The Principle of Indefeasibility

From Uni Study Guides
Jump to: navigation, search

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. 466-471 [5.25-33]; 474-512 [5.40-5.73].

Introduction

[1] Indefeasibility of title means the register is the definitive record of all land interests, and thus, the registered proprietor is immune to claims contrary to the reigster.[2]

  • The idea of Torrens Title was to create a 'register' which reflected all current proprietary rights on a piece of land.
  • The register, which is run by the state, 'guaranteed' its own accuracy, and thus put an end to the need to investigate the chain of title.
  • Because the state guarantees the registered proprietor's title, he has indefeasible title, thus creating the 'principle of indefeasibility.
  • This type of system is commonly known worldwide as a system of registration of title.

Indefeasibility Provisions

[3] The State's guarantee, and thus the principle of indefeasibility, are given effect in a few key provisions in the Real Property Act 1900 (NSW) (note: indefeasibility of title is not a term mentioned in the legislation, it was developed by the courts).

  • s 42 (known as the 'key indefeasibility provision') - the proprietor listed on the register holds the land free of any interests which are not listed on the register (there are exceptions).
    • Doesn't apply in the case of fraud.
  • s 43 (known as the 'notice provision') - once a person completes a transfer from the real proprietor, he is free from any trust or unregistered interests, even if he had notice of that interest (there are exceptions).

There is also a less important s 43A, which deals with situation where there is a competition between a person holding an earlier equitable interest, and a person who has obtained a later equitable interest through a dealing with the registered proprietor (ie, whose interest is registrable, but has not yet been registered). For the purposes of such a scenario, the equitable interest of the person dealing with the registered proprietor is treated as a legal interest.

Immediate and Deferred Indefeasibility

[4] These doctrines are concerned with a situation where a person (the 'forger') forges the signature of the real proprietor on a transfer and sells the property to an innocent purchaser. Both the real proprietor and the purchaser are innocent, and both want the property. There are two (opposing) approaches to such a situation:

  • Immediate indefeasibility - the purchaser obtains indefeasible title once he registers the transfer regardless of the fact that the document was invalid. He becomes immediately indefeasible.
  • Deferred indefeasibility - the purchaser's title is defeasible and can be 'set aside' if the real proprietor makes a claim. However, if the purchaser transfers his title to a new purchaser (bona fide and for valuable consideration) before any such claim is made, that new purchaser's title does become indefeasible. Thus, the indefeasibility is deferred until a new bona fide purchaser arrives.

The Dilemma (theory)

The opposing doctrines ultimately reveal a dilemma in the law regarding which rights should be protected more:[5]

  • Immediate indefeasibility promotes 'dynamic security' (or 'ease of transaction'), which protects the reasonable expectations of the of purchasers that they will acquire good title. Good dynamic security facilitates easy and cheap transfers (because the purchaser doesn't have to investigate) and thus encourages people to buy assets.
  • Deferred indefeasibility promotes 'static security' (or 'security of title'), which protects the interests of property owner and makes their right secure (by protecting them from third party claims etc).
  • Both concepts are extremely important, and it is hard to find a balance between them in this particular scenario.
  • For example, the doctrine of immediate indefeasibility, which protects of the purchaser during the purchase, would also increase his susceptibility to to loss, theft or forgery of his title during his ownership. Essentially, there is a irreconcilable tradeoff.[6]

Applicable Law

In Frazer v Walker (from NZ), the court held that the doctrine of immediate indefeasibility prevails. This was then confirmed by NSW legislation in s 45 of the Real Property Act 1900 (NSW).

  • This means that a purchaser registered through fraud, error, or by means of a void instrument nevertheless grants the purchaser indefeasible title immediately (as long as the purchaser didn't cause the fraud).

These issues, and what happens in the case where the first purchaser uses fraud, are discussed in Breskvar v Wall:

  • Registration creates title even if the situation is within the exceptions listed in the act (such as fraud). The difference is that the title is subject to the rights on the defrauded vendor (ie, the title is defeasible).
  • The fraud creates an equitable interest on the part of the defrauded vendor, which is not barred by the legislation because there is an exception made for fraud. The vendor can thus cancel the registration of the purchaser.
  • However, once the purchaser transfers his title to a third party (bona fide and good consideration), it becomes a question of priorities.
    • If the third party completes registration entirely, than he obtains indefeasible title.
    • If the third party doesn't complete registration before the original vendor bring a claim, the vendor's earlier equitable interest would prevail over the third party's later equitable interest unless the vendor's conduct helped encourage the third party's false assumption (that the title vested with the fraudulent purchaser).

Note that Breskvar was decided before the introduction of s 43A, which would now settle the dispute.

Indefeasibility of the Terms in a Registered Instrument

A question arose whether all terms in a registered document (eg, a covenant) would become indefeasible once registered.

This was discussed in Mercantile Credits v Shell Co of Australia

  • In basic terms, if the term touches upon the estate or interest (ie, it is a part of the interest), the priority (or indefeasibility) of the registered instrument will extend to the term.
  • However, if the term is merely a personal which in no way affects the estate or interest (for example, a covenant of guarantee), the priority will not extend.

