Melbourne University Law Students Society

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Melbourne University Law Students
Society Student Tutorial Service LLB
Property 730 366 Jing Chang
Sponsoring Partners Clayton Utz Mallesons
Stephen Jaques Leo Cussen Institute
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DISCLAIMER These tutorials and the notes are
designed to assist students in their learning.
The tutorials and the notes are not a substitute
for the course material, nor should they be
relied upon as representative of the subject
matter of the course. Neither the Melbourne
University Law Students Society nor the student
tutor of these tutorials will take responsibility
for any consequences flowing from the use of the
material provided in the tutorials or in the
notes.
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Todays tutorial

• Topic 8 Priority Rules
• Equitable interest vs. equitable interest
• Semester 1 2008 Exam, Q1

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General Rule

• General law priorities rules apply (Rice v Rice)
• TLA s 43 re notice does not apply b/c it is a
  dispute b/w non-registered interests
• Bona fide purchaser for value, without notice has
  priority

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Moffett v Dillon

• Bank had actual notice of plaintiffs charge
• Brooking JA (Buchanan JA agreeing)
• Subsequent equitable interest can never have
  priority if had notice of the prior equitable
  interest
• This can be actual or constructive notice
• Ormiston JA (minority)
• Prima facie, first in time prevails unless 2nd
  interest-holder can show better equity
• If 2nd interest holder can show they have a
  better equity (eg. postponing conduct) then
  notice may be relevant to show the interest
  should not be postponed

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Notice

• Policy
• Purchasers duties to investigate title and land
  (caveat emptor)
• Timing for notice
• At the time consideration was paid? (Mills v
  Stokman)
• PLA s 199(1)
• A purchaser shall not be prejudicially affected
  by notice of any instrument, fact or thing
  unless-
• it is within his own knowledge ACTUAL, or would
  have come to his knowledge if such inquiries and
  inspections had been made CONSTRUCTIVE OR
• in the same transaction it has come to the
  knowledge of his counsel or would have come to
  the knowledge of his solicitor if such inquiries
  and inspections had been made IMPUTED

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Notice cont.

• Actual notice
• Knowledge of the relevant facts however acquired
• Imputed notice
• Actual or constructive knowledge of agent
• Constructive notice
• Knowledge that you would have acquired if you
  were reasonable purchaser and made searches a
  reasonable purchaser would have made- of title
  and of property

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Case examples

• Pilcher v Rawlins
• Trustee searched the title and were satisfied
  they were all correct
• Held no notice
• Carnhart v Greenshields
• Held constructive notice because if purchaser
  had made inquiries, he would have discovered the
  weekly tenant in possession
• Caunce v Caunce
• Wife contributed to purchase price but title was
  in husbands name only
• Held bank did not have notice of wifes interest
  because it was consistent w/ her husband having
  whole title
• Cf. CBA v Platzer you have to make enquiries of
  anyone that is in possession who is not a vendor

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Equal merits

• General principle
• If there is no notice of the 1st interest, then
  the court will examine the relative merits of the
  two equitable interests to determine if they are
  equal (Rice v Rice)
• Relevant factors include
• Arming conduct
• Acquiesced or guilty of fraud (more than
  negligence, less than actual dishonesty)
• Allowed person to go out into world under false
  colours?
• Representing that the 1st interest-holder has no
  interest
• Failure to caveat

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Rice v Rice

• In determining merits, consider
• Nature and condition of interests
• No distinction b/w interests arising by operation
  of law and ones by agreement
• No distinction b/w registrable or other interests
• Circumstances and manner of acquisition
• Failure to have possession of CT not necessarily
  fatal
• Whole of the conduct of each party
• Is there anything warranting postponement?
• Here vendors armed the purchaser by saying they
  had been paid in full which allowed him to deal
  w/ estate as if absolute owner

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Arming Conduct

• Abigail v Lapin
• Facts
• Lapin (RP) executed transfer acknowledging
  payment
• Gave Heavener all documents making her believe
  she had the FS
• Heavener obtained registration and gave mortgage
  to Abigail
• Lapins lodged caveat before Abigail lodged
  mortgage

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Abigail v Lapin

• Privy Council
• Lapins conduct was postponing
• They were bound by the natural consequences of
  their acts
• Lapin armed Heavener as absolute owner allowing
  her to go into the world under false colours
• Their act or omission conduced/contributed to a
  belief by the 2nd claimant at the time when the
  2nd claimant acquired interest, that the prior
  equity no longer existed

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IAC Finance

• Facts
• Austin RP contract of sale to Courtenay with
  mortgage back
• Austin solicitor lodged transfer and mortgage for
  registration
• Austin resold to Denton, needed to repurchase
  from Courtenay to complete
• Austin solicitor uplifted documents from
  Registrars office before registration occurred
• Courtenay had an equitable fee simple as did
  Denton

