Worksheet VII Enforceability Priorities between interests PDF

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tutorial and lecture material to assist with the exam and understanding of the lecture materials with references to cases...

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2021 Property - LAWS4104 Worksheet VII Enforceability – Priorities between interests Introduction Sometimes different people may claim interests in the same land which are inconsistent. This inconsistency of interests is termed a “Priority Dispute”. The inconsistency may be total or partial. Total inconsistency is where the existence of one interest is wholly inconsistent with the existence of the other. Partial inconsistency is where each interest may exist at the same time but one interest is subject to the other interest.

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 The steps to resolve a priority dispute are: 1. Identify the nature and time of creation of the conflicting interests. 2. (a) State the priority dispute (indicate the relative times of the creation of the interests e.g. prior equitable interest vs subsequent legal interest); (b) State the applicable rule; (c) Apply the rule to the facts. 3. Conclude.

A. Prior Legal Interest v Subsequent Legal Interest Priority will be accorded to the interest created first in time. The general common law principle is: “Nemo dat quod non habet” – you can’t give what you don’t have. Consider the following examples. In each case consider:   

Whether there is a total or partial inconsistency? Who would have priority? What does this mean for the different claimants, X and Y?

Example One: I sell my house to X by Deed of Conveyance. The same afternoon I sell the house to Y by Deed of Conveyance. Example Two: I grant a legal lease over my house to X for 3 years and then I sell my house to Y who becomes the legal fee simple owner. (Question: How would Y become the legal fee simple owner?) There are exceptions to this general position. These exceptions are the same as those applied to upset the priority that a prior legal interest has over a subsequent equitable interest and are discussed below

B. Prior Legal Interest vs Subsequent Equitable Interest The general position is that the prior legal interest prevails against the subsequent equitable interest. However, there are exceptions. Exceptions:

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(a) The legal title holder creates the later equitable interest. (b) The legal title holder fraudulently connives at the creation of the equitable interest. (c) The legal title holder fails to get in the title deeds from the party conveying to him/her thereby enabling the former title holder to appear to be the legal owner and able to create equitable interests. See Northern Counties Fire Insurance v Whipp, Walker v Linom. (d) The legal owner has given authority to another to deal with the property and that authority has been exceeded. See Perry Herrick v Attwood. (e) Are there other exceptions? See Whipps Case and Walker v Linom

A short note on the nature of the general law mortgage. A mortgage is usually granted by the owner of land to secure the repayment of a debt that the owner owes to a creditor. The debtor who grants the mortgage is called the mortgagor and the creditor is called the mortgagee. The general law mortgage operates as a conveyance of the legal fee simple estate from the mortgagor to the mortgagee (who becomes the legal fee simple owner) coupled with a promise by the mortgagee to reconvey the estate to the mortgagor on payment in full of the mortgage debt. Usually there is an express term in the mortgage entitling the mortgagor to remain in possession. In what circumstance do you consider the mortgagee would have a right to possession? For the duration of the mortgage the mortgagor has a full equitable interest in the property (not a mere equity) called the equity of redemption. A mortgagor may grant subsequent mortgages over the land. What would be the nature of the subsequent mortgages? The prudent mortgagee of general law land should obtain from the mortgagor not just the Deed of Mortgage conveying the fee simple to him/her, but also all other title deeds and documents that make up the mortgagor’s chain of title. Why?

Northern Counties Fire Insurance v Whipp What was the argument raised by NCFI? What was the argument raised by Mrs Whipp? ISSUE: what kind of conduct will be necessary to postpone a legal interest to that of a subsequent equitable interest? Fry LJ indicated there were 2 categories of cases to answer this question – (1) those where the legal mortgagee did not obtain possession of the title deeds; and (2) those where the legal mortgagee obtained the deeds but either gave up the deeds or did not retain them. Fry LJ summarised the case law regarding the 2 categories. First, where the legal mortgagee has not obtained the title deeds:

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(i) (ii) (iii) (iv)

where the legal mortgagee has made no enquiry for the deeds - legal mortgagee is postponed; where the legal mortgagee has made enquiries for the deeds and received a reasonable excuse for their non delivery - no loss of priority for the legal mortgagee; where the legal mortgagee has received part of the deeds under a reasonable belief he was receiving all the deeds - no loss of priority for the legal mortgagee; where the legal mortgagee has left the deeds in the hands of the mortgagor with the authority to deal with them for the purpose of raising money on the security of the estate, and the mortgagor has exceeded this authority - legal mortgagee is postponed. See Perry Herrick v Attwood.

Second, where the legal mortgagee having first obtained the deeds has not retained them: (i)

(ii)

where the legal mortgagee has lent the deeds to the mortgagor upon a reasonable representation made by him as to the object in borrowing them - no loss of priority for legal mortgagee; where the legal mortgagee has returned the deeds to the mortgagor for the purpose of raising money - legal mortgagee is postponed. (This is the same in principle as Perry Herrick v Attwood).

Fry LJ concluded that the court will postpone the prior legal estate to a subsequent equitable estate in 2 circumstances, corresponding to our categories (ii) and (iv) above. Fry LJ said that the court will not postpone the prior legal estate on the ground of any mere carelessness or want of prudence on the part of the legal owner. Fry LJ then applied the law to the facts. What was his conclusion?

