The property legislation of 1925

Introduction

One of the most important changes made by the property legislation of 1925 was the severe curtailment of the equitable doctrine of notice which had played such an important role in the development of the land law. The doctrine is retained in unregistered land, although in a limited form [FN1] but is excluded entirely under the system of registration of title. [FN2] Yet in unregistered land the doctrine has, since 1925, retained an unexpected importance, whilst in registered land there seem increasingly to be traces of the doctrine. [FN3] Given the present uncertainty, it is instructive to trace the decline of the influence of the doctrine and to consider the reasons for that decline. [FN4]

Problems with the doctrine

The historical development of the doctrine of notice in the courts of equity is too well known to need detailed exposition [FN5]: its importance in the development of the law cannot be understated. Nevertheless, by the nineteenth century, the notice doctrine was acknowledged as causing considerable difficulties; it was identified in the earliest reports and proposals for reform in the nineteenth century as one of the major problems of real property. [FN6] Difficulties arose mainly over the question of whether a person who was admittedly a purchaser for value of a legal estate [FN7] in fact had ""notice" of the prior equitable right. Actual notice, conscious knowledge of matters affecting the title, presented relatively few problems. [FN8] The difficulties of "imputed" notice, that is, notice which came through an authorised agent and was imputed to the principal, were largely overcome by the Conveyancing Act 1882, which confined imputed notice to matters found by the agent acting as such and in the course of the same transaction. [FN9] It is constructive notice which has caused and continues to cause the most difficulty. The principle upon which it is based is eminently reasonable. If a purchaser is affected only by matters of which he actually knows, he will take care to ensure that he is without that knowledge. Since this could clearly lead to injustice, equity was prepared in certain circumstances to treat the purchaser as having knowledge which he did not in fact have. [FN10] In order to satisfy the courts of equity, the purchaser was expected to inspect both the land itself and the documents of title to a standard of enquiry set by the courts, and that standard could be very high. In Jackson v. Rowe, [FN11] for example a purchaser purporting to buy the fee simple from a mere life tenant was fixed with notice of the reversioner's interest, despite the fact that the purchaser had been deliberately misled. In general, however, the courts were concerned to confine constructive notice within the scope of those inspections and enquiries which it was reasonable to make, and not to put an over-stringent burden of enquiry on the purchaser. In Jones v. Smith, for example a purchaser who had been told that a marriage settlement existed but that it did not affect the property, was not fixed with notice when this proved to be untrue. It was said:

"If notice of the existence of a settlement, declared not to affect the husband's estate, is to put a purchaser upon inquiry, only because it may by a possibility affect it, how can the Plaintiff stop short of the conclusion that marriage alone should be constructive notice of any settlement that may have been executed? And why, upon the same principle, should not every man who deals with his neighbour, without knowing he is married, be affected with notice of this marriage, and thence with notice of his marriage settlement (if any) and thence with notice of the contents of the settlement?" [FN12]

Section 3(1) of the Conveyancing Act 1882, which confined the scope of constructive notice to those matters which could have come to a purchaser's knowledge if he made reasonable enquiries, was held by the Court of Appeal in Hunt v. Luck [FN13] to have done no more than restate the existing law: what would be reasonable would depend both on the particular circumstances and on accepted practice. In this way it was hoped that the interests of the purchaser and the incumbrancer would be balanced.

Difficulties remained for a purchaser, which were partly overcome by the practice of overreaching. The effect of overreaching is to make notice irrelevant since it can allow the purchaser of the legal estate to ignore prior rights, even if he is aware them. [FN14] But overreaching, although useful, was limited in its application: it could only apply where there was a trust for sale or strict settlement of land [FN15] and only interests capable of being overreached, that is, of being transferred to the purchase money, can be so dealt with. [FN16] Overreaching was thus confined largely to beneficial interests: there is no sensible way in which the benefit of a restrictive covenant, for example can exist in a sum of money.

