REAL PROPERTY (LAWS2017) FINAL NOTES. TOPIC 1: INTRODUCTION, PRIORITY AND s 184G

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1 REAL PROPERTY (LAWS2017) FINAL NOTES Disclaimer: These notes represent the author s organisation of Associate Professor Fiona Burns lectures, her annotated Unit of Study Outline, Dr Scott Grattan s tutorials and other materials, including the author s own input. References to Butt refer to the prescribed textbook but the author has found the readings therein generally not necessary (actually, at all). TOPIC 1: INTRODUCTION, PRIORITY AND s 184G A. Old Systems Title Deeds: A deed is the most solemn act that can be done in respect to property: Manton v Parabolic Pty Ltd (1985) Where the land is Old System title, the alienation of the fee simple and most interests in land at law must be effected by deed: s 23B(1) Conveyancing Act 1919 (NSW) There are four requirements for a valid deed (s 38): (1) Signing; (2) Sealing; (3) Delivery; and (4) Attestation In relation to legal interests, note the difference between the delivery of the deed of conveyance and the delivery of the first mortgage (**). A recent decision in this area is Segboer v AJ Richardson Property Pty Ltd [2012] NSWCA 253 B. Priorities between competing legal interests These include: (a) inconsistent dealings; and (b) dealings which are not necessarily inconsistent (e.g. between freehold interest and less-than-freehold interest) Generally for competing legal interests: nemo dat quod non habet C. Equity Equitable interests: An equitable interest in property is one that will be enforced by a court exercising equitable jurisdiction. The practical effect is that all major courts in our legal system recognise, characterise and enforce equitable interests!

2 Kinds of equitable interests include: - Beneficiary s right under a trust - Right of the purchaser under a valid agreement for sale of land - Right of the mortgagee/lessee under a valid agreement (not a deed) to grant mortgage/lease - Right of a mortgagor in the mortgaged land which is Old System title ( equity of redemption ) - Right of a second or subsequent mortgagee - Right of the mortgagee under a mortgage by deposit of deeds (under the principle of part performance) - Grantee of an option (general approach)! The purchaser, having paid the option fee will acquire an equitable interest in the land - Unpaid vendor (vendor s lien)! A vendor who has conveyed property to the purchaser but has not yet received full payment retains an equitable interest in the property - Purchase price resulting in trust! Arises where a person provides funds for the purchase of a property but he does not become the legal owner of the land (by failure to become the registered proprietor, etc)! The equitable interest will be commensurate with the proportion of the full price paid. E.g. if 40% of the price has been paid, the purchaser will only have an equitable interest in 40% of the property - A profit à prendre which is in writing but not in the form of a deed! A profit à prendre is where the owner gives a person a right to come onto his land to take something from the land (e.g. lumber, flowers, wild game on the land) The general maxims of equity: 1. Equity follows the law (i.e. first in time prevails). Equity adopted the common law rule that priority depends upon the date of creation of the interest #

3 2. Where the equities (merits) are equal, first in time prevails (qui prior est tempore potior est jure) 3. Equity will not suffer a wrong to be without remedy Competing equitable interests If the merits are equal, first in time prevails (qui prior est tempore potior est jure) The mere fact that the person second in time has given value and has taken without notice will not protect him. He will have to show that there is some inequitable conduct (postponing conduct) that would lead the court to exercise its discretion in his favour. There are different interpretations as to what will suffice in this situation. What is important will be whether the person first in time is guilty of postponing conduct. D. The Competition between Legal and Equitable Interests Prior EQUITABLE v later LEGAL Basic rule: a bona fide purchaser of the legal interest for value and without notice will take free of the prior equitable interest Criteria to consider: - Bona fide purchaser - Value - Without notice (actual, constructive or imputed) 1. Types of enquiries: a duty to inspect the land and to inspect the title deeds 2. Time when notice is relevant: at the time consideration is paid 3. Note s 164 Conveyancing Act 1919 (NSW) a. Notice includes: constructive (requirement to make enquires), imputed and actual notice 4. The rule in Hunt v Luck (1902): a purchaser who knows that any person is occupying or using the property whether or not a tenant is on (constructive) notice of that occupant s or user s proprietary rights a. Another means of ensuring potential purchasers make reasonable enquiries $

