
- mere negligence on the part of the legal interest holder in relation to the custody of title deeds will not
be enough to warrant
postponement to the title claimed by a third party
- where the mortgagor was also the manager of the mortgage company, and as manager had access to
the safe where the title
documents were stored, the mortgagee - whose conduct was even described as carelessness of a
gross nature - was not
postponed - Northern Countries of England Fire Insurance Co v Whipp (1884)

7.7
2)
- by contrast, where a legal interest holder such as a purchaser or mortgagee fails to obtain the title
deeds in the first place, gross
negligence on the part of the earlier mortgagee will result in postponement
- 2 separate classes
i) where purchaser or mortgagee has made no inquiry at all about the title deeds, this failure has been
held to justify
postponement on the basis of gross negligence - Walker v Linom (1907)
ii) where the legal interest holder has made inquiries as to the whereabouts of the deeds but has not
received a reasonable
excuse for non-production, the earlier legal interest will be postponed
- a claim that the relevant title deeds couldnt be produced because they also related to other property
has been held to be
unreasonable - Oliver v Hinton (1899)

7.8
- if the earlier mortgagee or purchaser has made inquiries as to the whereabouts of the deeds but has
received a reasonable
excuse as to their non-availability, he/she will not be postponed
- where the mortgagee was informed that the title deeds were in another jurisdiction where the
mortgaged property was actually
situated, this was held to be a reasonable excuse - as was the case where the mortgagor said to be the
first mortgagee that he
was too busy to produce the deeds immediately, but would do so later - Agra Bank v Berry (1874)
- this rule also applies where only some of the deeds are received
- in the case of an earlier legal mortgagee of 2 properties who was told that the deeds to both properties
were included in a large
bundle of documents which he received, whereas in fact the title deeds to one of the properties was
missing, the failure to
inquire further of the solicitor who handed over the deeds as to their exact contents or to physically
examine them at that time
didnt amount to gross negligence - Hunt v Elmes (1860)
- also, where the title deeds were left in the hands of a solicitor who acted both for the mortgagee and
for the owner, it was held
that this act was not gross negligence - Colyer v Finch (1856)

7.9
3)
- 3rd class of cases involves conduct which leads to postponement, irrespective of whether the earlier
legal interest holder has
 originally acquired the deeds
- there are 3 distinct situations:
i) if the former owner or mortgagor entrusts the title deeds to an agent who exceeds his/her
authority, the earlier legal interest
will be postponed, as in the case where the holder of the legal estate gave title deeds to his son for
the purposes of raising a
specified sum of money, and the son subsequently exceeded his authority by borrowing more
- Brocklesby v The Temperance Permanent Building Society (1895)
ii) holder of the earlier legal interest will be postponed if possession of title deeds is given to a person
for the purposes of
creating a particular interest, but he/she creates a diff interest
- in Perry-Henrick v Attwood (1857), when 2 prior joint-mortgagees allowed the mortgagor
possession of the deeds for the
purpose of giving priority to a particular charge, they were postponed when a diff, unauthorised
charge was given
- the basis of postponement in such a case is that the earlier legal interest holder has contributed
to the deception of the
later - Briggs v Jones (1870)
iii) in all cases where the legal interest holder, whether or not he/she originally received the deeds, is
party to some fraud by
means of which the later equitable interest holder is deceived as to the existence of the earlier
interest, the legal interest
will be postponed - Peter v Russel (1716)

7.10
Earlier equitable interest VS later legal interest
- in a contest between a later legal interest over land, and a prior, subsisting equitable interest, the
equitable interest will prevail
unless the later legal interest was acquired bona fide, for value and without notice of the equitable
interest
- Pilcher v Rawlins (1872)
- these elements are separate requirements so that each must be present for the later interest to prevail
- Meadow Springs Fairway Resort Pty Ltd v Balanced Security Pty Ltd (2008)
- purchaser in this position has an absolute, unqualified, unanswerable defence against the earlier
interest holder
- Pilcher v Rawlins (1872)
- follows that a person who hasnt given value will take subject to any equitable interest

