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Property exam sem 1 2005
Markers comments in bold
Question 3 – mark 79 (scaled up to HD)
Gustaaf
Here, Gustaaf wants to enforce his lease against Jill, and then when Joao becomes the
new landlord he will want to enforce it against Joao. First, Gustaaf should lodge a
caveat. Against Jill, prima facie Jill’s title is indefeasible and she can evict Joao unless
an exception can be established (s43 RPA).
Here, s42(1)(d) does not apply because the term of the lease is for more than 3 years.
It is arguable, however, that when Jill and Gustaaf re-negotiated on 15 Feb 2005 that
Gustaaf’s lease term was less than 3 years (15 Feb 2005 – October 2006). (√)
An action inpersonam could also be made out, on the basis of a contractual obligation
between Jill and Gustaaf. Note, however that there is a presumption against an
intention to create legal relations in the family context (Lysaght). It is likely that this
could be rebutted here – they are involved in a business here. Estoppel could also be
argued here. There must be detrimental reliance suffered by Gustaaf that was created
or encouraged by Jill (Walton Stores). Here, Gustaaf paid Jill $10 000 and had an
expectation encouraged by Jill of a lease for at least another 6 months. However,
estoppel is very hard to establish in court.
There could also be an implied legal periodic tenancy that creates an in personam
obligation against Jill on the basis of possession and rent (Moore v Diamond). There
must, however, be no formal agreement between Jill and Gustaaf. If this applies, the
notice period of termination turns on the period the lease, determined by the objective
intention of the parties eg. Rental payments. Here, rent is paid monthly so Jill would
need to give Gustaaf one month’s notice. (√)
It is likely that Jill’s title will not be indefeasible on the basis of s42(1)(d) or an in
personam obligation based on contract. However, if this is not so Jill can terminate
with one month’s notice.
Gustaaf v Joao
Joao’s title is not yet registered, however he has an equitable interest in the land – a
specifically enforceable contract for sale. To defeat Gustaaf’s interest, he must
establish priority. Gustaaf also has an unregistered interest. If Joao doesn’t register
before Gustaaf lodges a caveat, it will be a competition between two unregistered
interests. S43A does not apply because Gustaaf hasn’t yet settled (IAC v Finance). So,
the test is the first in time prevails unless the equities are unequal (Abigail v Lapin).
Did Gustaaf’s conduct contribute to a belief of the subsequent interest holder (Joao) at
the time he acquired his interest that Gustaaf’s interest was not in existence? (Abigail).
Here, Gustaaf has no rights to the CT, so this is not applicable. He hasn’t yet caveated,
although a mere failure to caveat is not necessarily postponing conduct (J H & Just).
(√) It is advisable for Gustaaf to lodge a caveat soon to protect his interest. Here, also,
Gustaaf is still in possession and left all his fortune-telling equipment in the
warehouse – all of which Joao saw. (√). To protect his interest, Gustaaf should have
lodged a caveat before Joao acquired his interest, although he did not know of the
threat to his interest until just recently. It is likely, however, that this will not amount
to postponing conduct and Gustaaf will most likely be able to enforce his lease against
Joao. If, however, Joao registers it will be much harder for Gustaaf to argue that
Joao’s title is subject to Gustaaf’s lease, as mere notice of an unregistered interest
does not equal fraud (s42 RPA). Gustaaf might be able to argue an implied periodic
tenancy on the basis of Joao’s acceptance of possession and rent (Dockrill v
Cavanagh). Even here, however, only one month’s notice is required. (√)
It is likely that Gustaaf can be evicted with only one month’s notice. He is unlikely to
satisfy the short-term lease exception in s42(1)(d) as he re-negotiation with Jill on 15
Feb 2005 will not be treated as a new lease under 3 years, but merely an extention of a
lease that was originally over 10 years. It is possible, however, that this could be
argued against. Even so, however, only one month’s notice will be required. It is also
likely that Gustaaf will not satisfy the implied legal periodic tenancy in Moore v
Diamond due to the existence of a formal agreement between him and Jill. Gustaaf
could only argue this against Joao’s title if it becomes indefeasible if Joao accepts
possession and rent. Hence, Gustaaf can be evicted with one month’s notice. He
should seek damages for breach of contract against Jill.
Quickmoney
First, Quickmoney should caveat. Quickmoney will want to enforce their mortgage
against Jill, and then Joao. Their mortgage is unregistered. Note to be specifically
enforceable the mortgage must be in writing and the money handed over, this is
satisfied here.
To enforce their mortgage against Joao, they must establish priority over Joao’s
interest (note that Joao’s interest is a specifically enforceable contract for sale).
S43A will give protection to later unregistered interests after they have settled (IAC
Finance). Joao has not settled here, so this does not apply.
So, the first in time unless the equities are unequal test applies (Abigail v Lapin). Here,
Quickmoney failed to register but did arm themselves with the CT. It is difficult to
argue here their conduct contributed to a belief of Joao that Quickmoney’s interest
was not in existence (Abigail v Lapin). Note that a mere failure to caveat will not
amount to postponing conduct (JH & Just). (√)
Analogous to JH & Just, the first mortgagee failed to caveat but had the CT – their
interest was not postponed. Here, it is unlikely that Quickmoney’s conduct will
amount to postponing conduct and they will be entitled to enforce their mortgage
against Joao. Further, they should seek damages for breach of a mortgage covenant
against Jill.
Conclusion
It is likely that if Joao registers, he will be subject to the mortgage over the property to
Quickmoney. He should sue Jill for breach of contract to try and pay off the mortgage.