4 - Tabula in naufragio (plank in a shipwreck): In time order: O(FLO) M (legal mortgage) O S (equitable mortgage) O P (equitable title, by contract of sale) The holder of the later equitable interest can squeeze out the earlier interest by acquiring the legal interest (from M), even though at the time of acquiring the legal interest, P knew of S s earlier equitable interest.! But P must have been a bona fide purchaser for value without notice at the time of acquiring the equitable interest! The court relies on the lack of notice on the earlier acquisition! Read para [1983], Butt (**) - The rule in Wilkes v Spooner: A bona fide purchaser of a legal interest for value without notice can give a good title to a purchaser from him (even with notice). A third party can hide behind the first purchaser even if he had notice of the prior equitable interest.! Exception: when a trustee has sold property in breach of trust or a person acquires property by fraud, he cannot rely on this rule! Review notes from IPCL (**) Prior LEGAL v later EQUITABLE The general rule is that the holder of the legal interest takes priority Six situations where the legal interest will be postponed: (1) The legal owner has expressly created the equitable interest; (2) The legal owner has been a party to some fraud that has led to the creation of the equitable interest (3) The legal owner s act of gross negligence (usually in relation to the title deeds) has allowed the equitable interest to be created: Northern Counties of England Fire Insurance Co v Whipp (1844) (4) Where the legal owner entrusts an agent with the title deeds with limited authority to raise money on them and the agent exceeds the authority by creating a security for a larger sum in favour of a person who had no notice of the limitation. The legal interest is bound by the interest so created to its full extent, not merely to the extent authorised %

5 (5) Where the title deeds themselves are not handed over to an agent or someone else, but rather some document which, on its face, appears to entitle the holder to a beneficial or legal interest in the land (6) Based on estoppel. The legal owner is estopped from asserting his legal title against the holder of the equitable interest E. Registration under Division 1 of Part 23 of the Conveyancing Act 1919 (NSW) Section 184G of the Conveyancing Act 1919 (affects priority contests) (1) All instruments (wills excepted) affecting, or intended to affect, any lands in New South Wales which are executed or made bona fide, and for valuable consideration, and are duly registered under the provisions of this Division, the Registration of Deeds Act 1897, or any Act repealed by the Registration of Deeds Act 1897, shall have and take priority not according to their respective dates but according to the priority of the registration thereof only. Note: Instrument, as defined in the definitions section (s 7) is an inclusive one that encompasses: deed, will and Act of Parliament. But for s 184G, wills are expressly excluded, but otherwise, the definition remains open Note: (i) procedures; (ii) kinds of instruments that are registrable; and (iii) effect of s 184G on priorities and significance on Old System title transactions Purpose of registration: - Publicity - Secondary evidence - Priority Registration: important principles which operate in application of s 184G: (1) The conflicting interests must each have been created by instruments. Examples of interests created without instruments are: a. mortgage by deposit deeds b. oral contracts to sell or mortgage land (if there are sufficient acts of part performance) c. vendor s lien for unpaid purchase price &

6 d. leases less than 3 years recognised under s 23D(2) of the Conveyancing Act 1919 e. purchase price resulting in trust For these, apply general priority rules (2) The instruments claiming priority must have been made bona fide. a. Bona fide includes questions of fraud and deceit, but most of the cases dealing with whether an instrument is bona fide concerns questions of notice. b. The cases clearly establish that bona fide means without notice actual, imputed or constructive. Notice received before the instrument is entered into will nullify the benefit of registration. Notice received after execution of the instrument but before registration will not nullify such benefit: Marsden v Campbell (1897); Blackwood v London Chartered bank of Australia (1871). c. However, note that special considerations apply to contracts for the sale of land. A purchaser s notice (of the existence of an earlier interest) between the making of the contract and the conveyance will deprive the conveyance of protection: Scholes v Blunt (1916)! Three step process: (a) Purchaser goes about to find property they wish to purchase; (b) Parties exchange contracts (agreement on terms and conditions, agreement on price, purchaser pays deposit generally 10%); (c) Settlement (usually after 4~6 weeks): after searches, after arrangement of finance, after removalists sought performance of each parties are due at this stage! Problem: notice of an interest of another instrument-holder may have been absent at stage (b) but present by stage (c)! Held: a purchaser s notice in this case will deprive him of protection under s 184G (3) There must be valuable consideration (4) Where the instrument is void or voidable (i.e. tainted ), registration does not give any greater efficacy that it would otherwise have. Registration will not cure that fundamental defect '

