Equity Seminar 1Q3: Doctrine of Notice

Equity Seminar 1Q3: Doctrine of NoticeCharlotte Fernandez

Wong Joo YeeLim Yu Jia

Cheong Li XinTeong Xiao Yin

Tan Xue QiCharlotte Fernandez

Wong Joo YeeLim Yu Jia

Cheong Li XinTeong Xiao Yin

Tan Xue Qi

Table of ContentsQuestion 2Introduction 2Types of Notice 2Requirements for the Doctrine of Notice 3Effect of Operation of Doctrine of Notice to the Enforcement of Equitable Proprietary Rights

4Modern Notice 5Conclusion 5BIBLIOGRAPHY 6Books 6Electronic Resources 6Table of Statutes 7Table of Cases7Methodology 8

…QuestionExplain, with reference to appropriate authorities, the operation of the doctrine of notice and how it effects the enforcement of equitable proprietary rights.IntroductionEquity in English law refers to a set of law which consists of rights and remedies that common law does not provide. This body of law has developed through the Courts of Chancery. Generally, common law and equity are two different sets of principles which uphold their own rights and remedies. Due to the harshness and rigidness of common law, equity steps in to fill in the gaps to ensure justice is done and is standard to everyone. Whenever there is conflict between them, equity will prevail.The idea of doctrine of notice is that a bona fide purchaser of the legal interest can acquire the equitable interest in property if he is not aware of the pre-existing interest at the time of acquisition. This person is termed as ‘equity’s darling’ and he will take free of any equitable interest if he can demonstrate that he is the bona fide purchaser for value without notice. The requirements regarding the operation of doctrine of notice will be discussed below.Types of NoticeThere are three strands to the doctrine of notice: actual notice, constructive notice and imputed notice. The first, actual notice, also known as express notice arises when the purchaser has actual knowledge or is aware of the existence and nature of the equitable interest at the time of purchase or any time before the notice is completed. It does not matter how the purchaser acquired the information if it came from a reputable and reliable source. It is important that a vague rumour would not amount to actual notice.Constructive notice arises when the purchaser has sufficient knowledge to put him in position to carry out a reasonable inquiry as to the possible existence of interests or rights of another person that might be binding on him following the purchase. The purchaser is expected to inspect the deed title back to at least 15 years, to a good root of title. Other than that, the rule in Hunt v Luck also requires the purchaser to inspect the land and make reasonable inquires of the person in possession of the land. Equity has developed this doctrine to prevent purchasers deliberately ‘turning a blind eye’ or decline to make investigation on any possible equitable interests. This rule is preserved in modern law by Law of Property Act 1925. Thus, the purchaser is deemed to have notice even if there is no actual notice. Failure to make such inspections will result in the purchaser being bound by constructive notice.The last category, imputed notice arises when the purchaser will be deemed to have notice if his agent knew or ought to have known the existence of equitable interest. As Kingsnorth Finance v Tizard demonstrates, it is crucial that purchasers, and the third person acting on their behalf carry out all enquiries which a reasonable person would make. In this case, Kingsnorth has imputed notice of equitable interests as a consequence of the surveyor’s inspection. Requirements for the Doctrine of Notice‘Equity’s darling’ refers to the person who is a bona fide purchaser of the legal ownership of the property for value without any notice. In this circumstance, such a person will take free of any equitable interest in the property acquired, provided he or she has met the requirements of the test. There are four requirements of the equitable doctrine of notice and each element must be satisfied.First and foremost, the doctrine only operates with regards to the bona fide purchaser, which means a person who acts in good faith. Secondly, he or she has purchased for a value in which

there was a pre-existing equitable interest. In equity, a nominal consideration would be sufficient to establish an enforceable contractual obligation. Thirdly, the purchaser must be the legal owner of the property which means the purchaser must be of a legal estate or interest. Last but not least, the purchaser who applies for the equitable doctrine must not have any type of notice before purchasing the property. The courts in Tizard held that the inspection was inadequate since it was a pre-arranged time, i.e. Mr Tizard planned the inspection to take place on Sunday since he knew that his wife and children would not be at home. Thus, Kingsnorth Finance took the property subject to the wife’s interest.