He will also be able to evict Gustaaf with one month’s notice, on the basis of the
period of the lease. It is unlikely that Gustaaf will be able to enforce the full term of
his lease, he is unable to satisfy s42(1)(d) due to the extended term of his lease, and
even if he has an implied periodic tenancy it can be terminated with one month’s
notice. (√√√).
Question 2 mark 78 (Scaled up to HD)
Anwar probably wants his unencumbered fee simple in Blackacre, free from the
mortgage to Chris Dos, and the sale not to go through to Larry. Anwar must establish
that the mortgage to Chris Dos is invalid, the power of sale was not exercised properly,
and that his interests obtain priority over Larry. (√)
Action against Chris Dos
Prima facie, Chris Dos’s mortgage is indefeasible unless an exception can be made
out (s42 RPA NSW). Here, the most relevant exception includes fraud. Chris Dos
must be party to the fraud (Assets Co) (√), which is constituted by moral turpitude and
personal dishonesty (Wicks v Bennett). It is possible here that when Chris Dos’
suspicions were aroused when he noticed that the signature was “strange” and the
property was undervalued (2nd mortgage). Analogous to Efstratiou, where the
property was undervalued and fraud was made out, fraud may be established here.
Further, if Chris Dos’ suspicions were aroused and he abstained from making
inquiries for fear of learning the truth, fraud may be made out (Assets Co). (other
facts – CT? D’s experience). Further, Chris Dos’ explanation for not investigating
further – that the glasses were old, may be reasonable and not ascribe dishonesty.
Further, it is not relevant that Chris Dos became aware of the fraud after registration,
it must be before (Hoskings v Barnes). (√). It is likely that a court would hold that
Chris Dos was wilfully blind as to existence of fraud, hence his title will not be
indefeasible.
Mortgage
If, however, Chris Dos’s mortgage is indefeasible (or even if defeasible) it is
necessary to look at whether Chris Dos exercised the power of sale properly. The
power of sale cannot be validly exercised unless the mortgagor defaults and proper
written notice is served demanding rectification. Here, Anwar defaulted pursuant to
s109(1)(a) RPA, and Chris Dos duly served one month’s notice pursuant to s57RPA.
(√). Hence, the right to exercise the power of sale validly arose. Further, the exercise
of the power of sale must be exercised in good faith (Southern Goldfields). Here,
reasonable precautions to obtain a proper price (√), advertising, agent, auction,
reserve price and auction price are all relevant (Southern Goldfields). Here, the
property was well advertised, a reputable agent was appointed and the auction was
well attended. The price, however, was only $800k, $400k less than the property
value of $1.2m. however, a mere under-valued sale is not evidence of bad faith
(Southern). There is no evidence that Chris Dos recklessly sacrificed Anwar’s
interests (Southern). It is likely, as a result, that the requirements of the power of sale
were validly exercised. (question faith – CD knew about fraud 15/5).
Larry
If Anwar wants the sale to Larry not to go ahead (or rather, wants to stop Larry from
registering), he must establish that his interests have priority over Larry’s. (√).
Anwar here has an equity of redemption (not extinguished until the purchaser
registers), or it could be characterised as an equitable right of rescission (due to Chris
Dos’ fraud). (√). Larry has a specifically enforceable contract for sale (Lysaght). So,
the competition is between two unregistered interests. (√).
S43A does not apply here, as Larry hasn’t settled (IAC Finance).
So, one must apply the first in time unless the equities are unequal test (Abigail v
Lapin). Did Anwar’s conduct contribute to a belief held by Larry that at the time they
acquired their interest that the prior interests was not in existence? (Abigail v Lapin).
Here, it is relevant that Anwar lodged a caveat before Larry settled – but not before
Larry could acquire his interest. (√). He also doesn’t have the CT, but it would not
have been unreasonable for his to trust his bank’s solicitors – indeed, it would have
been the only way for him to get his initial mortgage. (no choice in the matter).
There does not seem to be any postponing conduct here, although arguably Anwar
should have lodged a caveat long before 15 July, he should have done it as soon as he
became aware of Chris Dos’ unregistered interest (√) and plans to exercise his power
of sale. However, a mere failure to lodge a caveat will not amount to postponing
conduct (JH & Just). Note here s58 of the RPA which states that Larry is not required
to check that the formalities of the mortgage have been complied with. However, it
does not stop constructive notice being imputed unless the purchaser actually made an
inquiry. Here, Larry had notice. (√).
Accordingly, in light of the fact that Anwar did not contribute to a belief of Larry that
there was no prior interest, Anwar’s interest will come first.
If, however, Anwar did not win and Larry did register, he could argue an exception to
indefeasibility on the basis of fraud – in light of Larry’s notice of the “terrible stuff
up” and the fact that Anwar was defrauded. Note that the notice must be of the fraud,
not the unregistered interest (s43, Butler v Fairclough), as it is here.
Result
If Anwar cannot establish that Chris Dos’ title is defeasible and the power of sale was
validly exercised, Anwar will be subject to the mortgage with Chris Dos. If Larry’s
interest does not come before Anwar’s, he will be treated as having bought Chris
Dos’s interest and Anwar will be subject to a mortgage with Larry.
It is likely, however, that Chris’s title is defeasible due to the fraud and hence Anwar
was not subject to the mortgage. (√).
Larry should seek damages from Chris Dos.
Note that is Anwar’s interest is treated as a mere equity for rescission for fraud (as in
Latec) against an equitable interest, the equitable interest will prevail if they are a
bona fide purchaser for value without notice. Latec has, however, been ignored in
later cases (Breskvar). And probably not a BFPVWN. Overall, good grasp of law
and most facts. Need more on fraud and POS heading in the right direction.