Real Property: Priorities
in Old System
Assoc Prof Cameron Stewart
(c) Cameron Stewart 2009
What is property? Real & Personal
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Real Property – realty, interests in land – land is
three dimensional space located by reference to
a point on the earth’s surface – fixtures – in the
past only land was recoverable
Real Property is also split into two categories –
corporeal and incorporeal hereditaments (a right
capable of being devised to an heir)
(c) Cameron Stewart 2009
What is property? Real & Personal
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Personal Property – catchall
(a) Chattels real – leasehold and other interests
in land that are less than freehold – distinction
drawn because of an institutional definition of
rights – only freeholds were enforceable by real
actions for recovery
(b) Chose in possession – a movable corporeal
thing – eg goods
(c) Cameron Stewart 2009
What is old system title?
 Title
is a measure of ownership
 Old
system: the system prior to
Torrens system- 1% of land holding in
NSW and closing – sometimes
‘common law title’ – about 4000 titles
left
(c) Cameron Stewart 2009
Traditional conveyancing
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Feoffment with livery of seisin
Words spoken of intention to pass, ceremony in
public, door knob, lump of earth
(c) Cameron Stewart 2009
Collusive court action as a way of
conveyancing
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Doe v Roe fictions
Collusive court actions
Springing uses
Conveyancing is very difficult!!!
(c) Cameron Stewart 2009
Statute of Frauds
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Statute of Frauds – then in NSW in the
Conveyancing Act 1919 s 23B, S 23C,s 23D, s
23E, s 54A
(c) Cameron Stewart 2009
Deeds
 Grants
by deed
 Deed poll
 Deed indenture
(c) Cameron Stewart 2009
Proving Title
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Title deeds: difficult to read, disgusting to touch and
impossible to understand: Lord Westbury
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Good root of title – an unbroken chain of ownership to
the original Crown grant (post 1788) – possible but
difficult – in England impossible – the convention is an
unbroken chain of ownership of 30 years from present
contract for sale – was 60 years but amended under
CAct s 53(1)
(c) Cameron Stewart 2009
Proving title
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Abstract of title – summary of title documents – now
common usage of chronology
Security - no guarantee – if purchaser takes property
subject to interest - merger
Covenants for title – s 78(1) CAct s 4 covenants –
Full power to convey
Quiet enjoyment
Freedom from encumbrances
Further assurance
(c) Cameron Stewart 2009
Priorities between competing interests in
Old system
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What are “priorities”? – in some situations
competing claims (both legal and equitable)
will be made over the same piece of property –
priorities are the rules to work out which
interest takes precedence over other interests
(c) Cameron Stewart 2009
Characterisation
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You must be able to characterise what form an
interest takes:
Is it legal or equitable or nothing (not property)?
Was the interest created or transferred in
accordance with either the rules of CL or Eq?
If CL then LEGAL
If Eq then EQ
If neither then NOTHING
(c) Cameron Stewart 2009
Case study 1: When contracts go bad
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A (vendor) exchanges contracts with B (purchaser)
A gets a better offer from C (he knows about B’s offer)
and completes the sale to C before B knows
Common law approach? Breach and damages – no
property held by B
Equitable approach: breach and specific performance
But what about the property interests?
(c) Cameron Stewart 2009
Case study 1: When contracts go bad
In common law B is not the owner as the contract
has not been completed so the property cannot
be returned
In equity, the rule in Lysaght v Edwards says that B
gets an equitable interest from the exchange and
that it is a form of constructive trust, which can
be enforced against C (when he knows about B)
(c) Cameron Stewart 2009
Case Study 2: Fat Henry and the
problem of trusts
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Henry and the purse
strings
Taxation in Tudor
England – feudal tenures
Primogeniture
Devising land by will
The legal remainder rules
(c) Cameron Stewart 2009
The use
A --------------------------B --------------------C
(Landowner)
(feoffee to use )
(cestui que use)
Legal estate Beneficial estate
CL
Equitable
(c) Cameron Stewart 2009
The Statute of Uses 1535
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Collapse the use
Springing uses
The use on the use
Equity creates property where there was none
before……
(c) Cameron Stewart 2009
Case study 3: Part performance and
the equitable ‘impersonation’
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A Lease for a factory – an agreement to create a
deed
Or a mortgage created by deposit of title deeds
Or a promise to give a life interest if cared for in
dotage…
(c) Cameron Stewart 2009
The requirements for writing
23B Assurances of land to be by deed
(1)
No assurance of land shall be valid to pass an interest at law
unless made by deed.