A registration system

An alternative was to provide for registration of equitable interests. The effects of overreaching and registration are quite different. Whilst the effect of overreaching is to release the land from the incumbrance, the effect of registration is to ensure that the incumbrance remains attached to it. The first attempt to provide a regular framework [FN17] for the registration of a wide class of interests was made by the Real Property Commissioners in their Second Report in 1830, [FN18] which recommended the establishment of a register of deeds. This was not a new idea: there were already in existence two deeds registers in England, in Middlesex and Yorkshire. [FN19]

The primary purpose of the Deeds [FN20] Register Acts was to prevent fraud [FN21] and this was achieved by providing that priority between successive rights in the same piece of land should be regulated by registration. Where transactions were within the ambit of the registers, [FN22] the distinction between legal and equitable estates should have been irrelevant: the first to register would gain priority. From early in their history, however, the Register Acts were held not to exclude actual notice. [FN23] The courts of equity were unwilling to allow a purchaser with clear notice of a prior, unregistered right to gain priority by registering his own deed first. In Le Neve v. Le Neve, [FN24] a case concerning the Middlesex Register, the court refused to allow a later purchaser who had notice of a prior registrable but unregistered deed to gain priority: since the purpose of the register was to prevent fraud by secret conveyances, where the earlier conveyance was known to the later incumbrancer, the Act did not apply. According to the Court,

"it would be a most mischievous thing, if a person taking the advantage of the legal form appointed by an Act of Parliament might, under that, protect himself against a person who had a prior equity of which he had notice". [FN25]

Notice alone, (although not constructive notice) was thus sufficient to establish "fraud" and to deny the purchaser the protection of statute. The philosophy of Le Neve v. Le Neve was followed in later decisions on both the Middlesex and Yorkshire registers and it was not until 1884 that notice was expressly excluded under the Yorkshire registers. [FN26] Under ...

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Although the deeds registers were seen by many as seriously flawed, the Real Property Commissioners recommended an extension of the system to provide a general register of deeds in England. The Commissioners debated at length whether, under their register, notice of an unregistered deed should be allowed to disturb the priority given to a later registered deed. They recognised that there were strong arguments both for and against the admission of notice. In favour of the admission of notice, there was the consideration that since the purpose of the register was to prevent secret transactions in land, actual knowledge of a prior right rendered registration unnecessary. Additionally, there was a concern that if notice were expressly excluded, it might be more difficult to establish fraud, since in many cases of fraud, notice was a vital ingredient. [FN27] On the other hand, there was a "public policy" argument that rights which might affect purchasers should be capable of being ascertained without difficulty:

"If the public good require that a purchaser to have the protection of the law, should comply with a form, and that form be made simple and easy, a purchaser omitting the form has no just ground of complaint that the protection is not given." [FN28]

The most serious obstacle to the admission of notice was a lack of practical difference between actual and constructive notice. The "mischief" of letting in constructive notice was so strongly felt that it had been excluded by the courts, even where actual notice was permitted to displace registration requirements, yet:

"Between actual notice and the highest degree of constructive notice, there is no substantial difference; indeed the latter, as resting oftener on written evidence, is frequently more clear and satisfactory; and the defence to moral feeling, which affords perhaps the strongest reason for giving effect to actual notice, would be violated in no less degree by denying the same effect to a strong and clear case of constructive notice". [FN29]

The Commissioners came to the conclusion that it was a question of a "balance of evils" and that all notice should be excluded in their proposed system. However, nothing came of their proposals [FN30] and attention turned thereafter to registration of title, and to amendment of the substantive law of real property, to remedy the many problems of land law. [FN31]

Notice and registration of title

The earliest proposals for a register of title show a determination to exclude notice from the system. The Commission on Registration of Title appointed to consider the possibility of title rather than deeds registration, [FN32] considered the position of notice in its new register.

"We propose that fraud in obtaining a transfer of the registered ownership shall defeat the title of the person who becomes registered owner by fraud, but that notice of unregistered rights shall not merely as notice have any such effect. We think that though the purchaser in the course of his inquiries ... has notice of any claims upon the estate, it will not be unjust to deprive the parties interested in such claims of their rights ... if their rights are not protected upon the register."

The Land Transfer Act 1862 which was enacted following the Report aimed at a comprehensive system of registration in which there was no room for unregistered interests and no mention was made in the Act of notice of any sort. Both the subsequent Land Transfer Acts of 1875 and 1895 expressly provided that there should not be entered on the register any notice of any trust, implied, express or constructive but nothing was said of other equitable interests which were traditionally protected by notice.

