TORRENS TITLE I: INDEFEASIBILITY AND EXCEPTIONS STUDY GUIDE: Tpic Essential Optinal Origin and bjective f Trrens title 8.1 GE Buck Indefeasibility Breskvar v Wall GE 8.2 Vlunteers Bgdanvic v Kteff Rasmussen v Rasmussen GE [8.57] [8.59] Athertn (1998) Exceptins t indefeasibility LHK Nminees PL v Kenwrthy Bahr v Niclay Mercantile Mutual Life Insurance C Ltd v Gsper Butt [2067-2077]; and, [20101-20106] RELEVANT SECTIONS OF THE REAL PROPERTY ACT 1900 (NSW) Griggs (2001); Griggs (2003); UNIT WEBSITE: Radan (unpublished) 1
The prblem with Old System Title and the requirement f prf f gd rt f title via a chain f dcuments is that it renders the title inherently vulnerable t challenge. The chain is nly as gd as its weakest link. Establishing gd rt f title made dealings in ld system land very cstly. Sir Rbert Trrens drve the refrm fr a new land registratin system. 2
Trrens prpsed a system based n 3 principles:! Mirrr principle register reflects the state f the title.! Curtain principle curtain f indefeasibility falls and yu cannt g behind the curtain t attack smene s title.! Insurance principle means by which inncent persns wh suffered a lss as a result f the Trrens system culd be cmpensated. The legislatin which implemented the Trrens refrms was the Real Prperty Act 1862 (came int effect n 1 January 1863). Land registered under the Act is referred t as Trrens Title. Crwn grants since this time have been Trrens Title. The Act als made prvisins fr the cnversin f Old System Land int Trrens Title Land. Features f the Trrens System In Breskvar v Wall, Barwick CJ said the Trrens system is nt a system f registratin f Title but a system f title by registratin. With Trrens Title, there is nt title UNTIL registratin takes place. Settlement is the term used in the Trrens system t refer t cmpletin f a sale. Under the Trrens system, we speak f registered and unregistered interests rather than legal and equitable interests. The purpse f the Trrens system is t enable a purchaser acquiring an interest in land t rely simply n the register maintained by the Land Titles Office. If the register recrds V as the wner r registered prprietr f the fee-simple in land, the purchaser P is able t rely n that withut cncerning himself with hw V btained the title. When P btains registratin f his r her interest, he/she btains an INDEFEASIBLE TITLE (a title which, subject t certain exceptins, is unable t be defeated even when there is sme defect in title prir t registratin). The register established under s31b f the Real Prperty Act 1900 (NSW) cmprises f a Fli under s32(1) which is the dcument which describes the land, describes the estate r interest in the land (e.g. fee-simple, life estate), describes the prprietr f the estate and particulars f all ther interests effecting the land (e.g. leases, mrtgages, easements etc). The Certificate f Title is essentially a duplicate f the fli fr a specific parcel f land and must be prduced fr any dealing with the land required by s38(1). If yu want t register any dealings with Trrens Title land, yu must have the Certificate f Title. The term duplicate Certificate f Title means THE Certificate f Title (i.e. a cpy f what is n the fli). A Dealing (s3) is any instrument ther than a grant r caveat which is registrable r capable f being made registrable under the prvisins f this Act, r in respect f which any recrding in the Register is by this r any ther Act r any Act f the Parliament f the Cmmnwealth required r permitted t be made. The imprtance f Registratin stems frm s41(1) which states: N dealing, until registered in the manner prvided by this Act, shall be effectual t pass any estate r interest in any land under the prvisins f this Act, r t render such land liable as security fr the payment f mney, but upn the registratin f any dealing in the manner prvided by this Act, the estate r interest specified in such dealing shall pass, r as the case may be the land shall becme liable as security in manner and subject t the cvenants, cnditins, and cntingencies set frth and specified in such dealing, r by this Act declared t be implied in instruments f a like nature. Indefeasibility Relevant sectin f the Real Prperty Act 1900 (NSW) is s42(1): Ntwithstanding the existence in any ther persn f any estate r interest which but fr this Act might be held t be paramunt r t have pririty, the registered prprietr fr the time being f any estate r interest in land recrded in a fli f the Register shall, except in case f fraud, hld the same, subject t such ther 3