23C Instruments required to be in writing
(1)
Subject to the provisions of this Act with respect to the
creation of interests in land by parol: (a) no interest in land
can be created or disposed of except by writing signed by
the person creating or conveying the same, or by the
person’s agent thereunto lawfully authorised in writing, or
by will, or by operation of law, ….
(c) Cameron Stewart 2009
The requirements for writing
54A Contracts for sale etc of land to be in writing
(1) No action or proceedings may be brought upon any
contract for the sale or other disposition of land or
any interest in land, unless the agreement upon which
such action or proceedings is brought, or some
memorandum or note thereof, is in writing, and
signed by the party to be charged or by some other
person thereunto lawfully authorised by the party to
be charged…
CL says no deal
(c) Cameron Stewart 2009
Prioritization
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Once you have characterised the interest you
can test is strength against other interests
There are only four types of priority dispute:
Legal vs legal
 Equitable vs Equitable
 Earlier Legal vs Later Equitable
 Earlier Equitable vs Later Legal
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(c) Cameron Stewart 2009
Legal interest v legal interest
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When two or more legal interests in the land
conflict the main principle is that a person
cannot convey an interest which he or she does
not have (“nemo dat quod non habet”)
Partial eg where A leases to B – A then sells to C
– C ‘s interest is taken subject to the lease
Wholly inconsistent – A sells to B and then sells
to C: C receives nothing
(c) Cameron Stewart 2009
Equitable interest v equitable interest
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Moffett v Dillon [1999] 2 VR 480, at 491, it was stated by Brooking JA
(Buchanan JA concurring, at 506) that the resolution of priority
disputes in the context of competing equitable interests in property
could be resolved by applying either of two distinct rules. The first rule
is that, generally, if the holder of the second equitable interest takes
with notice of the first equitable interest, he or she takes that interest
subject to the first equitable interest. The second rule is that, prima
facie, the equitable interest first created prevails. However, this prima
facie rule can be displaced if the holder of the second equitable interest
has a ‘better equity’. The onus of proof in such cases is upon the
holder of the second equitable interest to displace the prima facie
priority of the first equitable interest holder: Platzer v Commonwealth
Bank of Australia [1997] 1 Qd R 266, at 279
(c) Cameron Stewart 2009
Equitable interest v equitable interest
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Who has the best equity?
Heid v Reliance Finance Corporation Ltd – the better equity
depends on the circumstances –
look to the conduct of the parties
the question of negligence on the part of the prior
claimant
the effect of any representations made by the prior
claimant which may give rise to an estoppel
did the conduct of the prior claimant enable such a
representation to be made?
(c) Cameron Stewart 2009
Equitable interest v equitable interest
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Generally: the earlier equitable interest may be
postponed to the later interest where:
(a) the conduct of the earlier interest holder has
led to the later interest holder
acquiring
an interest;
(b) in the mistaken belief that the prior interest
did not exist
If the equities are equal then first in time
(c) Cameron Stewart 2009
Equitable interest v equitable interest
EG Able agrees to sell his land to Barb. Able
gives the title deeds to barb and signs a receipt
for the purchase money even though he has yet
to be paid. Barb proceeds to grant an equitable
mortgage over the land to Clary. How has the
better interest?
 Look to the equities:
Able has an equitable lien over the property
 Clary has an equitable mortgage
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(c) Cameron Stewart 2009
Equitable interest v equitable interest
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Both the equities are security interests – no real
difference between them – However Able’s
negligent conduct in giving the title deeds and
signing the certificate means that it was his fault
that Clary took his interest without noticeHence Clary’s interest is superior
See Rice v Rice (1853) 61 ER 646
(c) Cameron Stewart 2009
Equitable v Equitable
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In JNJ Investments Pty Ltd v Sunnyville Pty Ltd [2006] QSC 138, a
vendor of property contracted to sell property to a purchaser.
On the day of settlement of this contract, the vendor
completed a sale of the property to a second purchaser for a
higher price. The first purchaser, upon becoming aware of
what had happened, lodged a caveat to prevent registration of
the second purchaser’s transfer. The second purchaser
commenced proceedings to have the caveat removed. The
issue before the court was whether the first purchaser had
priority over the second purchaser. Mullins J, at [70], held that
the first purchaser had priority because the second purchaser
‘had notice of the first [purchaser’s] equitable interest at the
time of the acquisition of its interests’.
