Equitable Interests and Notice in Property Law: A Case Study on Redacre, Exams of Law

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Law of Real Property 1 2018-2019 Lecture 10 LEARNING OBJECTIVES By the end of this lesson, you should be able to:- • Explain the different types of equitable interests • Identify and explain the types of notice that equity recognises • Discuss the doctrine of the bona fide purchaser for value without notice • Explain how legislation affects the application of the doctrine of the bona fide purchaser for value without notice EQUITABLE INTERESTS Types of equitable interests Remember we said that earlier that equity did two (2) things: a) It developed new remedies where the common law remedies were inadequate (e.g. injunctions and specific performance). b) It recognised new rights and interests where none existed before. • Some of the interests that equity recognises are: a) Trusts b)Estate contracts c) Equitable liens d)Proprietary estoppel e) Restrictive covenants (Real Prop 2) Trusts • Express • An express trust arises where land is conveyed to T, a trustee, upon trust for B, a beneficiary or cestui que trust; the bare legal or nominal title vested in T and the fruits or rights of enjoyment of title to B. Settlor Trustee Beneficiary Trust Property Legal Estate Title Deeds Beneficial Estate Settlor’s Deed of Trust Or Court Order Declaration of Trust Estate Contracts • This arises here the fee simple owner (A) has agreed to either convey the legal estate (fee simple) to B or to grant a term of years (leasehold) to B. • In each case, the law requires compliance with certain formalities. Until those formalities are fully complied with, B has an equitable interest in the property. Court Order Specific Performance Contract for Sale Equitable lien • This arises where a vendor conveys land to the purchaser before he has been paid. • The vendor acquires a lien on the land in respect of the unpaid purchase price. • This lien is enforceable by a sale under the court’s direction. It is a mere equity (ie not an equitable interest) Contract for Sale Court Order Sale Proprietary estoppel • This arises where A (a fee simple owner) encourages B to her land, and B relying on this encouragement to his detriment, then occupies A’s land. • Such encouragement must be such that would cause B to believe that he will obtain an interest in the property. • B obtains an equitable interest which he can enforce against A and A’s successor’s in title except a bona fide purchaser for value without notice. What happens to 3 rd Parties? Impact of the trust on third parties • The rights in equity are rights in personam. • The interest of the beneficial owner binds the trustee. • The interest also binds all others except a bona fide purchaser for value without notice of the equitable interest. • Therefore a beneficial interest is binding or must be recognised by: (i) the trustee’s successor in title – Finch v. Earl of Winchelsea 24 ER 387 at 389 (ii) creditors of the trustee – Re Diplock (1881) 18 Ch D 93 at 104 (iii) donees of the trustee – Re Diplock (1881) 18 Ch D 93 at 104 The Chancellor’s Darling • The equitable owner is not in as strong a position as the legal owner. • His interests are subject to or can be defeated by a bona fide purchaser for value of the legal estate without notice of his interest. • Plicher v Rawlins – it is established law that a plea of “purchaser for valuable consideration without notice is an absolute, unqualified, unanswerable defence”. iii.Purchaser for valuable consideration – The purchaser must have given valuable consideration for the property in money or money’s worth or marriage. Consideration may be inadequate or even nominal – Midland Bank Trust Co. Ltd. v Green. A donee of the legal estate or a squatter cannot benefit from the defence and will not take the property free of the equitable interests. iv. The purchase was WITHOUT NOTICE of the equitable interest • A prudent purchaser must investigate the vendor’s title and inspect the land he is purchasing. • A purchaser with actual or constructive notice of the equitable interest will be bound by it. • In the absence of notice, his conscience is unaffected by the presence of the equitable interest. • Lord Wilberforce in Midland Bank Trust Co. Ltd. v Green [1981] AC 513 at 528 explained the doctrine of notice as an instance of equity’s tendency to fasten upon conscience. The doctrine was “used to epitomise circumstances in which equity would or rather would not do so” (i.e. fasten upon a purchaser’s conscience). Actual notice : • Refers to matters the purchaser was consciously aware of at the date of the purchase, irrespective of the source (doesn’t have to be from the vendor). • It “consists of facts within the physical sensibilities and reasonable inferences to be drawn from those facts” – Barclays Bank DCO v Admin General & Hamilton. • Information gained in a casual conversation may not amount to actual notice - “[a] purchaser is not bound to attend to vague rumours” - Barnhart v Greenshields (1853) 14 ER 204 at 211. • Statutory notice is equivalent to actual notice - section 33 of Land Registration Act, provides:- “Any person acquiring land, a lease or charge shall be deemed to have had notice of every entry in the register relating to that land, lease or charge: Cap. 229, 1977-8 (Barbados)”. Imputed notice: • A purchaser is deemed to have notice of those matters of which his own Attorney-at-law (or other agent involved in the transaction) is actually aware or should reasonably have been aware – Meretz Investments NV v. ACP Ltd. [2007] Ch. 197 at paras. 323-325. • This knowledge must arise within the current transaction of the purchase by the purchaser – s. 3(1) Conveyancing Act, Jamaica. • The doctrine applies to unregistered land. • Statute has displaced the application of the doctrine in respect of registered land: ss. 26 and 31 Land Registration Act (B’dos.) s. 59 Registration of Titles Act, Jamaica What about 3rd parties who are not the Chancellors Darling? • The qui prior est tempore, potior est jure principle provides that as between the equitable interests they will rank in priority according to the date of creation. • Even the legal estate only takes free of those equitable interests of which he has no notice. In respect of those he has notice of he takes the legal estate subject to them according to their respective priorities.