estates and interests and such entries, if any, as are recrded in that fli, but abslutely free frm all ther estates and interests that are nt s recrded. (i.e. unregistered interests). The prtectin affrded by s42(1) is nt cnfined t the registered prprietr f the fee-simple in schedule 1 f the fli, it als extends t registered prprietrs f interests recrded in schedule 2 (e.g. registered mrtgage, registered lease). The effect f s42(1) is supprted by s43 which states that a persn wh, in the absence f fraud, becmes the registered prprietr need nt inquire hw the persn he/she is dealing with became registered. They are als NOT affected by ntice, direct r indirect, f any trust r unregistered interest as such ntice is NOT fr the purpse f s43 cnsidered fraud. The prtectin affrded by s43 is limited and nly arises nce yu have becme registered (IAC (Finance) Pty Ltd v Curtenay). If a persn receives ntice f an interest r shuld have knwn f an interest and has nt yet becme the registered prprietr, there interest may be defeated. Once registered hwever, under s43, the persn s interest CANNOT be defeated merely because they received ntice f an interest r shuld have knwn f an interest. Nte the bvius difference t the purchaser f a legal estate f Old System Land. If they knew r shuld have knwn abut a prir equitable interest, they wuld take their interest subject t that equitable interest. Deferred r Immediate Indefeasibility DEFERRED INDEFEASIBILITY if an instrument is registered that is vid (e.g. frged), yu wuld nt secure immunity frm the true wner f the prperty seeking t set aside yur registratin even if yu knew nthing f the fraud. Immunity wuld nly be available t any persn t whm yu sld the land wh purchased in gd faith and registered the instrument executed by yu. IMMEDIATE INDEFEASIBILITY gd title is cnferred n yu immediately n registratin f the frged transfer r ther instrument regardless f its invalidity. Gibbs v Messer (Deferred Indefeasibility) - The facts f the case are as fllws:! Messer was the registered prprietr f Trrens Title land and left her Certificate f Title with her Slicitr fr safe keeping.! The Slicitr frged Messer s signature n a transfer t Hugh Camern (a fictitius persn) and then registered the transfer.! The Slicitr then prepared a mrtgage frm Camern t the McIntire s as security fr a lan t Camern. The McIntire s then registered this mrtgage but the Slicitr abscnded with the mney laned t the nn-existent Hugh Camern.! Messer then applies fr the McIntire s mrtgage t be remved frm the register. The Privy Cuncil fund in favur f Messer saying that the prtectin affrded by the Trrens Title legislatin was cnfined t thse wh actually deal with the registered prprietr whse name is n the register. Thus if yu are dealing with a frger, yu are NOT dealing with the registered prprietr. Frazer v Walker & Radmski later case Privy Cuncil preferred the dctrine f immediate indefeasibility. This case firmly established that the predminant sectin f the Real Prperty Act is s42 which pint t the ntin f immediate indefeasibility. The facts are as fllws:! In this case Mr & Mrs Frazer were the registered prprietrs f Trrens Title land. Mrs Frazer brrwed mney frm the Radmski s and as security gave them a mrtgage and frged her husband s signature n the mrtgage.! Radmski s then registered the mrtgage and Mrs Frazer defaulted n the lan. The Radmski s exercised their pwer f sale under the mrtgage and the prperty was sld t the Mr Walker wh became the registered prprietr. 4
