Registered fee simple v Registered mortgage
Eu-Min Teng
NEDLANDS PROPERTY
Interests
Xena
Registered fee simple owner.
E Bank
Registered mortgage, August 2004.
Xena v E Bank
Registered fee simple v Registered mortgage
Although EB's mortgage document was forged by Albert, and thus void, EB's mortgage gains immediate indefeasibility upon registration, provided the mortgagee EB has not participated in the fraud, personally or through an agent: Frazer v Walker, Beatty v ANZ Banking Group
The question is whether Theo's conduct was fraudulent and if so, whether his fraud can be brought home to his employer, Jacksons Lawyers and in turn, to the Jacksons' principal, EB.
Does Theo's false witnessing of Xena's signature constitute fraud?
Beatty asserts that false attestation would be regarded as statutory fraud, even if the mortgagee's agent believed that the signature was genuine, with the result that the mortgage would be defeasible. However, in Russo v Bendigo an agent who knowingly made a false attestation was not regarded as fraudulent. Statutory fraud includes dishonesty, moral turpitude and a wilful and conscious seeking to defeat or disregard another's rights: per Ormiston JA in Russo. Theo had no reason to believe that Xena had not in fact signed the mortgage and seems to lack moral turpitude.
Unlike the law clerk Gerada in Russo, Theo is an articled clerk who has professional legal training. The importance of witnessing was also reinforced by instructions to Theo never to falsely witness. Unlike Gerada, Theo knew that by his false attestation he was putting the mortgage forward on the path to registration, and appreciated that lodging the mortgage for registration would convey a representation to the Title's office that the mortgage had been properly attested. The court takes these two matters in determining if Theo's is fraudulent: Russo
Theo is an articled clerk who has professional legal training. The importance of witnessing was also reinforced by instructions to Theo never to falsely witness. Therefore, it is likely that Theo's false witnessing would be regarded as fraud.
Can Theo's fraud be brought home to EB?
To determine if the agent's fraud is the principal, EB's fraud, the principle of respondeat superior is applied: Schultz v Corwill Properties. Theo is an employee of Jacksons. If the agent, Jacksons, acted within the scope of the principal, EB's actual or apparent authority, then the fraud of Jacksons becomes the fraud of the principal. Jacksons was given authority by EB to prepare the mortgage document and handle the mortgage transaction. Witnessing Xena's signature was part of the mortgage transaction. Hence, the fraud of Jacksons' can be brought home to EB.
Conclusion
EB's mortgage is defeasible, and should be discharged.
SWANBOURNE PROPERTY
Interests
Daphne
A lease not exceeding 3 years that takes effect in possession is a legal lease: Property Law Act 1969 (WA) s35(2). Daphne has an unregistered legal lease for 3 years commencing October 2001. The option to renew the lease confers an equitable interest on Daphne. The option is unregistered. The lease was caveated in June 2004.
Albert
Albert becomes the registered fee simple owner in May 2004.
EB
EB obtains an unregistered equitable mortgage ...
This is a preview of the whole essay
Conclusion
EB's mortgage is defeasible, and should be discharged.
SWANBOURNE PROPERTY
Interests
Daphne
A lease not exceeding 3 years that takes effect in possession is a legal lease: Property Law Act 1969 (WA) s35(2). Daphne has an unregistered legal lease for 3 years commencing October 2001. The option to renew the lease confers an equitable interest on Daphne. The option is unregistered. The lease was caveated in June 2004.
Albert
Albert becomes the registered fee simple owner in May 2004.
EB
EB obtains an unregistered equitable mortgage pursuant to the specifically enforceable contract of mortgage in July 2004: Lysaught v Edwards. EB did not caveat the mortgage.
Frank
Frank has in August 2004 an unregistered equitable interest pursuant to a specifically enforceable contract for the sale of land: Lysaught v Edwards. His interest is immediately caveated.
Priority disputes
Daphne v Albert
Unregistered lease v Registered Fee simple
A prior unregistered lease for a term of less than 5 years to a tenant in actual possession prevails over Registered Proprietor's ('RP') title: Transfer of Land Act 1893 (WA) s68 ('TLA'). Albert is therefore subject to Daphne's lease.