7.11
Bona fide and for value
- purchaser must take both bona fide and for value
- requirement of being bona fide is a separate one, requiring the purchaser to act in good faith
- Midland Bank Trust Co Ltd v Green (1982)
- requirement for value means that the purchaser must provide either money or moneys worth, such as
other chattels, land,
shares or services
- basically, anything that counts as consideration in contract, such as satisfaction of an existing debt,
is value
- Thorndike v Hunt (1859); value also means marriage: Wormald v Maitland (1866)
- value doesnt need to be full value, market value (Basset v Nosworthy 1673), or even adequate, as
long as it isnt nominal
- the term purchaser isnt confined to an acquisition of the fee simple: it extends to all interests in land,
such as leases and
mortgages

7.12
The doctrine of notice
- notice of an earlier interest will have the effect of postponing a later purchaser of the legal estate
- Pilcher v Rawlins (1872)
- as long as the purchaser hasnt received notice at the time of payment of the consideration, he/she will
take free of the earlier
equitable interest
- there are 3 types of notice which qualify in this regard: actual, constructive, imputed - s 164 of CA

7.13
Actual notice
- defined as:
A purchaser shall not be prejudicially affected by notice of any instrument, fact or thing unless:
(A) it is within the purchasers own knowledge
- if purchaser knew of certain facts, he/she will have actual notice of them
- irrelevant how that knowledge was obtained - Lloyd v Banks (1868)
- however, a purchaser will not be held to have actual notice of facts which have come to light by vague
rumours
- Reeves v Pope (1914)

7.14
Constructive notice
- defined as:
A purchaser shall not be prejudicially affected by notice of any instrument, fact or thing unless:
(a) it would have come to the purchasers knowledge, if such .. inquiries, and inspections had been
made as ought reasonably
to have been made by the purchaser - s 164(1)(a) of the CA
- applies to 2 categories of activities:
- inspection of the land
- investigation of docs

7.15
Inspection of the land
- basic rule is:
possession of the tenant is notice that he has some interest in the land, and that a purchaser having
notice of that fact, is
bound, according to the ordinary rule, either to inquire what the interest is, or to give effect to it,
whatever it may be
- Barnhart v Greenshields (1853)
- term of the tenancy will be automatically binding on the purchaser by reason of the tenants occupation
- Taylor v Stibbert 1794
- interests which will bind the purchaser who fails to inquire include interests connected with the
tenancy, such as an option to
renew the tenancy - Taylor v Stibbert 1794 -; and collateral agreements, such as an option to
purchase - Daniels v Davison 1809
- this aspect of the doctrine of constructive notice is limited to the person in possession of the land
- doesnt extend to the case where a tenant in occupation is paying rent to a person not in occupation,
who happens to be the
owner of an equitable interest in the land
- purchaser is therefore not under an obligation to inquire as to the ultimate recipient of rental
payments of tenants in
possession - Hunt v Luck (1902)
- position is diff if the purchaser actually knew, or had reason to believe, that someone other than the
vendor was ultimately in
receipt of the rental payments - Hunt v Luck (1902)
- doctrine of notice has been extended by English courts to cover situation where purchaser acquired
title to a house which an
occupant was sharing with the vendor as beneficiary under a constructive trust of the land - Hodgson
v Marks (1971)
- notwithstanding the joint occupation with the vendor, the purchaser was held to have constructive
notice of her interest within
the rule that possession gives rise to notice - Barnhart v Greenshields (1853)
- wife of a sole mortgagor, in occupation of the property, could enforce her equitable interest against the
mortgagee on the basis
that the mortgagee had constructive notice of her rights
- this rule covers other members of the mortgagors family as well - Williams & Glyns Bank Ltd v
Boland (1981)

7.16
- doctrine was extended again to the case of intermittent occupation where the wife of the sole owner of
the legal estate lived
only occasionally at the property - Kingsnorth Trust Ltd v Tizard (1986)
- in this case, the later mortgagee was held to have constructive notice because of a number of factors
- presence of teenage children, inconsistencies in the mortgagors account of his marital status to diff
employees of the
mortgagee and carefully arranged inspections of the property, all combined to suggest that a
spouse with an interest might
be in occupation
- false statements, however plausible, made by the owner of the legal estate are no defence to
constructive notice
- Hodgson v Marks (1971)