! Mr Walker sught t have the Frazer s remved frm the prperty but Mr Frazer after realising what had ccurred sught t have bth the mrtgage and the Radmski s interest in the prperty remved frm the register. The curt fund in favur f Mr Walker and indicated that the Trrens Title legislatin was t be interpreted as supprting immediate indefeasibility. Nte hwever that the curt did nt have t apprve the dctrine f immediate indefeasibility t find in favur f Mr Walker as he HAD dealt with the registered prprietrs f the mrtgage, the Radmski s. He hadn t dealt with Mrs Frazer, the frger s the curt COULD have relied n deferred indefeasibility but instead chse t affirm the dctrine f immediate indefeasibility. Breskvar v Wall (Immediate Indefeasibility) the facts f the case are as fllws:! Breskvar s were registered prprietrs f Trrens Title land and gave a Mr Peatree their duplicate Certificate f Title (the nly Certificate f Title in circulatin) and a transfer signed by them as transferrs.! On the transfer that the Breskvar s gave t Peatree, they left the name f the transferee blank as security fr a lan t them (t avid stamp duty n a mrtgage dcument).! Mr Peatree inserts the name f his grandsn Mr Wall as the transferee wh then becmes the registered prprietr. Mr Wall then enters int a cntract t sell the prperty t Alban Pty Ltd.! The Breskvar s realise what has happened and ldge a caveat t prevent Alban Pty Ltd frm registering its transfer. The curt finds that n registratin Wall becmes the registered prprietr hwever his title is defeasible because he participated in the fraud that enabled him t get the title. Even thugh Wall s title is defeasible, upn registratin the Breskvar s cease t be the registered prprietrs. (see Justice Menzies n pg64 f Mdule 2 Curse Materials). Curt says the Breskvar s nw have the ability t impeach Wall s title which becmes a cntest with the equitable interest f Alban Pty Ltd (because they have exchanged but the sale hasn t been cmpleted). This is a cntest f tw unregistered interests. The Trrens system is a system f title by registratin NOT registratin f title (see Barwick CJ, pg61 Curse Materials). It is pssible t btain indefeasible title by registratin f a vid instrument. The curts supprt Immediate Indefeasibility (which has almst universal acceptance in Australia) ver Deferred Indefeasibility hwever Frazer v Walker & Radmski did nt expressly verrule Gibbs v Messer and nr did Breskvar v Wall. Rather than verrule Gibbs v Messer the Curts in Australia have tended t cnfine it t its facts, that is, where yu are dealing with a fictitius persn. A persn wh is nt party t the fraud resulting in a frgery wh has registered their interest has an indefeasible title. Cases that cnfirm a frged instrument des nt preclude t peratin f the dctrine f indefeasibility include:! Mayer v Ce! MMI v Gsper Frged instruments can als defeat indefeasible interests in land. The interests f a registered mrtgagee will be extinguished by a frged discharge f mrtgage (Schultz v Crwill Prperties Pty Ltd). What attracts Indefeasibility? Mercantile Credit Ltd v Shell C f Australia whether an ptin t renew the lease (cntained within the lease) was indefeasible given the registratin f the head lease. The Curt fund that the term f an instrument r dealing will attract indefeasibility prvisins f the Trrens Title legislatin as lng as it relates t the interest in the land and in this case the ptin t renew the lease was held t be indefeasible. s129(1) f Real Prperty Act 1900 (NSW) gives a persn a remedy against lss r damage suffered frm the peratin f the Act hwever s129(2) lists a number f exceptins. 5
Exceptins t Indefeasibility 1. Fraud A registered title is deafeasible fr Fraud Must relate t the current state f title, fraud by a predecessr des nt affect the title f the present registered prprietr Tw situatins arise, the first is where the present prprietr has becme registered, where the previus prprietr has been defrauded ut f their registered interest, the law is clear unless the fraud can be brught hme t the present registered prprietr r agents, the present tile is immediately indefeasible Secnd, is where the present registered prprietr has becme registered in the face f an unregistered interest and claims t rely n their registered title t defeat the unregistered interest Fraud is nt defined in act, determined by the curt, gd definitin in Assets C LTd v Mere Rihi wilful blindness t the presence f fraud (an abstentin frm enquiry fr fear f learning the truth) is tantamunt t actual fraud There has t be wilful blindness t a fraud NOT just wilful blindness t the fact that smene else may hld an unregistered interest. In fact s43 f the Real Prperty Act says ntice f an unregistered interest is NOT fraud fr the