Unregistered option v Registered Fee simple
RP Albert has indeafisible title (TLA s68), unless an exception is available to impeach his title.
a) Volunteers exception
Albert provided no consideration for the property, which was a gift from Xena. Albert is therefore a volunteer RP.
It is not clear whether Xena told Albert about Daphne's option. First, assume that Albert was not. In King v Smail, a registered volunteer did not acquire an indefeasible title free from prior unregistered interests. On this view, Albert title would be subject to Daphne's option. However, in Bogdanovic v Koteff a registered volunteer obtained indefeasible title and was thereby not subject to a prior unregistered interest. In both cases the volunteer RP had no notice of the prior unregistered interest. The court in Bogdanovic took the view that the paramountcy provision (TLA s 68) which had gained ascendancy since Frazer v Walker, did not require the RP to be a purchaser. In WA, Owen J in Conlan supported the Bogdanovic view. The recent views of Bogdanovic and Conlan would more likely prevail in WA. Hence Albert would have indefeasible title.
The situation might be different if Albert had notice of Daphne's option from Xena. Bogdanovic left open the question of whether volunteers hold subject to unregistered interests of which they had notice when the acquired their interests. TLA s134 protects RPs against notice of unregistered interests. Whether Albert obtains indefeasibility will probably depend on whether the court considers that s134 applies to volunteers as much as purchasers.
b) Fraud exception
Is Albert guilty of fraud?
Fraud is an exception to indefeasibility of the RP's title: TLA s68. The TLA does not define fraud and the interpretation of the term fraud derives from case law. Knowledge of an unregistered interest is not itself to be imputed as fraud: TLA s134. Knowledge that the prior interest will be defeated by registration is insufficient to constitute fraud by the person becoming the RP: Mills v Stockman. To establish fraud, we need actual fraud, that is, dishonesty of some sort which must be brought home to the registered proprietor or his agents: Assets.
If Albert was told of Daphne's option, Albert's mere knowledge of Daphne's option, or that his registration would defeat her option interest is not fraud. Comparing Loke Yew v Port Swettenham Rubber Co Ltd, Albert might be fraudulent because had more than mere knowledge of Daphne's unregistered option interest - Albert told Xena that he would acknowledge Daphne's interests. However, Loke Yew is distinguishable because here there is no proven plan of dishonesty by Albert, or that that Xena was induced to give the property to Albert by Albert's statement. Hence there is no fraud by Albert. The weight of authority supports the view that fraud must occur in the period prior to registration: Loke Yew, Wilson and Toohey JJ in Bahr v Nicolay. Even if fraud by Albert is established, it is not clear if the Albert's alleged actual dishonesty occurred before his registration.
c) Rights in personam
The principle of indefeasibility "in no way denies the right of a plaintiff to bring against a RP a claim in personam, founded in law or equity": Frazer v Walker. For the in personam exception to be invoked, the facts must demonstrate the existence of a known legal or equitable cause of action that is enforceable against the RP: Macquarie Bank Ltd v 64th Throne Pty Ltd
- Estoppel
Daphne may have an estoppel cause of action against Albert. In keeping silent after Xena told Daphne that Albert would look after Daphne's interest, Albert represented that his interest would be subject to Daphne's option. The detrimental reliance on the part of Daphne is her failure to caveat her option to renew before Albert registered his fee simple estate. However, Daphne's reliance on Albert in not uttering a word is arguably not reasonable. Estoppel is hence unlikely to succeed.
- Breach of trust
The in personam exception arises where the RP purchases the property having acknowledged the existence of a prior unregistered interest or right binding on the vendor and having agreed either expressly or by implication to take subject to that interest or right: Bahr v Nicolay. According to Xena, Albert expressly acknowledged and agreed to take subject to Daphne's option interest. Equity may impose a constructive trust so that Albert holds his title on trust for Daphne in relation to Daphne's option to renew. Daphne as beneficiary has a direct cause of action against Albert for his breach of trust in agreeing to sell the property to Frank. Albert's title is thus subject to Daphne's option.
Conclusion -
Frank's title is subject to Daphne's option as her cause of action in breach of trust against Frank would likely succeed.
