"Immunity from pre-existing equitable rights was guaranteed only in the case of the purchaser of a legal estate whose conscience was wholly unaffected. Such a purchaser was sometimes known simply as Equity's Darling - one who had found favour in the eyes of Equity." Kevin Gray, Elements of Land Law. Discuss.
A purchaser of a legal estate whose conscience is wholly unaffected, more commonly known as the 'bona fide purchaser for value without notice,'1 is a term well known in the field of property law. In the notorious case of Pilcher v Rawlins2 James LJ stated that the plea of the purchaser is an 'absolute, unqualified [and an] unanswerable defence"3to any pre-existing equitable rights an owner of the land may have. At the crux of this defence, amongst other factors, the doctrine of notice was formulated as the determinant in deciding if the purchaser would walk free from equitable interests. Historically it was said that legal interests would bind the world, and equitable interests would therefore bind all except for the bona fide purchaser4. However, it is submitted that the statement above5 cannot hold true for the law today and this essay will aim to prove that although the purchaser is still favoured in the eyes of the law is some respects, it is not easily done so and there are still many issues which may affect his immunity. This essay will therefore prove this by considering the deterioration in the doctrine of notice, the increasing need for registration, the impact of overriding interests and the effect of social changes.
Before delving into the discussion of equity's darling, it is important to consider what a bona fide purchaser is and why, pre-1925, they were so favoured in the eyes of equity. The phenomenon of equity's darling stems from the fifteenth century, when a knight would convey his property to a fellow man, to hold it on trust for his wife and children whilst he went to fulfil his duties as a knight, only to find when he returned that the friend, who now held the legal title, had sold the property on to a third party purchaser. The courts of equity held that purchaser should not have to give the land back "unless his conscience was touched by the knights claim."6 Therefore equity stepped in to protect the purchaser in such cases provided the subsequent criteria7 were met. The purchaser must firstly be 'bona fide'; acting in good faith. He must secondly "take a legal estate in the land concerned"8 and thirdly he must have given valuable consideration, the amount of which is irrelevant. However the fourth criteria caused the most issues9 and is arguably the criteria that placed such a "heavy burden on the purchaser"10 and subsequently led to the reform of the law. The burden is on the purchaser to demonstrate that he paid consideration for the property without notice of the incumbrance of the equitable owners rights11. This is therefore where the doctrine of notice comes into play, and the purchaser must show that he had neither actual notice12 (matters within his actual knowledge), imputed notice13 ( where the purchasers agent is aware of the existing equitable interest, this is imputed to the purchaser himself) nor constructive notice (matters which a reasonable 14purchaser would reasonably discover when carrying out inspections.)
It is submitted that it is this third circumstance - constructive notice - that has caused the most difficulty for the purchaser to walk free from the exiting equitable rights and therefore it is this criterion that has subsequently caused the law to change because of the possibility of uncertain15 and unpredictable outcomes16. This is because the purchaser was left in a position where his ability to be immune from equitable rights depended on what the court would consider a reasonable inspection in those circumstances17. For instance although the case law in this area has demonstrated that the judicature recognise the heavy burden placed on the purchaser, it also illustrates their very subjective approach in determining whether the purchaser has constructive notice or not. For instance in Pilcher v Rawlins it was held that "this Court will not take an estate from a purchaser who has bought for valuable consideration without notice,"18 where it was held that reasonable inquiries had been made but the documents had been concealed. On the other hand in Re Nisbett and Potts contract19it was held that the purchaser did not fully investigate title enough and therefore had they done so, they would have had constructive notice. Therefore it is argued that even pre-1925 and in subsequent case law which used the doctrine of notice thereafter; the position of the purchaser was not favoured in the eyes of equity as the law placed a heavy burden on him, and only allowed him to walk free from pre existing immunities once he had carried out exhaustive inquiries of interests he was unsure even existed.
However it is important to consider whether it is justified to place such a heavy burden on the purchasers. It is argued that from the equitable interests owners perspective who may not be aware of the purchase and who, pre-1925 had no duty to register his rights, the only way his interests would be protected would be by providing the purchaser of the actual knowledge himself or by the purchaser inspecting it himself to discover the rights. Yet on the other hand, it is argued that this places a very heavy burden on the purchaser. For instance Smith 20 argues that the Law Commission overlooked the fact that the onus is on the purchaser who is expected to find these interests, or subsequently prove why it was reasonable they did not find them. However it is argued that in the Law Commission's proposals, when discussing the purchaser having notice of occupation( discussed below) they do have a firm aim "in protect[ing] buyers...where the fact...is neither subjectively known to them nor readily ascertainable."21 It is therefore argued that since the shift in attitude has moved towards registration the Law Commission has recognised that purchasers have a heavy burden placed on them and have hence tried to eliminate the doctrine of notice by removing the doctrine of notice altogether in respect of registrable interests, which would have otherwise relied on the doctrine of notice to be binding on the purchaser.