7.17
- other circumstances where equitable interest holder isnt actually living on the premises, the later, legal
interest holder may be
held to have constructive notice on the basis of the former being in possession if the equitable interest
holder visits the property
with great frequency
- where husband and wife engaged builders to do substantial renovations, and so could not dwell at the
property, the banks later
legal charge was held to be subject to the wifes earlier equitable interest, because she regularly visited
the property to supervise
the building work, so that there was enough occupation to fix the bank with notice of her interest -
Lloyds Bank Plc v Rosset 1989
- where purchaser of the legal estate for value has been held to have constructive notice of an equitable
interest on the basis of
occupation include the clear and demonstrable use of a right of way - Jensen v Hawksley (1955);
easements to discharge sewage
through sewage lines if inspection points visible - State Transit Authority of NSW v Australian
Jockey Club (2003); and the rights
of a purchaser under an enforceable contract for the sale of land or an enforceable agreement to grant
a lease - Marsden v
Campbell (1897)
- however, where the person in occupation has rights which are vague and ill-defined, these will not
bind the purchaser
- Short v Gill (1892)

7.18
- in a competition between a mere enquiry held by a person in possession and a later equitable or legal
interest, the doctrine of
constructive notice continues to operate; but there are limits
- e.g. purchaser of a fee simple, subject to a lease, who was faced with a claim by the tenant for
rectification of the lease on the
grounds of mistake
- has been held that, while doctrine of notice would afford priority to any equitable interest held by any
person in possession of
land, including a tenant, no such priority would be retained by an equity in these circumstances
- equities of rectification may therefore bind the purchaser, for instance where the purchaser has actual
notice of them, or where
other factors point to their existence in such a way as to give rise to constructive notice - Latec
Investments Ltd v Hotel Terrigal
Pty Ltd (in liq) (1965)

7.19
Investigation of documents
- purchaser will also be fixed with notice of any instrument [if] it would have come to the purchasers
knowledge, if such
inquiries, and inspections had been made as ought reasonably to have been made by the purchaser -
s 164(1)(a) of CA
- this requirement of reasonableness has effect of limiting the CL rule that a purchaser had constructive
notice of all documents in
the chain of title - Carter v Carter (1857)
- in practice, and by convention, this would be a chain of 60 years
- this requirement is limited by legislation in 2 ways
1) purchaser may require, in the absence of express contractual provision, a good root of title of at
least 30 years old - s 53(1)
- thus, if title offered by vendor consists of a series of conveyances made 10, 25, 40 and 50 years
ago, the purchaser is entitled
to call for the production of the 40 yr old conveyance and each subsequent conveyance
2) purchaser is freed by the statute from constructive notice of equitable interests that he/she would
have been discovered if a
search had been conducted of title docs executed prior to this time - s 53(3)

7.20
- these protective provisions dont apply if
- the purchaser fails to investigate the title at all - Worthington v Morgan (1849)
- investigates for only part of the period,
- makes no objection or inquiry in relation to a doubtful transaction - Re Nisbet and Potts Contract
(1906)
- in such cases, he/she will be fixed with notice of everything that might have been discovered by such
an investigation
- as s 53(3) makes clear, this protection applies unless he/she actually makes such investigation or
inquiries
- follows that investigations beyond a good root of title which the purchaser actually conducts, and which
reveal equitable
interests, or which give rise to evidence so suggestive of an interest as to trigger constructive notice,
will be binding
- effect of statutory provisions restricting the notice doctrine is only to protect against the effects of the
doctrine of notice; they
offer no protection against interests which obtain their enforceability from principles other than notice
- e.g. earlier legal interests created by deed at any time, including those which originated well beyond a
good root of title at least
30 yrs old, and interests acquired by adverse possession, will be effective in accordance with the
nemo dat rule
- a purchaser who has notice of an outstanding equitable interest will remain affected by notice if he/she
accepts a forged
instrument which declares it no longer exists - Jared v Clements (1903)

