Week 5

Property Lectures:

Lecture 5:

Old System Title and Priorities

Transfer real and personal property.

How various interest in land stack up against each other. Different claims to the same property. First thing is to identify what sort of interest we’re dealing with, and how to prioritise competing claims. Sometimes you can have a conflicting interest.

Who will win dispute? Depend on nature of interests, whether in law or equity, and various other factors.

How can we create or transfer interest in law:

-        Using deed of conveyance, or deed or gift (if voluntary transfer).

-        Create a short-term lease in accordance with s28D (ii).

-        Create an interest through possessory title (adverse possession).

Creation of interest in equity:

-        Created more easily, and destroyed more easily.

-        Not as solid as a legal interest

-        Use of writing other than a deed (s24A and 23C of conveyancing act - coupled with action of SP)

-        Through doctrine of part performance (i.e. Leisa and Edwards, Tanwar).

-        Doctrine of equitable estoppel

-        Rule of Walsh and Lonsdale (application of rule in Leisa and Edwards - tenant held equitable lease that was never formalised)

-        Through declaration of trust or constructive trust.

Old system title - keep in mind that it has been superseded by Torrens title (despite some pockets where OST still applies).

Not talking about single piece of paper - title means a series of acts or events that establish a person’s ownership in land - present ownership in estate that includes right to possession.

Title to old system land may be:

-        Documentary - established by documents or;

-        Can be possessory (evidenced by possession).

-        Far less easy to establish or prove.

Documentary title:

Don’t be mislead that person holding certificate of title, necessarily has an unassailable claim to the title of the property. Title is represented by a series of transactions that lead the current owner to own the land he/she occupies. Documents don’t necessarily represent title itself, they just form the title deeds.

Relativity of title: Person that can show best claim to title of the land is the owner. May be documentary title or possessory title. Can have a look at the LPR website.

Under OS - only way to verify title is to trace back through history every transaction for a certain period of time. Have legislative limits that were introduced, but before that it was desirable to trace back transactions to original Crown grant. Reason is that the purchasers title is only as good as what the vendor had to transfer. Nemo Dat - no one gives what he doesn’t have. Have to trace back that the vendor is actually selling you property that they have title for.

E.g. if I’m purchasing OS land from you, I will have to investigate how you got that title, how that third party acquired that title. In Australia, 1788 - England, 1066. Over time as property changes hand, bundle of documents grows and grows, and gets passed on from Vendor to purchaser - how title is proven - through these particular documents. This bundle of documents evidences a person's title, and forms the chain of title. If you’re purchasing an interest in land, you would need to search these particular documents.

Have to be satisfied that each of those instruments in that bundle, achieved what they set out to achieve. If deed, has to be signed, sealed and delivered etc. Have to be sure that there are no broken links in the chain, and that no one else had an interest in the land (what else was created), and ensure that no other interest are involved in your title.

I.e. if someone had documentary title, and hadn’t had possessory title.

When we’re conveying property under the old system, the vendors representative prepares an abstract of title. Short description of all those links in the chain. I.e. sets out the salient features of those documents. I.e:

-        Names

-        Dates

-        Wills

-        Dates of death etc. etc.

-        Words of conveyance - have to be careful (to create a fee simple, the words ‘and his heirs’ or ‘the heirs of his body’ had to be used in the deed of conveyance, or else the title could be subject to a life interest.

-        Had to be proved to be a heritable title.

Change of title shown by abstract must be actually represented in documents handed over.

What the different transactions could actually occur.

 Whole process is fraught with difficulty - least of all documents are missing, there are fraud, or something that hasn’t been documented etc.

Roth v Tyler (1974): Judge said ‘In the case of land under the old system, there are often many title deeds going back many years. So many are in fact so old, that they are difficult to read, disgusting to touch and impossible to understand’.

If we contrast that with Torrens title, there is only one source of title you need to do, and that is the register -  folio of the register. S 53 (i) of the Conveyancing Act 1919 - a vendor need only provide documents that have a starting point of a good root of title, that is at least 30 years old. 30 year period from the date of the contract, in the interest of the land that is being acquired. Then it is sufficient to reassure the purchaser, that there is unlikely that any other person would have a claim to the land. Any other claim would be statute barred - there would be a statute of limitations on it.