7 (5) General rule: Registration operates to fill the title of the conveyor who otherwise would have had no title to give. Registration in effect abrogates the nemo dat rule: Fuller v Goodwin (1865) (6) The instruments must refer to the same interest i.e. there must be conflicting interests. Note that there will be occasions where no inconsistency is found: a. Where multiple interests can coexist b. Where the second grantee has really bargained only for such property as the grantor can property dispose of; c. Where the second instrument is expressly made subject to prior interests; d. Where the existence of prior interests (to which the second instrument is subject) is implied from the circumstances (7) The Division deals with priorities between all interests created by instruments i.e. between registered and unregistered instruments as well as between registered instruments (rejection of narrow reading of the legislation). Note that this does not affect the priority of an earlier interest which was created without writing: Fuller v Goodwin (1865); Moonking Gee v Tahos (8) Registration is constructive notice to the world. It then becomes incumbent on prospective purchasers to search the register. Failure to perform a search of the register prevents the purchaser from denying that he had notice. This is explicable on the basis that prior registered interests take priority and that a purchaser has constructive notice of them. Note the contrast between purchasing a new interest in property and where a party has secured his interest via registration. (9) The rules apply to equitable as well as legal interest. Therefore the rules apply between: a. Competing legal interests b. Competing equitable interests c. Competing legal and equitable interests: see Moonking Gee v Tahos (**) (

8 Moonking Gee v Tahos Facts: T is the owner of the land. He exchanges contracts with M to sell the land (to M) At this point, M acquired an equitable interest in the land Miscommunication happened. T s solicitors informed T that M wasn t going to proceed with the contract. T went ahead and exchanged contracts with a third party ( X ) T executed a deed of conveyance in favour of X and settled X first got an equitable interest from the exchange of contracts and then a legal interest from the settlement M found out about the exchange of contracts between T and X (but not the conveyance) M s solicitors believed they would protect M s interest against X s equitable interest (not knowing X s legal interest) by registering his interest under s 184G (the contract) M had a registered equitable interest. X had an unregistered legal interest section 184G applies Held: M takes priority Priority follows according to the date of registration between competing instruments and will attach to a registered instrument conferring an equitable title over one conferring a legal one M was entitled to an order for specific performance against T. T had to deliver a deed of conveyance to M. X lost out # Section 184G provides a new framework (against sensibilities from general law) )

9 TOPIC 2: TORRENS TITLE A. Torrens Title: Introduction The Torrens system of registered title is not a system of registration of title but a system of title by registration. That which the certificate of title describes is not the title which the registered proprietor formerly had, or which but for registration would have had. The title it certifies is not historical or derivative. It is the title which registration itself has vested in the proprietor. Consequently, a registration which results from a void instrument is effective according to the terms of the registration. It matters not what the cause or reason for which the instrument is void. Barwick CJ in Breskvar v Wall (1972) The object of registration of Old System land was to preserve existing title. It did not solve other problems in the system, such as having to find a good root of title back decades and dependency on a chain of title Historical background: - Australian difficulties with English land law - Sir Robert Torrens and the origins of Torrens Title. German registration system - Introduction of the Torrens System (SA 1858) and the Torrens System in New South Wales (since 1863) (Cf. Dobbie v Davidson (1991))! Now, close to 99% of land owned in NSW is held under Torrens B. The Torrens System Major elements: - Real Property Act 1900 (NSW)! Also: Conveyancing Act 1919 (NSW) - The Register (s 31B) - Folio! A record of what interests are in the land (s 32) - Certificate of Title! A copy of the folio kept by the land and property information - Dealings: (ss 3 & 36) *