However it is argued that the doctrine of notice has infact been abolished in its entirely in regards to registrable interests, therefore placing the purchaser in a better footing. This is because the Land Charges Act 1925 and 197222 were implemented to create a register of certain interests against the owners name, therefore making certain interests registrable by nature, with no emphasis placed on the purchasers conscience or notice. By way of illustration of the effect of this, in the case of Le Neve v Le Neve it was held by Lord Chancellor Hardwicke23 that "it would be a most mischievous thing, if a person taking the advantage...protect[s] himself against a person who had a prior equity, of which he had notice." This importance placed on good faith and notice contrasts starkly to the position taken now, where it is argued that the burden placed on the purchaser in regards to constructive notice has reversed. This is because the Land Charges Act 197224 creates a list of interests that will only give the equitable owner priority over the purchaser if they are registered, irrespective of whether the purchaser has notice of it or not25. Therefore failure to register results in a complete lack of priority over the purchaser, even if he has notice, yet on the other hand if the equitable owner does register his interest but it is the purchaser who fails to check this, he will not be immune from the rights. Therefore as Howell states "registration is for the incumbrancer a two edged- sword"26 and as in conveyance nowadays the register is fully scrutinised, failure to register gives the purchaser "an unlooked-for bonus"27. For instance the case of Midland Bank v Green28 demonstrates the importance of registration, because the fact that an interest was registrable but had not been registered, played a greater role than the fact that purchaser was not bona fide and with notice. Subsequently it is submitted that in this respect, the doctrine of notice is reduced and the burden shifts from the purchaser to prove his lack of notice, to the equitable owner to ensure registration of his registrable rights. However it can still be argued that although the charges register is beneficial to the purchaser in that in regards to these interests he is free from making inquiries, it is submitted that as the register is against the persons land concerned rather than the property; the purchaser will therefore have to take care when inspecting the register. This is because although he is only required to investigate title of up to fifteen years prior29 to the conveyance, which has been reduced from 40 years, it still may cause problems in that he may have to do further extensive investigation to ensure no prior interests still take priority.
Some contrasts can be drawn and comparisons can be made with the Australian jurisdiction30 where it can be said that they also favour the purchaser over the equitable interest owner, but go about this in a different regard. The owner of the equitable right will be warned of the forthcoming conveyance and will have the option to substantiate his claim. This therefore puts the onus on the equitable owner to verify his claim, rather than the position in the English jurisdiction where the onus was on the purchaser to discover these interests. However it can be said that by making it compulsory to register certain interests and validate their equitable interests in certain situations, our law favours the purchaser in this regard as it places the obligation on the equitable owner and the purchaser will be protected from the interests irrespective of whether he is bona fide without notice, or not, in the case of registrable interests.
It is important to consider why registration occurred and the position in regards to registered and unregistered land as it is submitted that the concept of registration has produced advantages for the purchaser. In regards to property that is not registered, the doctrine of notice is still used on any interests which are not registrable under the Land Charges Act on the Land Charges register31 and therefore the purchaser is bound "by those [remaining] rights which could be discovered by reasonable inspections and inquiries.32" However unregistered land only accounts for about 20% of the overall land in England and Wales33 and therefore it is of registered land that we shall now turn. There has been a great deal of emphasis placed on registration over the last 90 years and it is only since 1990 that registration has become compulsory on sale.34 It is clear that the aim of this was to "create a faster and simpler conveyancing system"35 and to protect buyers from any hidden interests. In regards to registered land, the purchaser can only walk free from pre-existing equities which are neither protected registered interests on the Lange charges Register nor overriding interests. Therefore again, any interests which are capable of being registered but are not done so, will be void against the purchaser irrespective of his conscience or motive. Moreover the principle of overreaching36 has also been of a benefit to purchasers by allowing them to walk free of any existing equitable interests. This mechanism works on any interests that are not attached to the land itself, such as beneficial interests, and therefore, provided the purchaser pays the purchase monies to at least two trustees,37 the trust is transferred from the land to the sale, and therefore the purchaser walks free from their equitable interests, and the trust money received by the trustees can then be divided amongst the beneficiaries. However if the rights attach to the land itself such as commercial interests they will most likely be registrable interests under the Land Charges Act.