Good Root of Title:

Gateway Developments Pty Ltd v Grech (1970) 71 SR (NSW) 161 at 168, is:

‘An instrument of disposition dealing with or proving on the face of it (without the aid of extrinsic evidence) the ownership of the whole legal and equitable estate in the property sold, containing a description by which the property can be identified, and showing nothing to cast any doubt on the title of the disposing party.’

Instrument of disposition can be:

-        A conveyance of the whole land for value.

-        First mortgage on the land.

-        Possibly a sale by mortgagee exercising a power of sale - mortgages and mortgages under OSL.

Important to remember s 53 requires good root of title of at least 30 years. Even with introduction of s53, whole problem of this requirement was that chain of title was only as good as its weakest link. Always possibility of fraud, error, so even after most exacting searches that could be performed - there still may be a defect in the title that’s not discoverable by search. May have been a party that lacked capacity, or undue influence - something that vitiates that particular transaction. Or will of probate was not included in chain. None of these circumstances on the face of documents, which may result in a priority dispute.

Rule of priorities:

-        Resolve disputes against parties that have competing interests in the same property.

-        Under this system, even if we try hard to have abstract of documents, chain of title, good root of title - still may have competing claims.

These priority disputes arise when there is an attempt to sell the property. Not enough money to satisfy all the particular claims.

Priority disputes can occur when there is a rogue - someone done something wrong and done something where there is two innocent people disputing property - and someone will lose out, despite the fact that they may not have done anything wrong. Can be actions against rogue, usually can’t be found, and when they are - they’re usually bankrupt.

There’s no inherent logic in how these disputes are resolved, as property is unique - law needs to make decision as to who has better claim, and who will get property, who will get monetary compensation, or get nothing at all. Often a choice between two innocent parties.

There are 5 things you need to ask in a priority dispute:

1.     What type of land title is it? (i.e OS or Torrens?) - from facts of the case, but it is critical to know as you need to know whether it is OS or Torrens.

2.     What type of interest does each party have? - i.e. equitable or legal interest - work out by how interest was created (i.e. fee simple, declaration of trust). OS - interest in land is created or transferred by deed, except in short term tenancy (3 year term). Lots of ways that an equitable interest can arise.

3.     When that interest that was created?  The date of its creation, or transferred. OSL - inter vivos transaction (during life), it’s the date of the deed or agreement. If case case of standard contract for SoL - it will be date of the exchange, give rise to equitable interest. Settlement gives rise to legal interest. I.e. Will, it will be date of the death of the testatur.

4.     If any of the parties are guilty of fraud, negligence or carelessness. What was their conduct, what did they do? Will that have an effect on who gets priority in any particular dispute.

5.     Relevant priority rules at law: established by law.

All transactions in land can create different and competing interests in property. When we’re looking at different priority disputes, we can have a dispute between competing legal interests (i.e. legal v legal), or prior legal interest and subsequent equitable interest, or prior equitable interest competing with a later legal interest, and lastly competing equitable interests.

Priority disputes (rules) are applied to resolve these particular disputes, depending on which one of these 4 contexts arises:

●      Legal v Legal

●      Legal v Equitable

●      Equitable v Legal

●      Equitable v Equitable

Competing legal interests:

If I have title in OSL and I convey it to you, and then I then execute another conveyance to another person of the same interest. Pre-pexer. Done fraudulently.

Rule in context, is that between competing legal interest, priority is given to first legal interest created. Second one has no effect. Application of the Nemo-Dat rule. If I convey property to you, I have nothing to convey to another person. I can’t give what I haven’t got

Interests are totally inconsistent, there’s no way they can stand together. Some can be inconsistent, i.e. owner of land leased and then conveyanced to fee simple - possible that those interests can stand together.

Exception to the rule:

Where the holder to the prior legal estate, has been guilty of conduct which directly lead to the creation of the later interest - i.e. gross negligence.

This has been effected by registration system, both OS and TT.

Legal v Legal - Operation of the Nemo Dat rule, unless there is an exception.

Competing prior legal interests v a subsequent equitable interest:

General rule: holder of the earlier interest, will have priority. Basis of the maxim where equity is equal, the law prevails. I.e. prior legal will prevail.

Exceptions:

1.     A legal mortgagee (OST) i.e. lender, will lose priority when he or she loses title deeds to the mortgagor to allow them to raise money on the property. We need explanation - as mortgages are different in OST than they are under TT.