Effect of Operation of Doctrine of Notice to the Enforcement of Equitable Proprietary RightsIt is crucial to first understand the term ‘equitable proprietary rights’ before scrutinising on the effect of doctrine of notice to it. Proprietary rights described as ‘equitable’ are those which were historically recognised and enforced by the Courts of Chancery, or that have been developed by process of extension of such rights. Similar to legal proprietary rights, both interests are capable of binding third parties. However, as noted above, doctrine of notice operates to destroy equitable proprietary interest by way of Equity’s Darling. This can be seen in the case of Pilcher v Rawlins where James LJ in the Court of Appeal held that the purchasers who had no notice of the trust or the fraud took the property free from beneficiaries’ interest. The beneficial owners failed the case on the basis that they were bona fide purchasers for value without notice of a legal estate. The case further states that in a complex settlement deal, good faith, as part of the doctrine of notice, is a separate requirement to the other requirement of the doctrine (legal estate, valuable consideration, lack of notice). A lack of good faith provides the court with the discretion to prevent the operation of the doctrine. This is to be contrasted with another case, Kingsnorth Trust v Tizard where the lender’s mortgage took property subject to the wife’s interest. In this case, Mr Tizard was the sole registered proprietor of the matrimonial home. When their marriage broke down, Mrs Tizard moved out but returned each day to look after their twin children and would stay the night if her husband was away. On Mr Tizard’s application for the loan, he stated that he was single and arranged for the inspection to take place on Sunday afternoon knowing that his wife would not be present. Judge John Finlay, QC concluded that the inspection had been inadequate and the discrepancy between what Mr Tizard had stated on his application form and what the agent found when he inspected the property put the lenders on notice. Thus, a purchaser with notice, whether actual or constructive, will be required to yield priority to a beneficiary of a pre-existing trust. As discussed, a purchaser is also deemed to have notice of an equitable interest if his agent has either actual or constructive notice of it. In Jared v Clements, the purchaser hold the property subject to the equitable charge as her solicitor had an actual notice of an equitable charge created by deposit of title deeds. It must be borne in mind that after all discussions, doctrine of notice has its roots from equity, which operates on concepts of good conscience. Thus, a person cannot acquire a property free from a pre-existing interest if he was aware of such interest. Modern NoticeHowever, the use of the doctrine of notice has been restricted starting in 1925. The doctrine has been mostly displaced by the statutory reform, Land Registration Act 2002 in deciding if the purchaser obtains his legal title without being bound by any equitable interests. Moreover, Law of Property Act 1925 introduced the principal of overreaching. Overreaching occurs when the purchaser of land will be free from pre-existing interests provided that he pays the purchase money to two or more trustees. This was the situation in City of London Building Society v

Flegg where the House of Lords held that the parents’ rights have been overreached as the mortgage company paid the purchase money to two trustees. Conclusion The fundamental aim of equity which is to provide fairness and justice is still preserved despite the restriction in the use of doctrine of notice. Arguably, the case of Flegg may be seen as an exception. Nevertheless, the doctrine of notice continues to carry out its primary duty. It also mitigates against the harshness of Common Law which enables the equity system respond to social needs more readily.

68 – Majority of main legal issues identified and good engagement with the question throughout. Never reference a case through a website – give the actual case reference. Additionally, make sure you submit in the required way. If this was a summative it would not have been marked.

BIBLIOGRAPHYBooksPearce, R, Stevens, J, and Barr, W, The Law of Trust and Equitable Obligations (5 th Ed, OUP, 2010)

Electronic Resources‘Equity’s Darling’https://hklandlaw.wordpress.com/category/equitable-interests/ accessed on 20 October 2015

Pilcher v Rawlingshttps://webstroke.co.uk/law/cases/pilcher-v-rawlings-1865 accessed on 20 October 2015

Kingsnorth Finance v Tizardhttp://e-lawresources.co.uk/Land/Kingsnorth-Finance-v-Tizard.php accessed on 20 October 2015

Table of StatutesJudicature Act 1875 (38 & 39 Vict c. 77)Law of Property Act 1925 c. 20Land Registration Act 2002 c. 9

Table of CasesBamhart v Greenshields (1853) 9 Moo PC 18 City of London Building Society v Flegg [1988] AC 54Hunt v Luck [1902] 1 Ch. 428Jared v Clements [1903] 1 Ch. 428Kingsnorth Finance v Tizard [1986] 1 WLR 783Kingsnorth Finance v Tizard [1986] 2 All ER 54Lloyd v Banks (1868) 3 Ch. App 488Lloyds Bank v Carrick [1996] 1 WLR 783Pilcher v Rawlins (1872) LR 7 Ch. App 259

Methodology We started off by creating a Whatsapp group to keep in contact with each other, and for some basic discussion. We then set up a meeting time and met at the Sydney Jones Library to further discuss the question. There, we discussed in detail the requirements of the question and proceeded to split the question into a few subheadings and divided it amongst the group. After we have finished our individual parts, we emailed all our work to a single person to compile and look through. Before submission, a copy of the completed work was sent to all group members for a final check. After all of the members are satisfied, we submitted our work.