7.21
Imputed Notice
- is a notice deemed to have affected the principal because it has been received by that persons agent
- s 164(1)(b) of CA:
a purchaser shall not be prejudicially affected by notice of any instrument, fact or thing, unless:
(b) in the same transaction with respect to which a question of notice to the purchaser arises, it has
come to the knowledge of
the purchasers counsel as such, or of the purchasers solicitor or other agent as such, or would
have come to the
knowledge of the purchasers solicitor or other agent as such, if such searches, inquiries, and
inspections had been made as
ought reasonably to have been made by the solicitor or other agent
- by this provision ,the agent is under precisely the same obligation as the principal and any default in
respect of these
responsibilities will bind the principal
- in cases where the same solicitor acts for both sides, notice will be generally imputed to both parties -
Dryden v Frost (1883)
- however, where solicitor receives notice of an interest in the course of his/her fraudulent behaviour, this
will not be imputed to
the principal - Schultz v Conwill Properties Pty Ltd (1969)
- for imputed notice to be made out, info must come to the notice of the agent in the course of the
agency; a principal was held
not to have imputed notice of a thing which was discovered by an agent at a funeral, outside the course
of his duties
- Societe Generale de Paris v Tramways Union Co Ltd (1884)

7.22
Successors in title
- where A conveys a legal estate to B, who takes without notice of an earlier equitable interest in the
land held by X, B will take
free of the interest
- if B later conveys legal estate to C, who does have notice of the earlier equitable interest of X, C will be
able to take advantage of
the immunity enjoyed by B
- thus, where lease subject to a restrictive covenant is assigned by B who has no notice of the covenant
and who in turn
transfers it to C, who does, C takes free - Wilkes v Spooner (1911)
- reason for this is that:
in justice to the owner of 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 of the
land likely to pay the best
price, have such notice - Wilkes v Spooner (1911)
- by parity of reasoning, same rule would apply to a subsequent transfer of an equitable interest in the
property by B
- one exception
- no one may benefit from his/her own wrong
- accordingly, trustee having disposed of trust property in breach of trust to a purchaser without notice
of the beneficiarys
interest, cannot subsequently be shielded behind the purchasers immunity if the trustee reacquires
the property
- he/she will continue to be bound by the terms of the interest
- effect of this rule is to restore the ultimate purchaser to his/her former status as trustee - Re
Stapleford Colliery Co (1880)

Earlier equitable interest vs later equitable interest

7.23
General
- where there are 2 equitable interests in competition, basic rule is that the earlier in time will prevail
- e.g. a transferee of an equitable estate in land, subject to an earlier restrictive covenant, being
equitable, will take subject to it
- Rogers v Hosegood (1900)
- principle is encapsulated in maxim qui prior est tempore potior est jure - whoever is first in time is in
the stronger position in law
- leading case of Rice v Rice, the earlier equitable interest holder had an unpaid vendors lien and a later
equitable mortgage, the
test is as follows:
as between persons having only equitable interests, if their equities are in all other respects equal,
priority of time gives the
better equity - Rice v Rice (1853)
- this formulation suggests that temporal priority is a rule of last resort
- another expression of the rule is that priority is determined by a general and flexible principle, in
respect to which the
overriding question is:
whose is the better equity, bearing in mind the conduct of the both parties, question of any
negligence on the part of the
prior claimant, the effect of any representation as raising an estoppel, and whether it can be said that
conduct of the prior
owner has enabled such a representation to be made - Heid v Reliance Finance Corp Pty Ltd
(1983)
- it is consistent where the equitable interest holder has failed to take possession of title deeds that
he/she is entitled to (in
instance, in the case of an equitable mortgage agreement providing for deposit), he/she will be
postponed to a later equitable
mortgagee with whom the mortgagor deposited the title deeds - Farrand v Yorkshire Banking Co
(1888)
- onus of establishing the default on the part of the earlier, equitable interest holder is on the second
interest holder where title
deeds have come into the hands of the latter - Allen v Knight (1846)
- mere fact that the title deeds have come into the possession of a 3 rd party will not be postponing in the
absence of negligence
- Allen v Knight (1846)

7.25
- doctrine of notice is generally irrelevant to the question of priority between competing equitable
interests - Rice v Rice (1853)
- however, may be relevant to deciding whether, in all the circumstances, the equities are equal
- in the case where an earlier interest holder has engaged in conduct which might otherwise have been
postponing - such as
entrusting his/her title docs to a solicitor acting for the purchaser, who can thereby represent to 3 rd
parties that he/she is the
unencumbered owner of the property - a subsequent, equitable interest holder cannot get priority if
he/she had notice of the
existence of that earlier interest - Abigail v Lapin (1934)
- in Moffett v Dillion (1999), notice of an earlier equitable mortgage by a later mortgagee guaranteed
the priority of the former

7.26
Beneficiaries under a trust
-