(c) Cameron Stewart 2009
Equitable interest v equitable interest
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Exception: in the case of land held under a
trust the beneficiaries will not lose their priority
because of negligent or fraudulent conduct by
the trustee
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Shropshire Union Railways and Canal Company v The
Queen
(c) Cameron Stewart 2009
Equitable interest v equitable interest
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Shropshire Union Railways and Canal Company v The Queen
In that case Holyoake, as trustee of shares for Shropshire, held
all title documents relating to the shares. In breach of trust
Holyoake borrowed from Robson and gave Robson the share
certificate as security for the loan. Robson held the shares but
did not have them registered into his name on the company
register. The issue before the court was whether Shropshire’s
earlier equitable interest as beneficiary under the trust of the
shares was defeated by Robson’s later equitable mortgage over
the shares. The House of Lords ruled that Shropshire’s earlier
equitable interest had priority.
(c) Cameron Stewart 2009
Equitable interest v equitable interest
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Exception doesn’t apply unless the trust is
properly formed or in cases where the
trustee has failed to complete the trust be
receiving the trust property
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Walker v Linom
(c) Cameron Stewart 2009
Mere Equities
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Exception: Mere equities – personal right to a remedy
– proprietary in nature but less than a full equitable
interest
Examples: the right to have a document rectified, right
to have a conveyance set aside because of the grantee’s
fraud
Latec Investments Ltd v Hotel Terrigal Pty Limited: Terrigal
had granted a mortgage to Latec. Latec exercised the
power of sale of the mortgage and sold it to a wholly
owned subsidiary, Southern – Southern granted a
further equitable interest to MLC which had no notice
of the Terrigal interest
(c) Cameron Stewart 2009
Mere Equities
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Terrigal argued that the sale was fraudulent – not at
arm’s length – both Southern and Latec had conspired
to sell at a low price
What was the priority between the interest held by
Terrigal and the interest held by MLC? It was held that
Terrigal had a bare right to sue and have the transaction
set aside – a mere equity
A prior mere equity will not prevail over a later fullblown equitable interest that was taken without notice
(c) Cameron Stewart 2009
Exception: tacking
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Exception: tacking – tabula in naufragio – if a later
equitable interest holder purchased for value and
without notice and is later able to acquire the legal
estate then the later interest holder can tack its equity
onto the legal estate and jump priority
EG Mortgages – If Able grants a mortgage to Bette
then an equitable mortgage to Clary and then another
equitable mortgage to Donna – then the order of
priority will normally be B, C, D – but if Donna can
later buy the land off Bette then Donna equitable
interest will be tacked to the legal estate and Clary will
come in last
(c) Cameron Stewart 2009
Prior legal interest v equitable interest
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In cases where there has been no fraud on the
part of the legal estate holder the prior legal
estate prevails over the later equitable estate
Where the equities are equal the law prevails
(c) Cameron Stewart 2009
Prior legal interest v equitable interest
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Exceptions:
Where the legal interest holder was a party to the fraud
that led to the equitable interest being created Northtern
Counties v Whipp
Where the legal interest holder was grossly negligent in
failing to inquire after or obtain possession of the title
deeds Walker v Linom
Mere carelessness on the part of the holder of the legal
interest is not enough to constitute postponing conduct:
Evans v Bickell (1801) 31 ER 908, at 1005–6. ‘Gross
negligence’ in the sense of a special degree of lack of care
or prudence is needed for this exception to arise.
(c) Cameron Stewart 2009
Prior legal interest v equitable interest
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Exceptions:
Where the legal interest holder entrusted the title
deeds to an agent with limited authority to raise
money by using the property as a security
interest, and that agent exceeds authority by
borrowing more than was intended – legal
interest is bound to the full extent.
