The In Personam Exception

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This article is a topic within the subject Property, Equity and Trusts 2.

Contents

Required Reading

Edgeworth et all, Sackville and Neave's Property Law Cases and Materials, 8th edition, Lexis Nexis, 2008, pp. 526-535 [5.88-5.96]; 535-8 [5.98-5.99].

Introduction

[1] The concept of indefeasibility means that a registered proprietor is protected from property claims, because all other property interests are extinguished. However, registration does not affect rights against him in personam, such as those created because he entered a contract.[2]

  • This means that a registered proprietor is still liable to claims such as breach of contract or unconscionable dealing.
  • In personam is often argued as an alternative to an argument based of the fraud exception.
  • Note that the courts often refer to a right in personam as a 'personal equity' (which means a right to sue, regardless of whether in common law or equity). For the purposes of this discussion, the terms are interchangeable.

This was discussed in Bahr v Nicolay (No 2):

  • Indefeasibility provisions 'are designed to protect a transferee from defects in the title of the transferor, not to free him from interests with which he has burdened his own title.'
  • If the registered proprietor has burdened his own title by creating obligations, he must be bound by those obligations.

[3] Note that the in personam exception applies to conduct both before and after registration.[4]

Examples

The following are some examples of when an in personam claim could arise:

  • When a registered proprietor has agreed to sell the property to another, but before registration decided to deny the agreement - he will be susceptible to an in personam claim raised by virtue of breach of contract.
  • A trustee cannot deny a beneficiary's interest because of registration - an in personam claim would be brought based of breach of trust.
  • A purchaser who has bought a house under a contract affected by a vitiating factor (misrepresentation,undue influence, duress etc) will be an susceptible to an in personam claim raised by virtue of one of those causes of action.

Exception Only Applies to Known Causes of Action

[5] A plaintiff can only bring an in personam claim if there is a known cause of action (eg, breach of contract, misrepresentation etc).[6]

This was discussed in Conlan v Registrar of Titles:[7]

  • Facts: The plaintiff's tried to base their claim on a broad notion on unconscionability or unfairness.
  • Held: an in personam claim must be based on more than an innate sense of fairness. It must be a recognised legal or equitable case of action.

An example of how a good cause of action might arise can be seen in Mercantile Mutual Life Insurance Co Ltd v Gosper:[8]

  • Facts: the plaintiff's husband forged her signature on a mortgage document. The bank used the certificate of title (already within his possession, but without authorisation to do so) to complete registration.
  • Held: the bank broke its obligations to the respondent as custodian of her certificate of title by using the certificate to register a transfer she didn't consent to. This meant a good cause of action arose in personam, which is not barred by indefeasibility.

The decision in Mercantile Mutual Credits has been seriously criticised.[9]

  • The bank had to have used the certificate of title, and it had no knowledge of the forgery so it wouldn't have had a reason not to.
  • If, for example, the husband had stolen the certificate and given it to the bank, there would have been no cause against the bank - so why is it that simply because the bank already had the certificate is it now held liable.

Unconscionability as a Requirement

[10] Whilst the court in Conlan held that mere unconscionability is not enough and a known cause of action must arise, there is some suggestion that unconscionability is nevertheless a requirement (in addition to that of a known cause of action) of the in personam exception.

This was discussed in Vassos v State Bank of South Australia:[11]

  • Facts: the plaintiff's signature was forged by their co-owner on a mortgage document. Without knowledge of the forgery, the bank registered the mortgage and eventually tried to sell the house. The Plaintiff's argued they had rights in personam.
  • Held: a registered proprietor is not susceptible to a claim in personam unless he has acted unconscionably.

However, the Queensland Court of Appeal disputed this in White v Tomasel:[12]

  • Facts: an auctioneer sold the appellant's house to the respondent for a price lower than specified and acting outside his authority. The respondents completed registration, and the appellant sued claiming rights in personam. The respondents argued they did nothing unconscionable.
  • Held: in the previous cases which supported the criterion of unconscionability, all the causes of action available to the plaintiff incidentally involved unconscionability, and therefore it was a requirement. However, it is not a general requirement.

USG notes: It remains unclear exactly what the law is, but considering White was a Queensland case, it is probably better to mention unconscionability and its importance at the very least.

Practical Conflict with Indefeasibility

[13] The court has repeatedly stressed that there is no conflict between indefeasibility and the ability to sue in personam. Nevertheless, the ultimate practical effect of the in personam exception is that the purchaser's security of transaction is undermined (which is what indefeasibility aims to protect).

End

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References

Textbook refers to Edgeworth et all, Sackville and Neave's Property Law Cases and Materials, 8th edition, Lexis Nexis, 2008.

  1. Textbook, p. 526 [5.88].
  2. Frazer v Walker (1967) 1 AC 569.
  3. Textbook, p. 532 [5.93].
  4. Logue v Shoalhaven Shire Council [1978] 1 NSWLR 710.
  5. Textbook, pp. 532-3 [5.94].
  6. Grgic v ANZ Banking Group (1994) 33 NSWLR 202.
  7. [2001] WASC 201.
  8. (1991) 25 NSWLR 32.
  9. Ginelle Finance Pty Lts v Diakakis [2002] NSWSC 1032; Sonter, 'Casenote: Mercantile Mutual Life Insrance Co v Gosper ' (1992) 15 UNSWLJ 546.
  10. Textbook, pp. 535-8 [5.98].
  11. (1993) 2 VR 316.
  12. [2004] 2 Qd r 438.
  13. Textbook, pp. 534-5 [5.96].
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