Doctrine
of Notice
Doctrine of Notice
Historically, the equitable doctrine of notice was extremely important, and applied both to land and personality. By looking at its application in Land the doctrine is better illustrated. A person that buys a land subjected to a legal mortgage will still be bound by the legal mortgage. It does not matter whether he was aware or not of the existence of the legal mortgage over the land. Things are different in the presence of an equitable mortgage. A person that buys a land subjected to an equitable mortgage will not be bound by it if he was unaware of its existence. The theory is simple, but the doctrine became more elaborate.
General Principle: If the purchaser meets each element required by the doctrine of notice (legal estate, valuable consideration, lack of notice and good faith) then they can ignore a prior equitable right, in that case a trust, even though the beneficiaries had been swindled by the (seller) trustees.
Pilcher v Rawlins (1871-72) L.R. 7 Ch. App. 259
Facts: Jeremiah Pilcher made a settlement under which three members of Pilcher’s family were to stand possessed of about £8000 in trust for Jeremiah Pilcher during his life and after his death for his children. With the consent of Jeremiah Pilcher, the trustees were allowed to vary the investments and appoint new trustees. The Defendant was a solicitor appointed as trustee in relation to the £8000. The money represented a security of a mortgage deed. Ratio: Equity has an interest in and a power over a purchaser’s conscience. The bona fide transferee of the legal estate for value without notice of the equitable interest acquires the legal title in priority over the beneficiary. Application: Three are the main types of notice available:
Actual Notice
Actual notice occurs when the buyer is consciously aware of important facts at the time of the purchase, such as the fact that the property is occupied; these facts are referred to as being "within his [the buyer's] own knowledge" (Law of Property Act 1925 s.199(1)(ii)Ia). In essence, this is a test that is subjective.The purchaser was aware of the equitable interest before buying the property. Actual notice occurs even though a person forgets about a notice or is in possession of a document that notifies the equitable interest but he does not read it.
General Principle: Temporary absence can still amount to actual occupation. But also is an example of case in which the new purchaser had actual notice.
Chhokar v Chhokar [1984] FLR 313
The couple, Mr. and Mrs. Chhokar, resided in a home purchased solely in the husband's name. They both contributed to its acquisition and maintenance. The husband planned to sell the home without alerting his wife since the marriage had broken down. The wife spent some time away from home in the hospital because of complications in pregnancy. She was barred from the property after her return, so she was not really occupying it when the buyer was officially recorded as the new owner. Wife asserted a priority of interest in the property. Ratio: The purchaser was given credit for having paid the mortgage, and the court declared the wife and the purchaser to be tenants in common in equity in equal shares. Application: This case demonstrates actual notice where the purchaser was aware of Mrs Chhokar’s rights. Mr. Chhokar knew the buyer, who came to the residence pretending to be a prospective lodger. They agreed to sell the marital residence for £12,000 (undervalued), and a completion date was set. On this day, Mrs. Chhokar was supposed to give birth to their second child at a hospital.
Imputed Notice
Imputed notice occurs where the buyer was not personally aware of the equitable interest, but his agent (typically the solicitor) was. The buyer will be considered bound by the equitable interest.
Constructive notice
A constructive notice comes into place when a purchaser did not actually know of the equitable interest, but either the legal estate purchaser fails to make any inquiries as to prior equitable interests, or where although he makes inquiries, these are taken to be insufficient.
General Principle: There are circumstances in which a high standard of inspection is expected. If this fails, constructive notice may be implied.
Kingsnorth Finance Co Ltd v Tizard [1986] 1 WLR 783
Facts: The Defendant was the sole owner of the matrimonial home. Mrs Tizard was granted with a beneficial interest. The couple started having problems and they got separated. Mrs Tizard left the house. She was at home every day to look after the two children. When required, she spent the night at the house since the husband was away to stay with the children. One day Mr Tizard mortgaged the property. When he applied for the mortgage he defined himself as a single man. The surveyor did the inspection of the house when wife and children were out. The inspector noticed signs of children, but he did not find anything in relation to the wife. Mr Tizard said that the ex-wife moved out months before. The Claimant made a loan offer and the Defendant accepted. When the Claimant tried to enforce their charge, the issue was whether the Claimant’s legal mortgage was subject to the equitable interest of the wife. Ratio: Physical presence becomes actual occupation even though a person has not exclusive or continuous and uninterrupted occupation of the property. It is surveyor’s duty to properly verify how the house is used when informed of a marriage. Application: The court found the Defendant not liable on the ground that the surveyor was under a duty to do more investigations once finding out about the presence of children.
Equity’s Darling
It is important to pinpoint that beneficiaries’ rights are not absolute rights. There is one person called ‘Equity’s Darling’ whose right may prevail over the beneficiaries’ ones. The doctrine of notice is an equitable doctrine that dictates where certain conditions are fulfilled equity will regard a bona fide purchaser for value without notice as “Equity’s Darling”. It is a good faith party that gives money without knowledge of the trust. Equity’s Darling takes the property free of any rights of the beneficiary. Therefore, if the purchaser of the property is Equity’s Darling, the beneficiary will not be able to have the property itself back, but only a substitute of the property.
General Principle: The bona fide purchaser of the property trust for value without notice acquires good title over the property.
MCC Proceeds Inc v Lehman Bros International (Europe), The Times, 14 January 1998
Facts: The Claimant was a company controlled by Mr Maxwell and members of his family that took over Macmillan Incorporated. Macmillan Inc placed shares in a subsidiary in the name of a nominee company controlled by Mr Maxwell, called Bishopsgate Investment Trust plc. Bishopsgate held the legal title while Macmillan retained the beneficial interest in the shares. Later on Bishopsgate pledged the shares with the Defendant, without notifying Macmillan. The Defendant subsequently sold the shares to another company. MCC sued the Defendant on the ground that they had beneficial interest in the shares so that to be entitle of recovery them. Ratio: Whether the Defendant falls within the category of the so-called bona fide purchaser that has gotten a legal interest in a property without notice of any breach of Trust, he cannot be held liable. Application: The Court of Appeal found in favour of the Defendant on the ground that the company acquired good title to the shares, free from any claims.
Land Law today
Thanks to the introduction of the registration of lands, cases involving the doctrine of notice are fewer. The doctrine only applies in those circumstances involving pre 1925 restrictive covenants or equitable shares on unregistered land. The Land Registration Act 2002 protects equitable interests since registration represents a notification to the world. By consulting the land registry, a purchaser can find all the information in relation to a land.
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