Brocklesby v Temperence Permanent Building Society
(c) Cameron Stewart 2009
Prior legal interest v equitable interest
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Exceptions:
Where the legal holder hands over a title
document which is used by a fraudster to create
an equitable interest in another who takes on the
faith of the document
Barry v Heider
(c) Cameron Stewart 2009
Prior equitable interest v legal interest
Pilcher v Rawlins (1872) LR 7 Ch 259, at 268. The legal
interest will prevail if it was acquired:
1. by a purchaser:
 Anyone who acquire an interest for value (lessee, fee simple
owner, mortgagee)
2 for value
 Consideration in money – needs to be more than nominal
amount but not market value
3 in good faith
 Bona fide – no hint of conspiracy or unclean hands:Midland
Bank Trust Co Ltd v Green [1981] AC 513, at 528
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(c) Cameron Stewart 2009
Prior equitable interest v legal interest
4. without notice of the prior equitable interest
 Can be actual, constructive or imputed
 Actual: knowledge of the actual facts – real knowledge
 Constructive: knowledge that would have come into the
person’s attention had they made reasonable inquiries eg
case of land sold with a tenant in possession – purchaser
should have checked the rights of the lessee - constructive
notice
 Must be able to find the interest – old system title allowed
to go back 30 years
 CAct s 164
 Imputed: at law you are regarded as having been notified
eg where agent is notified by no principle
(c) Cameron Stewart 2009
Prior equitable interest v legal interest
The rule in Wilkes v Spooner [1911] 2 KB 473:
Subsequent purchasers are in the same shoes as the
legal estate holder even when the subsequent legal
interest has notice or receives via gift:
[I]n justice to the owner of the land who had no
notice when he acquired the land, it would not be
right to hamper his power of dealing with his own
land, because certain persons, who possibly would
be the only customers for the land likely to pay the
best price, have such notice.
(c) Cameron Stewart 2009
Registration Systems
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Problems with fraudulent transactions in the
early colony
1800 – order of Governor King that all
agreements concerning land be in writing or
entered into books kept at Sydney, Parramatta
and Hawkesbury
1802 – Judge Advocate’s office
(c) Cameron Stewart 2009
Registration Systems
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1817- Gov Macquarie – Fraudulent against a
bona fide purchaser for value
1825 – Registration Act – substantially amended
over time and then repealed in 1984 and
sections transferred into the Conveyancing Act
(c) Cameron Stewart 2009
Conveyancing Act and the Register of
Deeds
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Section 184C – general register of deeds
Open to public inspection – s 199
Deliver original and copy to the Registrar –
registered with a number – copy kept on file
Any instrument affecting land or not can be
registered – not necessarily a “deed” as such
(c) Cameron Stewart 2009
Conveyancing Act and the Register of
Deeds
Are there competing instruments?
Are the documents expressed to be
subject to each other?
Is the instrument created or recorded
on paper?
(c) Cameron Stewart 2009
Requirements to have priority under
s 184G
Valuable consideration: In Bullen v a’Beckett (1863)
15 ER 684, a conveyance for 10 shillings was
held to be for nominal consideration and thus
not entitled to the benefits of the legislation.
 Part value of the property will suffice: Bassett v
Nosworthy (1673) 23 ER 55
Reflects equity will not assist a volunteer
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(c) Cameron Stewart 2009
Requirements to have priority under
s 184G
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Good faith
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Unconscionability, eg Commercial bank of Australia
v Amadio
The onus of proving good faith is upon the
person asserting priority based upon registration
of his or her instrument: Jones v Collins (1891) 12
LR (NSW) L 247
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(c) Cameron Stewart 2009
Requirements to have priority under
s 184G
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Without notice
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Notice received before the execution of the instrument
upon which priority by registration is based precludes
priority based upon registration of that instrument:
Scholes v Blunt (1917) 17 SR (NSW) 36. Notice received
after execution of the instrument but before its
registration does not preclude priority based upon
registration of that instrument: Burrows v Crimp (1887)
LR (NSW) L 198, at 210.
(c) Cameron Stewart 2009
Requirements to have priority under
s 184G
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Without notice
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Notice includes actual constructive and imputed
notice
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Hunt v Luck
(c) Cameron Stewart 2009
Requirements to have priority under
s 184G
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Fraud in the document will not be cured by the
registration of the instrument
Re Cooper
(c) Cameron Stewart 2009
Example
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Moonking Gee v Tahos
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Tahos sold to Gee by contract 13 Nov 1958
11 february Thas sold land again to Wun.
Sale to Wun completed 6 March 1959
12 March 1959 Gee found out and registered his
contract
Wun registered 11 days later
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(c) Cameron Stewart 2009
Example
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Moonking Gee v Tahos
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Gee sought specific performance of contract
His registration conferred priority
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(c) Cameron Stewart 2009
Problems with the deed registration
system
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Improved level of knowledge
Offered greater degree of protection
But
Did not grant a total security of interest
Purchasers took subject to unregistered interests which have not
been documented
Purchasers take subject to unregistered instruments which they
ought to have discovered
Purchasers title is still dependant on the chain of title and the
risk that a prior interest may be invalidated breaking the chain of
title and destroying the purchaser’s interest
(c) Cameron Stewart 2009