It is submitted that although the doctrine of notice has "severely cut back in scope"38 in regards to registered land, it has not entirely diminished, however because of the great emphasis now placed on registration. Although some may argue that doctrine of notice "has no role to play in registered conveyancing"39 it is argued that it still does in regards to the any rights not registrable or overreachable in unregistered land and most importantly in regards to certain overriding interests in registered land. Overriding interests are "interests which are not registered or protected on the register...yet bind any person who acquires interest in registered land40". They were created in s70 Land Registration Act 1925 and are now found in Schedule 3 of the Land Registration Act 200241 and include interests such as leasehold estates not exceeding seven years42 and interests of persons in actual occupation43.
The most problematic overriding interest has proved to be the interests of those in actual occupation in regards to the purchaser, and it is submitted that the key question now is what amounts to actual occupation44 that causes most problems for the purchaser. This is because now it is whether the purchaser has notice of the equitable owners occupation that is the sole determinant in deciding whether the purchaser is free from immunities rather than whether the purchaser has constructive notice. However as in constructive notice, this has proved problematic for the purchaser and it is argued that the old doctrine of notice is once again used to solve problems. For instance in the case of Kingsnorth Finance v Tizard45, it was held by judge Finlay that a reasonable inquiry would have revealed the beneficial interest of the wife, who was in occupation of the property. Moreover in the case of Barclays Bank v OBrian46 a key question was whether the lender had constructive notice of the wife's occupation and any undue influence upon her. However it can be argued these cases played upon the broader doctrine of notice rather than the specific one in relation to constructive notice; and that the broader definition of notice may always have a place in any property law problem but the specific 'constructive notice' criteria may only apply in the case of proving the purchaser was bona fide in the case of recognised intererests47. However it can be said that "what amounts to actual occupation...cannot be simply answered."48 Although Lord Wilberforce in Williams & Glyn's Bank v Boland49 stated that "actual occupation" are words of plain English and refused to consider notice; “even plain English may contain a variety of shades of meaning”.50 A different approach to occupation was taken Lloyds Bank plc v Rosset where all three members of the Court of Appeal applied a notice test instead for determining actual occupation. Therefore it can be argued that some elements of notice will always play a part in determining whether the purchaser is free from immunity, where the law does leaves it at the courts discretion to decide matters such as interests of those in actual occupation. In terms of the purchaser it means that he once again is not provided with clear and consistent case law on what in determined by the courts as occupation.
It can therefore be argued that overriding interests pose a danger to purchasers and do not allow them to walk free from pre-existing equities as he may be bound by them by law, with no defence of the bona fide purchaser. It is argued by some such as Jackson, that overriding interests are not justified and are a "crack in the mirror of title" and can be seen as a "major flaw in the operation of the system."51 This view is understandable in that although the LRA 2002 schedule 3 has reduced the number and scope of overriding interests that were introduced by the LRA 1925, it has gone against the principle of registration, as instead of eradicating any equitable rights52 which take priority over the purchaser, the LRAs have introduced rights which do take priority. The Law commission justifies this by stating that they should only be overriding where protection is needed against the purchaser but also "where it was neither reasonable to expect nor sensible to require any entry on the register."53 By this it seems the Law Commission is referring to those informal family interests54 created in co-ownership, where the wife who contributes, may receive interests under resulting or constructive trust but may not be aware of these. It is submitted that social changes in regards to occupation have also played a part in overriding interests being created and taking priority over the purchaser. For example in Caunce v Caunce55 Stamp J did not hold that the occupation of the wife meant she had constructive notice, but rather that her presence there was attributable to her husband's. However subsequent case law56 has recognised that equitable interests can now arise in a coownership setting and some argue that "there is nothing inherently wrong with a category of non-registrable binding right, even in a system of land registration"57 which can be justified on the grounds that society is changing, where new interests are being identified and therefore this must be reflected in the law.
It is safe to say that the bona fide purchaser was not always free from pre existing equitable rights as the criteria of notice proved greatly problematic to determine as case law has demonstrated. However, by reforms "substituting registration for notice," 58 the concept has not entirely been eliminated from the heart of the judiciary and when their discretion comes into play, such as in overriding interests, ripples of the notice doctrine can still be seen and therefore continue to be problematic for the purchaser. This can also be seen by the changes in our society which now recognised certain informal interests it did not a few decades a go. It can therefore be concluded that although "the essence of a system of registration...[is that] any person...will be safe in relying on the register"59 the purchaser is still not as safe as he should be in relation to overriding interests as they will take priority if found to be in place by the judiciary. It can therefore be concluded that once when 'notice' proved problematic for the purchaser 'occupation' may now do so.
1 p172 Alastair Hudson Understanding equity and trusts (3rd edn, Routledge-Cavendish, 2008).