purpses f s42. The act must be dishnest, and dishnesty must nt be assumed slely by reasn f knwledge f an unregistered interest Fraud brught hme t the registered prprietr a registered title is nt defeasible fr fraud where the fraud is exercised withut the registered prprietrs knwledge, by sme fr whse actins the register prprietr is nt respnsible The fraud has t be cmmitted by the persn whse title yu seek t impeach. The persn making the claim t the land must be the victim f the fraud. Latec Investments v Htel Terrigal in this case the subsidiary cmpany (Suthern Htels) knew the mrtgagee sale was fraudulent and thus their title as the new registered prprietr was defeasible. Fraud in the cntext f TT means actual; fraud, mral turpitude, r smething mre than mere disregard f right f which the persn sugh t be affected had ntice T be an exceptin t indefeasibility dctrine, fraud must generally ccur up t the time f registratin (befre the registered prprietr acquired the registered interest). In Bahr v Niclay (N 2), pst registratin cnduct by the registered prprietr may be cnsidered n the issue f whether there is fraud by the registered prprietr. This apprach was endrsed in Snwlng Pty Ltd v Che but later rejected in Cnlan v Registrar f Titles. 6
Fraud and Ntice Sectin 43 (1) - (1) Except in the case f fraud n persn cntracting r dealing with r taking r prpsing t take a transfer frm the registered prprietr f any registered estate r interest shall be required r in any manner cncerned t inquire r ascertain the circumstances in r the cnsideratin fr which such registered wner r any previus registered wner f the estate r interest in questin is r was registered, r t see t the applicatin f the purchase mney r any part theref, r shall be affected by ntice direct r cnstructive f any trust r unregistered interest, any rule f law r equity t the cntrary ntwithstanding; and the knwledge that any such trust r unregistered interest is in existence shall nt f itself be imputed as fraud. Appears t remve equitable ntins f fraud frm the Trrens System S 82 frbids ntice f trusts t be recrded in the register, except in certain limited circumstances S43 implies that ntice, cupled with ther factrs, may be treated as fraud In Aus, it is nt fraud t purchase with ntice f an unregistered interests (such as a leas r mrtgage) and then, n becming register prprietr, t invke indefeasibility f title t defeat that unregistered interest Adversely, it is fraud fr a purchaser t refuse t recgnise and unregistered interest where the purchase has taken nt merely with ntice f the interest but having given an assurance r acknwledgement that it will be preserved Fraud by Agent where the registered prprietr has becme registered thrugh the agents fraudulent activity, the agents authrity binds the principal as t make the title indefeasible fr fraud. Hwever it is nt deafesible unless the prprietr is infected by it r cmplicit in it A test is where there is a cnnectin between the task f the agent and the materialisatin f the risk inherent in the task Where the agent has knwledge f the existence f fraud, the agents knwledge is imputed t the principal 2. In Persnam Exceptin " Exceptins exist where the fraud is f the agent While registratin f an interest may extinguish ther unregistered interests persnal rights f actin can still survive smetimes called persnal equities. The In Persnam exceptin is based n persnal claims against the registered prprietr (arising ut f their cnduct) which, if successful, will require the registered prprietr t divest him/herself f his/her registered interest, either in whle r in part, in favur f the claimant. The persnal rights are nt cnfined t thse based n equitable claims, cmmn law claims are als recgnised. Grgic v ANZ Banking Grup Ltd Curt ruled that in persnam claims culd nly be based n knwn legal causes f actin r equitable causes f actin. A plaintiff cannt assert a right in persnam unless the circumstances give rise t a knwn legal r equitable cause f actin enfrceable against the registered prprietr f the interest in questin A persns mere neglect in failing t discver the rights r interest f thers des nt create a persnal equity enfrceable by thse thers If a registered prprietr cntracts t sell land and the cntract is capable f being specifically enfrced (thus the registered prprietr becmes cnstructive trustee and purchaser has an equitable interest) then the registered prprietr CANNOT defend the actin fr specific perfrmance n that basis that his/her title is indefeasible. If a registered prprietr is a trustee, they cannt deny the beneficiary s rights by claiming that he/she has an indefeasible title. Bahr v Niclay (N 2) The facts f the case are as fllws: 7