A Royal Commission under the Chairmanship of Lord St Aldwyn appointed to examine the system of registration of title, which reported in 1911, [FN33] recommended that dealings for value by a purchaser with a registered proprietor should be protected, notwithstanding notice, whether express, implied or constructive, of any matter outside the register, except in a case of actual fraud to which a person dealing with the proprietor was party. Thus notice was expressly excluded from the system of registration of title and the provisions were carried largely unchanged into the Land Registration Act 1925.

Notice under the general law

In its report of 1857, [FN34] the Commission on Registration of Title had warned that no register of title would be successful unless the general law was at the same time simplified. Consequently a number of Acts were passed in the following years whose aim was to simplify conveyancing. [FN35] It was recognised, however, that such measures, beneficial though they were, were insufficient, particularly if, as many desired, the "old" conveyancing by deeds was to continue as an effective rival to registration of title. A Conveyancing Bill of 1896 aimed to provide a system of unregistered conveyancing which would rival the registers of title, by providing a system of cautions and inhibitions, similar to that used under the Land Transfer Acts. The idea was adopted in Lord Haldane's Property Bills 1913-15 which provided for a register of beneficial interests in unregistered land. [FN36]

The first attempt at reform after the Great War, the Law of Property (Assimilation) Bill of 1920, [FN37] abandoned Lord Haldane's plan for a register, substituting for it a rule that purchase money should be paid to two trustees. More controversially, almost all equitable interests has to be created behind a trust for sale or strict settlement [FN38] and would be overreached on sale. Although most of the massive Bill passed through all its Parliamentary stages "on the nod", strong objection was taken to the virtual abolition of notice, [FN39] and when the Bill was re-introduced the following year, the overreaching provisions were confined to beneficial interests, and notice was restored as a general principle.

The Law of Property (Assimilation) Bill of 1922 was the first to provide for wide-ranging registration of equitable interests to protect those rights that were not to be overreached: the scope of the Land Charges Registration and Searches Act 1888 was extended and became the Land Charges Act 1925. It is made clear that registration under the Act is "notice" [FN40] and section 199(1)(i) of the Law of Property Act 1925 eliminates the equitable doctrine of notice from registrable matters. The approach of Le Neve v. Le Neve [FN41] has been thoroughly discredited: Midland Bank Trust Co Ltd v. Green [FN42] affirmed the absolute irrelevance of "notice" in unregistered land where the Land Charges Act applies. At the same time the principles of overreaching were adopted and extended. [FN43]

The residual doctrine of notice

Despite its severe restriction in unregistered land and entire elimination from registered land, notice is only displaced to the extent of express statutory provisions. It remains as a common law principle and is thus available to fulfil its old role of regulating the priority of a prior equitable and a later legal interest, wherever that may be necessary.

Conclusion

The containment of notice was an important purpose of the reforms which culminated in the property legislation of the 1925. Its total eradication was only prevented by the acknowledgement that in a few cases neither overreaching nor registration were appropriate mechanisms for dealing with equitable interests. [FN44]

The decision to reduce its influence must be seen against the general background of the reforms, whose primary aim, (which remained largely unchanged from 1829 until 1925) was to make easier and cheaper the transfer of land. Although equitable interests were still to be protected, the balance shifted in favour of the purchaser. There was little consideration of the effect on the owner of the equitable interest; whether, for example, the interests of a beneficial owner would be as secure in a sum of money as they were in land. [FN45] It must, of course, be remembered that late-twentieth Century difficulties over the trust for sale are a product of their time, as the overreaching provisions were of theirs. The wide extension of the trust for sale in 1925 did little more than put in statutory terms the expected position. [FN46] Under a strict settlement, the interests of those entitled under the limitations could be overreached by the tenant for life: the only requirement was that he act within the terms of his power.