Mortgage: interest in property that secures obligation, that can be discharged by the performance of that obligation. I.e. bank lends money for house, and has interest in house. Once money is repaid, the interest is discharged.

Reason why example: mortgagee loses priority - rests on basis that OST - mortgagor borrowed money from mortgagee, and legal title was transferred. That does not happen now. Interest that borrower had, was equitable interest - equity of redemption, where legal interest would be transferred back to them once the mortgage was repaid.

Second mortgage on property, could never be a legal mortgage - had to be an equitable mortgage. Right to have property discharged back to you, would instead go to second mortgagee. Legal mortgagee, they would lose priority - due to conduct.

Competing prior equitable v a later legal interest:

Equitable interest in a property is good against the whole world, except for one person - bona fide purchaser of legal estate for value without notice (BFP).

Difference between equitable interest and legal interest. BFP will always defeat the equitable interest, if they have notice of that interest.

BFP is sometimes termed as equity’s darling.

Purchaser - doesn’t have to include actual purchase, can be taking a lease etc. Has to be made for value, and it has to be made without notice of the earlier equitable interest. Onus is on person claiming legal estate to say that they are the BFP.

1872 case - Purchasers plea…

Valuable consideration: money or money’s worth, does not have to be full market value, but has to be more than nominal consideration. Also means that volunteers are not protected. Equity will not assist a volunteer.

Have to be bona fide - have to show good faith, can’t have acted unconscionably in acquiring the legal interest. Lack of good faith can be established by acquiring the legal estate by notice. May have been involved in illegal enterprise - will not be bona fide.

Equity won’t uphold that, acts on conscience. Act of acquiring legal interest acquires it without notice is most important rule.

Notice: Baden’s case - has a list of 5 situations that you could talk about, knowledge of particular situation occurring. Notice of the earlier interest, will have the effect of postponing a later purchaser of the legal estate. P 7 12 of textbook. And postponing the legal interest.

S 164 of Conveyancing Act. Actual notice is one category (actual knowledge of existence of earlier equitable interest). Seen something, document etc. and have notice of that earlier equitable interest.

Constructive notice: knowledge of the existence of the earlier EI that would have come to the person’s knowledge if they had made enquiries, that the reasonable purchaser would have made. Constructive notice of that equitable interest. Reasonable for a purchaser to have made the enquiries. - more relevant in inspection of title details, inspection of documents of title. Later legal interest will not take priority over a prior equitable interest.

Context of old system land - search of chain of title that goes back 30 years, or any physical inspection of the land. Inspection of land - basic rule: p 7 15 - case of Barnhart v Greenshield, and Hunt v Luck: possession of the tenant is notice that he has some interest in the land, and that a P having notice is bound according to the ordinary rule either to enquire what the interest is, or give effect to it whatever it may be.

Notice that an agent of the purchaser received or should’ve received: notice they have is imputed to you. Bound by s 164 1b of the Conveyancing Act 1919 - imputed notice only extends to knowledge of agent that is acquired over the course of the agency. If the agent has notice that the party has any fraud, then that notice is not imputed to the P.

721 of textbook - s 164 of Conveyancing Act 1919.

Rule in Wilkes v Spooner - possible for a subsequent purchaser to hide behind the first purchaser’s lack of notice of a prior equitable interest.

Read this case.

Exceptions to the exception to the BFP rule:

-        Trustee of property. If they then sell in breach of trust to a BFP, without notice that it is a trust (EI of beneficiary), then the trustee was to repurchase the property - they can’t hide behind the lack of notice of the purchase, because they were the trustee. EI under trust is a special type of EI.

Summary:

The holder of the LI without notice of the EI, extends to a person who takes the LI with notice of the prior EI, except where the LI is held on trust, and the sale is in breach of trust - or where the person acquires the property by fraud.

Competing EI:

-        Apply both to OST and TT.

Generally when you have two EI, the first in time has a better claim. That tends to be a rule of last resort - will weigh up who has the better equity. This is taken from professor Butt - Land Law - Indeed the first in time principle, is seen to be a principle of last resort rather than first resort. By this is meant that E considers all circumstances of the case, including the nature of the competing interests, the manner of their acquisition, the whole conduct of the parties to determine the respective merit of the parties, and then falls back on the first in time principle where in all respects the merits of the equities are equal, and there are no grounds for preferring one interest over the other.