Walker v Linom Note: Linom, the third party purchaser, in one sense had no interest at all in the property. Why was this? Nevertheless, the court treated Linom as having an equitable interest. The court considered first the position between Linom and Mrs Walker’s trustees. What was the nature of that priority dispute? The court considered Fry LJ’s judgment in Whipp’s Case and particularly Fry LJ’s conclusion that in order for a prior legal interest to be postponed to a subsequent equitable interest there must be fraud, as apart from negligence, on the part of the legal interest holder. Does Parker J agree with this? In Parker J’s view, what conduct will justify a prior legal interest holder’s position being postponed to a subsequent equitable interest? What conclusion did Parker J reach regarding the priority dispute between Linom and the trustees? The court next considered the priority dispute between Mrs Walker and Linom. What was the nature of this priority dispute? What was Parker J’s conclusion?

C. Prior Equitable Interest vs Subsequent Legal Interest The rule is that the bona fide purchaser for value of the legal estate without notice of the prior equitable interest (BFPFVW/ON) takes the estate free of the equitable interest (Pilcher v Rawlins).

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Consider the elements of the rule: (a) a bona fide purchaser (takes in good faith and without notice of the prior interest). Purchaser includes: purchaser of the fee simple estate; lessee; mortgagee and so on. (b) a purchaser for value (need consideration – what about a gift or an adverse possessor?) Nisbet & Potts (1906) 1 Ch 386 (c) without notice Jared v Clements (1902) 2 Ch 399 We need to consider the “without notice” requirement in more detail. There are 2 points to note (i) The timing of the notice. (ii) What constitutes notice - notice may be actual, constructive or imputed. Constructive Notice Duty to inspect the land. Generally, the possession of the land by a person other than the vendor provides constructive notice of any equitable interest the possessor holds. (Barnhart v Greenshields (1853) 14 ER 204) What is the situation where the vendor is in possession of the land but another person with an equitable interest is also in possession? The early view: Caunce v Caunce (1969) 1WLR 286 The later cases: Kingsnorth Trust Ltd v Tizard (1986) 2AllER 54 – Duty to inspect the title documents. The purchaser has a duty to inspect the documents that make up the “chain of title”. The purchaser has constructive notice of all equitable interests that would have been discovered on such an inspection. What would the position be if the chain of title appears complete but the vendor has removed a document creating an interest from the chain? Note s22 Sale of Land Act

D. Equitable Interest v Equitable Interest Rice v Rice (M315) Lord Kindersley indicated that three factors should be considered in determining the relative merits of the competing interests. What are they?

E. Mere Equity Latec Investment v Hotel Terrigal (M290)

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F. Sections 3 and 4 Registration of Deeds Act 1856 – 1974 (WA) Registration of Deeds Act 1856 - SECT 3 Priority according to date of registration 3. That all such judgments, deeds, conveyances or instruments in writing, registered in pursuance of this Act, shall have priority one over the other according to the priority of their respective dates of registration; and that all such judgments, deeds, conveyances, devises or instruments in writing not registered in pursuance of this or some former Act, shall (as against any subsequent bona fide purchaser or mortgagee of the same lands, tenements or hereditaments for valuable consideration) be absolutely null and void to all intents and purposes: Provided that nothing herein contained shall extend to bona fide leases at rack rent for any term not exceeding fourteen years. [Section 3 amended by No. 17 of 1974 s.9.] Registration of Deeds Act 1856 - SECT 4 Times for registration 4. That all judgments, deeds, wills, conveyances or instruments in writing which shall be duly registered within the respective times next mentioned, that is to say, all deeds, conveyances, and other instruments in writing, except wills, which, if executed in Western Australia or its Dependencies, shall be registered within two months, or which, if executed in any other place, shall be registered within eight months after the time of execution thereof respectively, and all wills which, if the devisor die in Western Australia or its Dependencies, shall be registered within two months, or which, if the devisor die in any other place, shall be registered within twelve months after the decease of every devisor respectively, and all future judgments, which shall be registered within two months after the entry or recording thereof, shall severally be in like manner entitled to priority, and shall take effect respectively by relation to the date thereof only in the same manner as if this Act had never been made. [Section 4 amended by No. 14 of 1974 s.9.]

Try these problems for practice… 1. A is the owner of an estate in fee simple. A enters into an agreement in writing with B whereby B lends $50,000 to A and A grants a mortgage to B over A’s property. B does not ask for the deeds as A and B are cousins. A then approaches C for another loan of $50,000. They reach an oral agreement and A gives C the title deeds to the property.A then sells the land to D. At settlement D pays the purchase price, takes delivery of the conveyance and then registers her interest. A week later B registers his interest. C remains unregistered. 2. Same facts as above but D has constructive notice of B’s interest. 3. A is the owner of an estate in fee simple. A grants an easement to B. The grant is in the form of a deed but is not registered. A then orally agrees to grant a lease to C. The lease is for 2 years and takes effect in possession. A then sells to D. D lives in Queensland and does not inspect the land before settlement. The deed is collected by D’s representatives at settlement and D’s interest is registered. with their shares

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