Commercial equitable interests, (such as options to purchase land) deserved more protection by registration but registration is for the incumbrancer a two- edged sword. Registration protects him completely: failure to register results in the complete loss of the right against the purchaser. The purchaser has little to lose; he will often in fact be aware of the prior incumbrance and a failure to register gives him an unlooked-for bonus. [FN47]

The antagonism of English law towards notice contrasts with that in the United States, where developments have been in a quite opposite direction. A variety of statutes in the different states provide for registration of deeds rather than title. [FN48] Far from being excluded, the doctrine of notice is seen as having a fundamental role in the regulation of priority of interests in land and both actual and constructive notice are permitted to "interfere" with registration provisions. In Ireland, where there is still a register of deeds, [FN49] actual, although not constructive notice, is admitted into the register.

Title registration systems tend to exclude notice [FN50] but the exclusion is not a precondition for successful title registration. It is clear from the American experience that the acceptance of notice is totally compatible with conveyancing in the modern world.

The doctrine of notice was reduced by the 1925 legislation to a very narrow scope. Its inherent difficulties and the unfortunate experience of the Yorkshire and Middlesex deeds registers in allowing notice to displace statutory provisions, so thoroughly frightened the reformers that the only answer seemed to be the virtual eradication of the doctrine. Yet, as has been seen, although the final decision was to exclude notice as far as possible, it was by no means a foregone conclusion. It was acknowledged by the reformers that it would be very difficult to wean judges away from the idea of notice. It was said in a report of 1857 [FN51] that "we are aware that it has been said that judges would notwithstanding any law to the contrary, in the course of time contrive some means of neutralising any enactment which went to exclude the doctrine of notice".

The principle seems to be at the root of the decisions on section 70(1)(g) of the Land Registration Act 1925, although the problem of the single trustee is now being overcome by other means. [FN52] In a more far-reaching problem, it is by no means clear what role the doctrine has in dealings with rights arising by estoppel, whether the land be registered or unregistered. [FN53]

Whether notice is an appropriate mechanism in modern land, is a matter for debate. Whatever the decision, experience suggests that the Commissioners in 1857 spoke more truly than they knew.

FN Lecturer in Law, University of Manchester. A version of this paper was published as a University of Manchester Working Paper, 1996 No. 19.

FN1. Notice is now confined by s.199(1)(ii) of the Law of Property Act 1925.

FN2. By s.59(6) and s.74 of the Land Registration Act 1925.

FN3. In "single trustee cases" in unregistered land, the residual doctrine of notice is used legitimately to resolve the problem of priority where beneficial interests are not overreached on a dealing with the legal estate. See, for example Kingsnorth Finance Co Ltd v. Tizard [1986] 1 W.L.R. 783. In registered land, the abolition of notice requires a less straightforward analysis but the cases seem essentially to involve notions of notice: see Abbey National Building Society v. Cann [1991] 1 A.C. 56.

FN4. The wider role of the doctrine in equity's general jurisdiction to do justice in a particular case is not considered here. For discussion see Howell Notice: A Broad View and a Narrow View [1996] Conv., 34.

FN5. For a description of the way in which equitable jurisdiction evolved, see, for example Holdsworth, A History of English Law, (1924), Vol.4, p. 407 ff.

FN6. See, for example the First Report of the Real Property Commissioners (1829) H.C.P. x,1.

FN7. It was for the purchaser to prove himself a bona fide purchaser of a legal estate without notice. The plea was a single one: it could not be satisfied by proving purchase for value and leaving it to the equitable owner to prove notice: Re Nisbet and Pott's Contract [1905] 1 Ch. 391 at 402; [1906] 1 Ch. 386 at 404, CA.

FN8. But see, for examples of difficulty, Lloyd v. Banks (1868) 3 Ch. App. 488 at 490 and Barnhart v. Greenshields (1853) 9 Moo. P.C. 18.

FN9. See generally, Megarry and Wade, (3rd ed., 1966), p.129. The Law of Real Property.

FN10. It was said in Jones v. Smith (1841) 1 Hare 43 that the doctrine of constructive notice arose where a purchaser had actual notice that property was incumbered or in some way affected or where the conduct of the purchaser evidenced suspicion of the truth, and he wilfully or fraudently determined to avoid receiving further notice.

FN11. (1826) 2 Sim. & St. 472

FN12. (1841) 1 Hare 43 at 46. For a later fulfilling of the prophecy, see Kingsnorth Finance Co Ltd v. Tizard [1986] 1 W.L.R. 783.

