Nature Of Equitable Rights (Equity/land)

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Legal rights and equitable rights

Ifa lease isn’t properly registered, it will properly take effect as an equitablelease With mortgages, need deeds àif you don’t use a deed or if you don’t register it, it’s just gonna be anequitable charge

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In principle, equitable rights can be lost

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Equitable rights in property are modelled onlegal rights, where legal rights tend to have their equitable counterparts.This is well-illustrated by the following examples from the law of realproperty, e.g.

Fee simple Equitable fee simple

Legal lease Equitable lease Legal charge (mortgage) Equitablecharge Easement Equitable easement

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Equity, has however, evolved some interests of its own, e.g. Restrictive Covenant, Estate Contract

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· In the 1960s Lord Denning MR triedto introduce the ‘deserted wife’sequity’ as a property interest.

· Rejected by the House of Lords: “Before a right or an interest canbe admitted into the category of property, or of a right affecting property, it must be definable, identifiable by thirdparties, capable in its nature of assumption by third parties, and havesome degree of permanence or stability. The wife's right has none of thesequalities, it is characterised by the reverse of them.” (perLord Wilberforce at 1247-8)

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· Matrimonial Homes Act 1957 à if property was in the wife’s name, she could register the right of occupation which made it harder for someone à Family Law Act 1996

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Whenequitable rights can get lost – the equitable doctrine of notice.

· Historically, this was extremely important, andapplied both to land and personalty.

· Landillustrates the problem most vividly. A purchaser who bought land which wassubject to a legal mortgage would still be bound by it, even if unaware of itsexistence. A purchaser who bought land subject to an equitable mortgage wouldbe bound by it only if he knew about it.

· The theory is simple, but the doctrine becamemore elaborate. The basic rule is illustrated by Pilcher v Rawlins (1872) LR7 Ch App 250: if the purchaser meetseach element of the test then they can ignore a prior equitable right, in thatcase a trust, even though the beneficiaries had been swindled by the(seller-)trustees.

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Actual Notice --> Not the same as knowledge

· Generallythe purchaser actually knew about the equitable interest before he purchased.It is not always easy to draw the line: Bankof Ireland Finance Ltd v Rockfield [1979] IR 21 (taking a narrow view).

· It isstill actual notice if someone has notice, and then forgets about it, or has adocument, but does not read it: PollyPeck International v Nadir (No 2) [1992]4 All ER 769 at 781

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Imputed Notice --> If the person acting for you knows, that’s good enough à you are treated as knowing yourself

· Thepurchaser did not personally know of the equitable interest, but his or her agent (typically asolicitor) did. P will be bound as if he knew. For an example where the agentwas the lender’s surveyor/valuer, see KingsnorthFinance Co v Tizard [1986] 1 WLR 783.

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Kingsnorth v Tizard

The marriage between the defendants had broken down, but the wife still visited the house regularly, staying and caring for the children when the husband was away. The house was held in his sole name. He charged it to the plaintiffs, who now sought possession. The wife asserted an equitable interest, as a person in possession.

Held: The husband had concealed her presence from the lender at the time of the charge. Nevertheless, occupation under the section did not have to be exclusive or continuous. It was not negatived by repeated or even regular absences. The wife was in the house almost every day. The presence of the children should have put the surveyor on inquiry, and knowledge of her presence was to be imputed to the lender who therefore took their charge subject to her rights. Once the surveyor came to be aware that the husband was married, he was under a duty to make appropriate enquiries. The husband’s attempts to hide her could not be used by the bank to defeat her claim. What would be reasonable enquiries will depend on the circumstances. The court attempted to equate inquiry in unregistered conveyancing with that expected in registered conveyancing as a result of the decision in Boland.

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Constructive notice -->Either the purchaser not making inquiries where they should have done or making them but not taking them further if you don’t want to hear them

The purchaser (and any agent) did not actually know of the equitableinterest, but

-- either the legal estate purchaser fails to makeany inquiries as to prior equitable interests

-- or where although he makes inquiries, these aretaken to be insufficient.

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· Note the comments of Millett J in Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1995] 1 WLR 978:

“In order to establish constructivenotice it is necessary to prove that thefacts known to the defendant made it imperative for him to seek an explanation,because in the absence of an explanation it was obvious that the transactionwas probably improper.”

This is also illustrated by KingsnorthFinance This ruling imposed a high hurdle for thepurchaser, in this case a mortgagee, to “jump” owing to the high standard ofinspection, and of appreciation of its results which was imposed.

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Land Law today

· Nowadays,the equitable doctrine of notice has no relevance to registered land, andlittle relevance in unregistered conveyancing. With unregistered land, itapplies only residually, to pre-1925 Restrictive Covenants, and equitableshares in land (Kingsnorth Financeagain).

Other interests are protected by registration of entries in the LandCharges Registry kept under the Land Charges Act 1972 (replacing the LandCharges Act of 1925).

· Withregistered land, the structure of the Land Registration Act 2002 means thatequitable interests are protected by registration, usually of a notice (sees.32).

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· Registration – both with registered and unregistered land – can be seen as rendering the equitable doctrine of notice more foolproof.

· From the point of view of the person who has the benefit of the interest Ø register it properly, and it is the equivalent of giving notice to all the world.

· From the point of view of the buyer who is worried about being bound by an equitable interest Ø do a search in the Registry, and you need not worry that you should have made further enquiries. J9AdW3m]

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(As an aside, one may note that ‘the rights ofpersons in actual occupation’ in registered land – see para 2 of Schedule 3 LRA2002 – fulfils a similar function tothe equitable doctrine of notice exemplified in Kingsnorth Finance, but it is based on the statutory provision, andthe case-law on it).Registering a notice on theRegister of title constitutes ‘notice to all the world’

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• Better from the point of view of the person with the benefit of the interest, as s/he knows that, if this is done, the interest is protected

• Better from the point of view of the purchaser, as P knows that checking the Register is all that one has to do

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Constructive notice should not be too readilyintroduced into commercial transactions e.g. those involving shares, or thetransfer of money:

“Account officers are not detectives. Unless anduntil they are alerted to the possibility of wrongdoing, they proceed, and areentitled to proceed, on the assumption that they are dealing with honest men.In order to establish constructive notice it is necessary to prove that thefacts known to the defendant made it imperative for him to seek an explanation,because in the absence of an explanation it was obvious that the transactionwas probably improper” (per Millett J in MacMillanInc v Bishopsgate Investment Trustplc (No 3) [1995] 1 WLR 978 at 1014; affirmed in the CA as [1996] 1 WLR 387.u

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This approach has recently been affirmed (andthis quote endorsed) by the Court of Appeal in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] 3 WLR 1153: see [97] – [99], [103], [105]and [109].

A less exacting standard for constructive notice seems appropriatein the world of commerce compared with where it survives in Land Law (cf. Kingsnorth Finance). This may be because, with unregistered land, a clearprinciple evolved of the purchaser’ssolicitor having to “investigate the vendor’s title”.