10 ! Section 3: Any instrument other than a grant or caveat which is registrable or capable of being made registrable under the provisions of this Act, or in respect of which any recording in the Register is by this or any other Act or any Act of the Parliament of the Commonwealth required or permitted to be made! The Registrar-General has a pro forma form that needs to be complied with - The assurance fund! A safety net, to be used when, due to the mismanagement by the Registrar-General or the management, something goes wrong. Basic legal concepts - Title by registration: s 41(1)! No dealings effective until registration - Evidence of title: s 40(1)! By way of the folios held by the Land and Properties Information - Priority: s 36(9)! Where there is a dispute between parties that claim the same interest, priority is decided by date of registration, rather than date of the transaction - Trusts: s 82! Trusts are not registrable under the RPA! See Dobbie v Davidson (1991). Priestly J Sir Torrens distrusted Chancery and he proposed the new system, he did not want it bogged down by the excesses of equity! The fact that the legal owner (the trustee) holds on trust for others is not reflected in the system - Mortgages: s 57! The manner of creating mortgages is different from under the Old System. Under the Old System, to create a mortgage, a deed of conveyance is required! Under the Torrens system, a mortgage is a charge. The mortgagor at all times retains his legal interest in the land. The fee simple becomes encumbered by the mortgage!+

11 - Bringing land under the provisions of the RPA; Primary applications; Qualified title; Limited title - The future?! Electronic registration. Still in the stage of experimentation in NSW! Uniformity! Decentralised registration?! Discharge of mortgages C. Indefeasibility of Title (and the general effect of registration) Once an interest is registered, any efforts to set it aside is an uphill battle There are a number of provisions in the Real Property Act which suggest indefeasibility of title e.g. ss 40, 42, 43, 124 and 135. Indefeasibility is not expressly stated, but implied. Typical scenario: - A is RP; B steals A s CT and forges A s signature to the transfer to C; C has no notice of the fraud; C registers; 2 innocent parties; who has a better claim? - Raises point: what do we mean by indefeasibility? The issue is whether registration creates immediate or deferred indefeasibility. Important earlier cases: - Deferred indefeasibility because C acquired an interest through B, the wrongdoer, C would not acquire an indefeasible and defensible title. A would be restored as owner of the fee simple - Gibbs v Messer (1891) (STILL APPLICABLE)! Facts: lady wanted to go on an overseas trip; she gave legal documents (CT and powers of attorney in favour of husband) to her solicitor; the solicitor forged signature of her husband and transferred land to a fictitious person ( Hugh Cameron, grazier ); solicitor then had this fictitious person mortgaged out; when the lady returned from her trip, her problem was twofold her property!!

12 was in the hands of a fictitious person and there was a mortgage on it! Held: If the dealing was with a fictitious person, one could not rely upon the principle of immediate indefeasibility. Equivalent of s 43 RPA required dealing. A fictitious person cannot engage in dealing. Therefore indefeasibility does not attach. The lady won.! Some saw this as authority for preference of deferred indefeasibility. But: - Assets Co Ltd v Mere Roihi (1905); Boyd v Mayor of Wellington (1924) NZ where it was determined that Gibbs v Messer was confined to particular facts Immediate indefeasibility cases (won out) - Immediate indefeasibility the registration is the key point. So long as registration was done properly, C acquires a better interest than A - Frazer v Walker (1967) (A NZ case that went to the PC)! Facts: the Frazers were the RPs in fee simple. Mrs F forged her husband s signature to a mortgage. The mortgage was then registered and the mortgagee was registered as the proprietor of the mortgage. The innocent mortgagee exercised power of sale and sold the property to an incoming purchaser (also innocent). The purchaser registered. Mr F found out and sought to have the mortgage and subsequent transfer set aside.! Question: immediate or deferred indefeasibility?! It was unnecessary to decide this question, because the third party did not acquire the interest through a rogue (the mortgagee was innocent)! Held: Immediate indefeasibility approach is preferred. But this does not prevent in personam claims being brought (more on this later) - Breskvar v Wall (1971)! Again, the Court (HCA) held that the concept of immediate indefeasibility is preferred!#