FN13. [1902] 1 Ch. 428.

FN14. The concept of overreaching as it applies to land was not, and is not, an exclusively equitable doctrine: it was and is possible to overreach both legal and equitable interests. Under the typical strict settlement prior to 1926, there was a series of limited legal estates which the tenant for life could overreach.

FN15. Overreaching powers were given to the tenant for life under a strict settlement by Settled Land Act 1882, s.20. For an explanation of the principles of overreaching: Harpum, "Overreaching, Trustees' Powers and the Reform of the 1925 legislation", [1990] C.L.J. 277. See also Lightwood, "Trusts for Sale" [[1926] C.L.J. 59 on the history of the trust for sale.

FN16. The recent decision in State Bank of India v. Snood [1997] 1 All E.R. 169 that no capital sum need be paid by the purchaser in order to overreach beneficial interest makes no difference to the principle, nor do the changes made to trusts by the Trusts of Land and Appointment of Trustees Act 1996.

FN17. The earliest registration provisions provided not for the registration of matters such as restrictive covenants or beneficial interests, but for matters such as bankruptcy orders, judgments and pending land actions. Although not themselves "interests in land" as the expression is generally understood, statute had provided that they should effect a purchaser who had notice of them. Provision for registration of pending land actions was first made by s.7 of the Judgment Act 1839; for the registration of judgments affecting land in 1692 4 William and Mary, c. 4, for the registration of writs or orders affecting land by the Law of Property (Amendment) Act 1860; and for registration of bankruptcy matters by 34 & 35 Henry viii, c4. These matters are now registrable under s.59 of the Land Registration Act 1925 and ss. 5, 6 and 7 of the Land Charges Act 1972.

FN18. Second Report of the Real Property Commissioners (1830) HCP vol. xi, 1.

FN19. Local deeds registers were established in the West Riding of Yorkshire in 1703, in the East Riding in 1707 and in the North Riding in 1735. A register was established in Middlesex in 1708.

FN20. Although described as a registers of "deeds", registration was simply of a document (or a memorial of the document) effecting a transaction in land. The expression "deed" did not necessarily import the requirement that the transaction had to be "by deed".

FN21. According to the preamble to the East Riding Act 1707, the register was established to alleviate the mischief caused by secret transfers of land whereby persons "ill disposed have it in their power to commit frauds ... by means whereof several persons have been undone in their purchases and mortgages, by prior and secret conveyances, and fraudulent incumbrances."

FN22. The registers were limited in their scope: only interests created by the use of a document were registrable, and not all interests so created were registrable: for example, leases under 21 years taking effect in possession, and copyholds could not be registered. Where registration was not possible, priority was decided by the general law: interests took priority in order of creation or under the doctrine of notice.

FN23. The Register Acts themselves said nothing about "notice" as such, although the provision that every deed or conveyance would be adjudged ""fraudulent and void" against any subsequent purchaser, unless the first interest was registered before the second, could reasonably have been interpreted by the courts as excluding notice entirely.

FN24. (1748) 3 Atk. 646.

FN25. (1748) 3 Atk 646 at 652. Emphasis original.

FN26. By s.14 of the Yorkshire Registries Act 1884.

FN27. Second Report of the RPC (1830), op.cit. p.37.

FN28. Second Report of the RPC (1830), ibid. p.37.

FN29. Second Report of the RPC (1830), ibid. p. 38.

FN30. Numerous attempts thereafter were made to introduce a general register of deeds, all of which failed. The last of the English deeds registers, the East Riding Register, was closed in 1974.

FN31. For the ensuing conflict between those espousing title registration and those opposing it, see Offer, Property and Politics, 1870-1914: Land Ownership, Law, Ideology and Urban Development in England (Oxford, 1992) and Anderson, Lawyers and the Making of English Land Law, 1832-1940 (Oxford 1992).

FN32. Report of the Commission on Registration of Title (1857) HCP vol. XX1, 245, 291.

FN33. Second and Final Report of the Royal Commission on the Land Transfer Acts (1911) Cd. 5483; summary of recommendations, p. 55, No. 17.