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IAC Finance

• Kitto J
• Solicitor had no authority to uplift documents
• Did Courtenays conduct arm Austins solicitor w/
  ability to deceive?
• Not reasonably foreseeable that docs would be
  uplifted
• Ordinary conveyancing practice for C to give docs
  to As solicitor
• Taylor J
• Courtenay not neglectful, Denton acquired w/
  notice
• No evidence that Courtenay acquiesced to fraud of
  solicitor

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Estoppel

• Narrow view 1st interest-holder estopped from
  asserting priority b/c representation affects
  second interest holder
• Barry v Heider
• Griffiths CJ
• Barrys acts (transfer and order) acted as a
  representation that Schmidt had an unencumbered
  equitable ownership
• Isaacs J
• Estoppel rests on effect of the partys conduct
  on the party acquiring subsequent interest
• Barry v Gale
• Gale knew Barry hadnt been paid so wasnt
  relying on his representation

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Heid v Reliance Finance

• Facts
• Heid was RP and sold to Connell Investments
• Heid acknowledge receipt of purchase price but in
  fact acquired a vendors lien for 100 000 unpaid
  and the equitable mortgage
• Connell gave mortgage to Reliance finance who did
  not register
• They held the CT but did not caveat

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Heid v Reliance Finance

• Gibbs CJ (Wilson J agreeing)
• Estoppel by representation as bases for
  postponement where voluntarily arm another with
  indicia of title
• Indirect form of representation by giving Gibby
  signed memo (acknowledging full payment )which
  armed Connell
• Heid failed to ensure subsequent interest holders
  would not be misled

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Heid v Reliance Finance

• Mason, Deane JJ
• Is it reasonably foreseeable that a later
  equitable interest will be created and that the
  holder of that later interest will assume the non
  existence of the earlier interest?
• Must be a causal connection b/w act/omission and
  the later interest created
• Murphy J
• A party is liable for consequences of dangers
  created

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Jacob v Platt Nominees

• Applied both estoppel broader reasonably
  foreseeable test
• Did 2nd interest-holders position change to
  their detriment on faith of representation?
• Ie. Was Lucys failure to caveat representing
  no pre-existing interest?
• Detriment must be at time of the representor
  resiling from representation
• Lucy acted quickly and CC hadnt paid anything or
  incurred any extra expenses

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Effect of failure to caveat interest

• Can sometimes amount to arming conduct
• Abigail v Lapin
• Failure to caveat part of a general inquiry into
  the conduct of the 1st interest-holder
• Abigail didnt search register so couldnt argue
  he relied on clear title
• If Lapin had caveated, it would have disarmed Mrs
  H and neutralised the arming conduct

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J H Just Holdings

• Facts
• Josephson executed mortgage in registrable form
  and deposited CT w/ Bank
• Bank did not lodge caveat or register
• Josephson created mortgage in favour of JH Just
• Told JH Just that CT held by bank for
  safekeeping, JH Just made no inquiry of the
  bank, searched title and found nothing
• JH Just Lodged caveat, later Bank lodged dealing
  for registration

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J H Just Holdings

• Held
• Failure to caveat did not make it inequitable for
  it to retain priority
• Purpose of caveat is protective to act as
  injunction to Registrar
• NOT notice about existing equitable interest
• Bank had protected itself through keeping the CT

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Caveat cases cont.

• IAC Finance
• Kitto J
• Lodging a caveat would have given notice but
  Courtenays lodging of transfer for registration
  also gave notice
• Heid v Reliance Finance
• Mason Deane JJ
• Mere failure to caveat not enough itself to lose
  priority
• Need to consider conveyancing practice

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Person-Person

• Facts
• Already had one mortgage on the property
• Second mortgage given to Sharari
• Sharari had asked solicitor to lodge caveat and
  register mortgage
• Third mortgage to Person to Person who found no
  caveat/interest except the first registered
  mortgage and had no way of finding out about the
  2nd mortgage

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Person-Person

• Held
• Did the act or omission of the prior interest
  holder lead to the subsequent interest holder
  acquiring their interest in the belief that the
  first did not exist?
• Failure to caveat is not necessarily postponing
  conduct, but it can be
• Cf. facts of JH where unregistered mortgagee had
  possession of CT

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Jacobs v Platt Nominees

• Facts
• Lucy Jacobs daughter of the Platts
• Had on/off again contract to sell a motel to CC
• Option to sell to Lucy
• Father didnt want her to have the option but
  mother helped her
• Sent notice to exercise the option on 2nd Sept
  (and then became equitable interest)
• Lucy didnt caveat (despite solicitors warning)
  b/c she didnt want to offend his father and
  thought her mother would protect her
• Platt entered into agreement with CC on 22nd
  August and exchanged contracts on 5th Sept
• 7th Sept Lucy found out about sale on the 8th
  Sept Lucy lodged a caveat
• Mother had unwittingly signed a document giving
  her son authority to sign on her behalf