Mercantile Credits was since affirmed in Karacomiakis v Big Country Pty Ltd,[7] in which the court held that a covenant to pay rent is an essential and intimate part of the interest created upon registration.

  • However, indefeasible interests such as a covenant for renewal will expire if the the time for their exercise expires.[8]
  • For example, a tenant has a covenant for renewal after a lease, but has vacated the lease without exercising that option (to the effect that it can be said that the right has expired due to the passage of time). The covenant for renewal will be deemed as expired and not be counted as a registered interest that could affect a future purchaser or mortgagee.

Indefeasibility in a Void Mortgage

[9] The mortgages discussed above were mortgages in which the amount of money advanced to the mortgagor in return for the security was specified in the mortgage itself (which is the registered instrument). However, there are also 'facility' (or 'all monies') mortgages, which are mortgages which don't specify the amount of money advanced (because it is specified in a separate loan agreement etc).

The question arises as to what happens when the sign the signature of the registered proprietor has been forged for the loan agreement, and he has not actually received any money for the mortgage (ie, similar scenario to the ones above, but different because there is a separate agreement, which is merely personal and not registered, and then also void for forgery). This was discussed in Yazgi v Permanent Custodians Ltd:

  • If the separate, personal loan agreement was subject to forgery, than it would be void insofar as it applies to the victim of the forgery.
  • If the personal agreement is void, than the victim wasn't due (and didn't receive) any money in return for the mortgage - the mortgage isn't securing anything.
  • If the mortgage isn't securing anything, than the victim can discharge the mortgage insofar as it applies to their interest.
    • Note: clearly, the existence of the separate loan agreement results in a completely different result to the one seen above in Frazer etc. The fact that the amount specified wasn't in the registered instrument (the mortgage) and instead in another agreement allows the victim of the forgery to not be barred by the laws of indefeasibility.


Sorry! This section is still incomplete. If you wish to help us, please click here.


Volunteers

[10] There has been a debate as to whether a volunteer also enjoys the same indefeasibility that a purchaser does (or whether he is affected by prior equitable interests etc).

  • Note that under the old system, a purchaser was protected as long as there was no notice, whilst a volunteer was not protected at all.
  • Some academics argue that since the Torrens system aims to protect (inter alia) purchasers during transactions, there is no reason that it should protect a volunteer (since he does not bear the financial risk that a purchaser does).[11]

Originally, the indefeasibility provisions did not extend to volunteers.[12] This was altered in Bogdanovic v Koteff:

  • The old authorities have been supplanted by Frazer and Breskvar, which both imply that no distinction should be drawn between purchasers and volunteers with regards to indefeasibility.

Interestingly, a Victorian court (as opposed to the NSW court in Bogdanovic), reached an opposing conclusion in Rasmussen v Rasmussen,[13]:

  • Facts: the plaintiff argued that some of the defendant property (which he received as a volunteer) was held on constructive trust for him (the plaintiff). The court accepted that a constructive trust existed.
  • Held: Bogdanovic is rejected, and King is still good law. in Vic, indefeasibility only applies to purchasers for value, and volunteers are not protected from prior equitable claims. Therefore the defendant, as a volunteer, was not protected from the prior claim of the plaintiff.

In conclusion, many of the states differ on this point of whether volunteers enjoy indefeasibility. The High Court has arguably resolved this issue through some obiter dicta in Farrah Constructions Pty Ltd v Say-Dee Pty Ltd, in which it indicated that volunteers do obtain indefeasiblity, and no distinction is made between volunteers and purchasers.[14]

End

This is the end of this topic. Click here to go back to the main subject page for Property, Equity and Trusts 2.

References

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

  1. Textbook, pp. 466-7 [5.25-5.26].
  2. It is 'the immunity from attack by adverse claim to the land or interest in respect of which he is registered, which a registered proprietaor enjoys: Frazer v Walker (1967) 1 AC 569.
  3. Textbook, pp. 467-9 [5.28-5.30].
  4. Textbook, pp. 469-71 [5.32-5.33].
  5. O'Connor, 'Registration of Invalid Dispositions: Who Gets the Property?' in E Cooke (ed), Modern Studies in Property Law Vol 3 (2005) in Textbook, pp. 469-71.
  6. Taylor, 'Scothing Frazer v Walker (1970) 44 ALJ 248 in Textbook, p. 480 [5.41].
  7. (2000) 10 BPR 18, 235.
  8. Caleo Bros Pty Ltd v Lyons Bros (Aust) Pty Ltd (1980) 1 BPR 9496.
  9. Textbook, p. 501 [5.61].
  10. Textbook, pp. 505-6 [5.67].
  11. Baalman, The Singapore Torrens System (Singapore, 1961) i Textbook, p. 506 [5.67].
  12. King v Smail [1958] VR 273.
  13. (1995) 1 VR 613.
  14. (2007) 236 ALR 209, [198].
Personal tools
Namespaces

Variants
Actions
Navigation
Toolbox