Daphne v Frank
Unregistered legal lease v unregistered interest
Currently, Daphne's caveat would prevent Frank from registering his equitable interest: TLA s139. A prior legal interest will prevail over the subsequent equitable interest, unless there is some fraud or negligence by the legal interest holder: National Counties Fire Insurance Co v Whipp. Daphne's prior legal lease would prevail over Frank's later unregistered equitable interest as there is no blameworthy conduct by Daphne.
Unregistered option v Unregistered interest
Although Daphne only specified her lease in the her caveat, this would protect the option also: Leros v Terrara. The prior equity prevails where the equities are equal: Rice v Rice. Daphne caveated her lease before Frank's registration, therefore there is no postponing conduct by Daphne. Therefore Frank is subject to Daphne's option to renew.
Daphne v EB
Unregistered legal lease v Unregistered mortgage
Daphne's lease caveat would prevent EB's mortgage from being registered: TLA s139.
Applying the priority rule, Daphne's prior legal lease will prevail over EB's later unregistered equitable mortgage as there is no blameworthy conduct by Daphne.
Unregistered option v Unregistered mortgage
As mentioned above, Daphne's caveat protects her option. There being no postponing conduct by Daphne, her prior option prevails over E Bank's mortgage.
EB v Frank
Effect of Frank's caveat
No entry is to be made in the Register affecting land in respect to which a current caveat exists: TLA s139. Hence, Frank's caveat will prevent EB's mortgage from being registered. When a dealing is lodged for registration, here, EB's mortgage, the caveator is given notice of this fact. The caveator then has 14 days to take action to demonstrate the validity of his interest and show cause as to why the dealing should not be registered. If the caveator takes no action, the caveat lapses and the dealing is registered: TLA s138
Prior unregistered mortgage v Subsequent unregistered interest
The prior equity prevails where the equities are equal: Rice v Rice
Is EB's failure to caveat postponing conduct?
Griffith in Butler v Fairclough held that there was a positive duty on the holder of an unregistered interest to lodge a caveat. In a dispute between two unregistered interests where the holder of the first interest fails to caveat and the holder of the second has searched the Register, the failure would be considered to be postponing conduct.
EB failed to caveat its mortgage, and Frank checked the register. On this view, EB's failure to caveat would postpone their interest to Frank's unregistered interest.
However, courts in subsequent cases have focused on whether it is reasonable and whether it is common practice to lodge a caveat in the circumstances to determine whether or not a failure to caveat amounts to postponing conduct: J & H Just (Holdings) Pty Ltd v Bank of NSW. As in J & H Just, EB had the executed mortgage and Duplicate CT. Therefore it may be reasonable for EB not to caveat, as possession of the Duplicate CT precludes other dealings in the land from being registered. If the conveyancing practice were for a mortgagee not to lodge a caveat when the Duplicate CT had been retained as security, this would also influence the court to hold that EB's failure to caveat was not postponing conduct. Hence EB's mortgage interest arguably is not postponed, and will prevail over Frank's interest.
Albert v Frank
Registered fee simple v Unregistered interest
Albert is a constructive trustee for Frank pursuant to a specifically enforceable contract for sale: Lysaught v Edwards. Frank thus has an right in personam against Frank, and Frank's unregistered interest prevails over Albert's title.
Conclusion
The order of priorities for Swanbourne - Daphne's lease and option, EB's mortgage, Frank's equitable interest, Albert's registered interest.
Daphne's caveat prevents the registration of EB's mortgage and Frank's fee simple, and EB from selling the property to a new RP until Daphne's lease and option have lapsed and ceased to exist: TLA s139, s141A. Frank cannot evict Daphne in October 2004 if she exercises her option to renew the lease, as Daphne's option prevails over Frank's equitable interest. Even after settlement, Frank will be unable to register his fee simple, because EB has the Duplicate CT. After EB's mortgage is registered, EB may pass the Duplicate CT to Frank on request. Frank's fee simple may then be registered. Frank's registered fee simple will be subject to EB's earlier registered mortgage: TLA s53. Frank will subsequently have to make mortgage payments to EB, and sue Albert to claim compensation. If Frank defaults, EB may sell the property.