! Bahr s had licence f crwn land in Western Australia and n the building f cmmercial premises were able t transfrm the licence int a crwn grant and thus becme the prprietrs f the land.! T finance the building f the cmmercial premises, the Bahr s entered int an agreement with Niclay wh was t purchase the prperty, grant Bahr s a 3 year lease and then sell the prperty t them at the end f the 3 years.! Niclay became the registered prprietr but then sld the land t Thmpsn wh knew f the arrangement between Bahr & Niclay, he expressly acknwledged this. Thmpsn cnfirmed in writing t the Bahr s that he was required t sell the prperty back t them.! Later Thmpsn changed his mind and sught t rely n the register t defeat the claim t the land frm the Bahr s. Dishnest cnduct by Thmpsn was fund t have ccurred AFTER he became the registered prprietr.! Thmpsn argued that he merely had ntice f the Bahr s interest and was nt a party t the agreement t resell. Unanimusly, the High Curt fund that Thmpsn did NOT have an indefeasible title. As Thmpsn had expressly acknwledged the Bahr s rights in the cntract and in a written letter t them after registratin, all members f the curt fund in favur f the Bahr s cncerning the In Persnam exceptin. Wilsn & They JJ thught that the undertaking t respect the Bahr s claim made Thmpsn the cnstructive trustee. Masn CJ and Dawsn J said the matrix f circumstances were sufficient t establish an intentin t create an express trust. Brennan J thught that the acknwledgement f the Bahr s rights in the cntract between Niclay and Thmsn gave rise t a cllateral cntract. The cnclusin f all judgements is that it was the actins f the registered prprietr himself which gave rise t the In Persnam exceptin. MMI v Gsper The facts f the case are as fllws:! Mrs Gsper was the registered prprietr f land subject t a mrtgage t Mercantile Mutual. Mr Gsper brrwed mney frm Mercantile Mutual and it was agreed that the lan wuld be secured by a variatin f the existing mrtgage ver Mrs Gsper s prperty.! Mr Gsper frged his wife s signature and arranged fr a lan frm MMI t himself. The security fr the lan was by way f anther variatin f mrtgage ver Mrs Gsper s prperty.! After her husband s death Mrs Gsper discvered what had happened. Mrs Gsper sught t have the mrtgage discharged fr the payment f the riginal $265,000 (amunt f debt she knew abut).! MMI said it had registered the mrtgage withut fraud as the fraud was n the part f Mr Gsper and they were nt implicated s they were entitled t indefeasibility. The NSWCA held by majrity that the mrtgage was defeasible n the basis f an In Persnam exceptin as MMI used the Certificate f Title t register the frged variatin f mrtgage withut Mrs Gsper s authrity. This case is ften criticised as MMI had n knwledge f the fraud and the persnal equity Mrs Gsper relied n was nt based n any knwn equitable r legal cause f actin. The curt did NOT find the bank had breached a fiduciary duty t Mrs Gsper. Stry v Advance Bank - Curt f Appeal had t cnsider in persnam exceptins in the cntext f a mrtgage granted by a crpratin t a bank, where the crpratin was a family cmpany perated by Mr & Mrs Stry. The facts are as fllws:! The lan was t Mr Stry nly with the mrtgage being ver land wned by the crpratin.! Mr Stry frged his wife s signature n the mrtgage dcuments and Mrs Stry claimed an in persnam exceptin against the bank n the basis that the bank failed t make apprpriate inquiries t determine that Mrs Stry had indeed executed the mrtgage. The Curt f Appeal ruled against Mrs Stry with Gleesn CJ (Cripps J agreeing) stating that even if the bank had nt made adequate inquiries f what was ging n in the crpratin that des nt prduce the result that it is against cnscience fr the bank t rely upn its statutry rights t an indefeasible title as t the mrtgage. 8