2 Pilcher v Rawlins (1872) 7 Ch App 259.
4 Elizabeth Cooke Land Law (2nd edn, Oxford University Press, 2012) at page 26.
5 Kevin Gray and Susan Gray Elements of Land Law (5th edn, Oxford University Press, 2009).
6 Elizabeth Cooke Supra Note 4 at page 27.
7 Re Nisbet and Pott's Contract (1906) 1 Ch 386 per 403 Collins MR.
8 Kevin Gray and Susan Gray Supra Note 5.
9 Jean Howell, 'The Doctrine of Notice: an historical perspective' (1997) Vol. 61 Conveyancer and Property Lawyer, 431-441.
10 Judith-Anne Mackenzie and Mary Phillips Textbook on Land Law (14th edn, Oxford University Press, 2012) page 77.
11 Re Nisbet and Pott's Contract Supra Note 7.
12 section 199(1)(ii)(a) LPA 1925.
13 Ibid at section 199(1)(ii)(b).
14 Judith-Anne Mackenzie and Mary Phillips Supra Note 10.
15 Roger Smith Introduction to Land Law (3rd edn, Pearson Education Ltd, 2013) page 115.
16 Kevin Gray and Susan Gray Elements of Land Law (5th edn, Oxford University Press, 2009).
17 Nigel Gravells Land Law (4th edn, Thompson Reuters, 2010) page 28.
18 Pilcher v Rawlins Supra Note 2 at 273.
19 Re Nisbet and Pott's Contract Supra Note 7.
20 Roger Smith Supra Note 15 page 124.
21 para 8.62 Law Commission Land Registration for the twenty- first century: A conveyancing revolution (Law Com No 271, 2001).
22 Land Charges Act 1925 and 1972.
23 Le Neve versus Le Neve (1748) case 254 at 652.
24 LCA 1925, now replaced by LCA 1972.
25 s4 LCA 1972.
26 Jean Howell, 'The Doctrine of Notice: an historical perspective' (1997) Vol. 61 Conveyancer and Property Lawyer, 431-441.
28 Midland Bank v Green (1981) 2 WLR 28.
29 LPA 1969 s23.
30 Elizabeth Cooke, Pamela O'Connor, 'Purchaser liability to third parties in the English land registration system: a comparative perspective' (2004) Vol. 120(Oct) Law Quarterly Review 640-666.
31 Jean Howell, 'Notice: a broad view and a narrow view' (1996) Vol. Jan/Feb Conveyancer and Property Lawyer, 34-43.
32 Peter Sparkes, 'The discoverability of occupiers of registered land' (1989) Vol. Sept-Oct Conveyancer and Property Lawyer 342-354.
33 Land Registry < www.landregistry.gov.uk/public/faqs/is-all-land-registered accessed> 11April 2014.
35 Law Commission Supra at Note 21 para 8.1.
36 page 45 Nigel Gravells Land Law (4th edn, Thompson Reuters, 2010).
37 s2(1) LPA 1925.
38 Kevin Gray and Susan Gray Supra at Note 5.
39 Nigel Gravells Supra at Note 17 page 45.
40 Law Commission Supra at Note 21 para 8.5.
41 sch 3 ,previously s70 LRA 1925.
42 Ibid sch 3 para 1.
43 Ibid sch 3 para 2.
44 Louise Tee, ' The rights of every person in actual occupation: an enquiry into section 70(1)(g) of the Land Registration Act 1925' (1998) Vol. 57(2) Cambridge Law Journal 328-351.
45 Kingsnorth Finance v Tizard (1986) 1 WLR 783.
46 Barclays Bank plc v O'Brien (1993) UKHL 6.
47 Jean Howell Supra at Note 31.
48 Louise Tee Supra at Note 44.
49 Williams & Glyn's Bank v Boland  A.C. 487 at 504.
50 Abbey National Building Society v. Cann  1 A.C. 56 Lord Oliver at 93.
51 Nicola Jackson, 'Title by registration and concealed overriding interests: the cause and effect of antipathy to documentary proof' (2003) Vol. 119(Oct) Law Quarterly Review 660-691.
52 Tim Murphy, Simon Roberts and Tatiana Flessas Understanding Property Law (4th edn, Sweet & Maxwell, 2004) page 251.
53 Law Commission Supra at Note 21 and Law Commission Land Registration for the twenty- first century: A consultative document (Law Com No 254, 1998 para 8.5 para 4.17 l.
54 Diana Chappelle Land Law (8th edn, Pearson Education Ltd, 2008).
55 Caunce v Caunce (1969) 1 WLR 286.
56 Williams & Glyn's Bank v Boland (1980) UKHL 4.
57 Martin Dixon, ' The reform of property law and the Land Registration Act 2002: a risk assessment' (2003) March/April, Conveyancer and Property Lawyer 136-156.
58 Megary and Wade The Law of real property (8th edn, Sweet & Maxwell, 2012) page 186.
59 Maudsley and Burns Land Law: Case & Materials (9th edn, Oxford University Press, 2009) p 60.