Equitable jurisdiction - entire circumstance of equitable title. Based on conscience and it is discretionary.

Rice v Rice: as persons having only EI, if their E in all other respects equal, then priority of time gives the better equity. If they are equal in all other respects.

How do we determine what is the better equity?

1.     Nature and condition of respective EI.

2.     Circumstances and manner of acquisition of those interest.

3.     Conduct of the parties.

Major focus is going to be on the conduct of the holder of the first EI.

If the equity is equal, then they will prevail. In the absence of any conduct by the holder of this first EI, warranting any postponement. Absence of any postponing conduct, first owner in time will get priority.

What leads to postponement:

-        Negligence.

-        Things that give rise to Estoppel.

-        Not taking care of any documents that created the right in the first place.

-        Taking too long to bring an action to protect the right in equity. (i.e. maxim) or (taking years to complain about cupcake)

-        Making misleading statements - i.e. there are cupcakes in the fridge.

-        Misleading second person that you no longer have an interest.

-        Not lodging a caveat - lodge to state interest in property (TT) - i.e. this is mine!

Holder of first right may not have taken appropriate steps to safeguard it. Have been negligent, or made an act or omission that has led to contributed to the belief on the part of the later equitable interest holder, that the interest didn’t exit - similar to Estoppel.

I.e. person leaves cupcake in the fridge, and someone comes along and eat the cupcake. And first person says that it was their cupcake, the person who ate it could say ‘why didn’t you put your name on it?’  - I couldn’t say go buy me another cupcake, because that was mine and you used it. Conduct, my interest was second but because of your behaviour, I get priority.

Notice is very important. If they do have notice (actual or constructive), they can’t take priority. They are the cause of their own misfortune.

Mentech resources (2012): it’s not only actual notice that will disentitle the later EI holder, it also encompasses that concept of constructive notice. Knowledge of the circumstances which would put an honest and reasonable man on enquiry.

Baiden case.

Anyone would know to ask (cupcake example) - should have actually asked.

Many of the postponing cases involve TT. After identified what interest are, decided competition between 2 or more EI, go through these 3 steps:

1.     Conduct of person with first EI.

2.     Mislead someone that there was no further interest.

3.     If the holder of the first interest has committed some act or omission that has had this effect, then look at conduct of second holder of EI. If they had notice, it would be hard to argue that they had the better EI.

If they are quite equal - first in time prevails.

Exception:

-        Beneficiary under a trust. Holder of first EI is B under a T, the better equity rule is applied differently. The B’s interest is not postponed because of the Trustee’s abuse of his or her position, they being the LI holder.

Registration of OS instruments:

-        Was system of registration.

-        Because mechanics of OS were so cumbersome, state intervened and regulated it.

-        Just registration of OS.

-        S 184D of Conveyancing Act.

-        Allows of registration of any instrument, whether or not it affects land.

-        Wasn’t particularly rigorous system - s 184 in textbook: is that instruments affecting land take effect according to their date of registration - not according to dates of creation.

Few important matter concerning s 184G (only for OS):

-        For I holder to get priority by registering his or her instrument, the I must have been acquired for valuable consideration and in good faith.

-        Volunteers are not protected by registration in the priority dispute.

-        They can only get some measure of protection because if they register their I then they’ll have notice there.

-        In cases where a 184G applies - it doesn’t matter when I were created, it matters who registered their instrument first. That will have an effect.

-        Registration won’t cure any defect in a document i.e. a forged document, but it does overcome and affect the Nemo-Dat rule.

So unfortunately these provisions did not cure all the difficulties and uncertainties of OST of land. This was because what was registered was the deed itself, and not the title or I of the property. Couldn’t correct any efficiencies in the deed (i.e. when void [lack of capacity etc,]).

There are many I in L created without instruments. I.e. possessory interest, I through adverse possession, or through verbal agreement (supported by PP) created through deposit of title deeds. Because of this failure of OS, that Torrens system was introduced.

Torrens System:

-        Most common form of land holding in Australia. Almost all residential lots are held under this form of title.

-        Introduced into SA, and introduced in NSW by Real Property Act of 1862.

-        Introduced by Sir Richard Robert Torrens - Article (Rosalind Croucher - Inspired Law Reform or Quick Fix).

Was introduced because the OS was complex and congress in its nature, expensive in its working, uncertain and perplexing in its issues, and unsuited to the requirements of this community in Australia.