FN34. Report of the Commission on Registration of Title 1857, op.cit. p. 299.

FN35. For example the Conveyancing Acts of 1881 (which shortened conveyances by the introduction of general words) and of 1882 (which restricted the scope of constructive notice). The Land Charges Registration and Searches Act of 1888 provided a central point for registration of judgments and writs and made new provision for the registration of "land charges", principally charges arising under various Land Improvement Acts of the nineteenth century and consolidated in the Improvement of Land Act 1864. Charges arising under the Improvement of Land Acts are now registrable under Class A of the land charges register, held under the Land Charges Act 1972 or s.59 of the Land Registration Act 1925.

FN36. The Haldane Bills were ambitious in scope, aiming to cover the whole field of land law. First introduced in 1913, they were subsequently amended and reintroduced in 1914 and 1915. They finally foundered, along with much else, during the Great War.

FN37. The Bill was drafted following the Fourth Report of the Acquisition and Valuation of Land Committee on the Transfer of Land in England and Wales, (1919) Cmd 424, HCP, Vol. xxix, 89, a committee set up in the aftermath of the War under the Ministry of Reconstruction which was considering the whole question of post-war land policy.

FN38. The exception were charges secured by deposit, and restrictive covenants which were still to affect the purchaser with notice.

FN39. Particularly by Lord Cave: see correspondence with Sir Benjamin Cherry, a conveyancer very much involved in the reforms, in PRO LCO2 443. Part of the problem was that the relevant provisions were almost wholly unintelligible. McNaughten, the leader of the Bar Council, confessed that he could not understand them: PRO LC2 445, letter from McNaughten to Claude Schuster, August 13, 1920.

FN40. The Law of Property Act 1925, s. 198(1) provides that registration under the Land Charges Act 1972 is to be notice "for all purposes."

FN41. (1748) 3 Atk. 646.

FN42. [1981] A.C. 513, HL.

FN43. The Law of Property Act 1925, ss.2, 27(2) and 34-36.

FN44. Overreaching and registration are generally alternatives, although some rights which are registrable under the Land Charges Act 1972, (a limited owner's charge, general equitable charges and annuities) can nevertheless be overreached: s.2(3)(iv) of the Law of Property Act 1925 and s.72(3) of the Settled Land Act 1925. The sections say nothing about registration of such interests under the Land Registration Act 1925, nor does that Act mention the effect of an overreaching disposition on these interests.

FN45. As has been seen, overreaching was suggested as the only "protection" for incumbrancers, above, n. 37.

FN46. According to Benjamin Cherry, "no one in his senses" gave real or personal property without imposing a trust for sale "with a power to postpone and all the usual provisions": letter from Cherry to Claude Schuster PRO LCO2 443 March 5, 1920.

FN47. See, for example, Midland Bank Trust Co Ltd v. Green [1981] A.C. 513, HL and Philips v. Mobil Oil Co Ltd [1989] 1 W.L.R. 888.

FN48. See, generally, Dukeminier and Krier, Property (3rd ed., 1993), Ch.8. Title registration has been tried in some states but abandoned.

FN49. Deeds registration was introduced in 1707 by the Registration of Deeds Act (Ireland). This is now being superseded by registration of title: Registration of Title Act 1964 and the Land Registration of Title (NI) 1970.

FN50. Although under the very limited title registration operating in the U.S., it seems that a purchaser will take subject to an adverse claim of which he has actual knowledge: Cunningham, Stoebuck and Whitman, (2nd ed., 1993), p. 885. The presence of s.70(1)(g) of the Land Registration 1925 and the mysterious provision that a purchaser be in good faith: s.3(xxi) of the Land Registration Act 1925 retain strong links with notice.

FN51. Report of the Commission on Registration of Title, 1857, op. cit. p. 39.

FN52. See, for example Abbey National Building Society v. Cann [1991] 1 A.C. 56.

FN53. See Battersby, "Informal Transactions in Land, Estoppel and Registration", (1995) 58 M.L.R. 637; Howell, "Notice: a broad view and a narrow view", [1995] Conv. 34.

CONVPL 1997, Nov/Dec, 431-441

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