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Jacobs v Platt Nominees

• Held
• Absence of caveat was not notice to the world
• Common conveyancing practice to lodge a caveat,
  but not invariable
• Common to search after exchange of contract not
  before
• Need to consider other circumstances, on its own,
  failure is not enough
• Lucy had reasonably expected to have other ways
  to protect self through her mother

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AVCO Financial Services

• Facts
• Fishman gave State Bank registered first
  mortgage- so held CT
• State bank took unregistered second mortgage- no
  registration, no caveat
• Fishman sought to borrow from AVCO, who rang up
  State Bank and received information about amount
  outstanding (incorrect) did not know of second
  mortgage

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AVCO Financial Services

• Held
• Failure to caveat is not neglect warranting
  postponement
• AVCO not entitled to rely on absence of caveat to
  indicate no unregistered second mortgage
• Possession of CT sufficient to protect
• AVCO relied on own inquiries not non-existence of
  caveat, do not justify reliance

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Hypothetical Sem 1 2008 Q1

• Facts are fairly convoluted
• Multiple parties involved
• Multiple interests
• Question asks you to advise Guang on Abdul, the
  Bank and Fionas interests
• Essentially asking you to resolve a priority
  dispute and determine who gets what interest

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1st step

• Characterise the interests (legal/equitable and
  type of estate/interest) of each parties
  chronologically
• Donnas interest at the outset
• Edwards interest at the outset
• Abduls interest following the contract of sale
• The Banks interest
• Fionas interest
• Guangs interest

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Donnas interest

• Jointly registered proprietor 50 legal and
  equitable interest in Partnership Property
• Presumed to be a joint tenancy (TLA s 30(2))
• Has JT been severed in law or equity?
• Contract of sale with Abdul severs the JT in
  equity
• Not severed in law b/c transfer to Abdul never
  registered
• At time of death Donna had no equitable interest
  in PP (purchase price was paid in full)
• Therefore leaving her real estate to Fiona is
  effectively useless

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Edwards interest

• 50 legal and equitable interest (same as Donna)
• Because Donna severed in equity, right of
  survivorship does not apply and Edward did not
  acquire her interest when Donna died
• Upon Edwards death, his 50 legal and equitable
  interest passed to Guang (heir under the will)

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Abduls interest

• At contract of sale Abdul acquired equitable
  fee simple of 50 of PP
• Abdul paid 100 purchase price and therefore has
  the full 50 equitable interest

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The Bank

• Registered (ie, legal) mortgage over property for
  2000 000
• Note similar facts to Russo

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Fionas interest

• Inherited any of Donnas real estate as volunteer
• At time of Ds death, she effectively had a bare
  title with no equitable interest in the property
  whatsoever
• Therefore, F effectively has 0 equitable
  interest in PP

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Guangs interest

• Registered fee simple of PP
• 100 legal title and 50 beneficial interest as
  volunteer under Edwards will

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2nd Step

• If any interests are registered, they are
  indefeasible
• Therefore, consider whether there are any
  exceptions to indefeasibility?
• Here, 2 interests are registered
• Banks mortgage
• Guang as RP of PP

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The Bank

• Exceptions
• Fraud
• In personam
• Relevant cases
• Russo v Bendigo Bank
• Grgic v ANZ
• Other cases of bank being negligent/failing to
  make inquiries
• Result
• Banks mortgage may be defeasible

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Guang

• Exception
• Volunteer (under the will)
• Cases
• King v Smail
• Rasmussen v Rasmussen
• Result
• Guangs interest is subject to all the other
  potential interests being claimed against the
  title

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3rd step

• Consider the relevant priority disputes between
  parties
• Guang vs Abdul (prior equitable vs. subsequent
  legal)
• Guang vs the Bank (prior legal vs. subsequent
  legal but note possibility of transaction being
  set aside)
• Guang vs Fiona (prior equitable vs. subsequent
  legal)

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Conclusion

• Decide what you think is most likely to occur
• Always open to debate depending on the facts and
  your analysis
• No right answer only well argued responses
• Make sure your conclusion logically flows from
  your analysis and not out of left-field
• Set out in detail who has what interest to sum up
  and actually answer the question which was to
  advise Guang about the other possible interests

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Next weeks tutorial

• Any questions about the course
• Exam tips
• General guide to structuring your hypothetical
  answers
• Semester 1 2008 Exam Q 2 Q 3