EQUITY AND TRUSTS 1.3 EQUITABLE INTERESTS AND THE DOCTRINE OF NOTICE

• Isochukwu
• 17
• Equity and Trust I

NATURE OF EQUITABLE INTEREST AND THE DOCTRINE OF NOTICE.

Equitable interests are rights over property which (though invalid at common-law) were recognised and enforced by the courts of chancery.

At common-law, certain formalities had to be observed to create or transfer a legal interest in property. Section 1 and 4 of the statute of frauds 1677 requires that every lease or land transaction must be in writing. Section 2 and 3 of the Real Property Acts requires a deed to be executed for every lease. Non-compliance with these formalities may (instead of invalidating the contract/agreement) give rise to an equitable interest. In Ogunbambi V Abowaba, the court held that a purchase receipt coupled with possession can give rise to equitable interest.

Equitable interests can be classified into two:

• Those modelled on common-law rights. Or
• Those invented by equity independently.

Equitable Interests Modelled On Common-Law Rights: This can be seen as where equity builds upon common law rights. E.g beneficial interest in trust. At common-law, the trustee was the legal owner and the beneficiary had no right over the trust property. Equity now makes the trustee a mere custodian while the beneficiary is seen as the true owner (cesti que trust).

Equitable Interests Invented by Equity Independently: Are those interests that were inexistent at common law (like mortgagor’s equity of redemption, estate contracts, equitable mortgage, restrictive covenants, vendor’s equitable lien) or invalid for non-compliance with formalities.

EQUITABLE INTEREST AND LEGAL ESTATES.

The general rule is that a legal estate in property is enforceable against the whole world while an equitable interest is enforceable against the whole world but[1] a bona fide purchaser for value without notice. “Notice” thus determines the extent of an equitable interest.

THE DOCTRINE OF NOTICE.

You hear: “Bona-fide purchaser for value without notice”. Notice in this regard means knowledge of an existing interest in a particular property.

Notice can be:

• Actual: where the purchaser (before purchase/during negotiation) gained information of an existing equitable interest in the property whether from observation or disclosure.
• Constructive: where the purchaser ought to have discovered the existence of an interest in the property if he had been diligent. In Peto V Hammond, the buyer’s neglect to call for the deed was held to be constructive notice. In Daniels V Davison, where there was a person was already in possession of the land, constructive notice was imputed on the purchaser. Similar facts occurred in Ogunbambi V Abowaba and Olowu V Oshinubi. In Orasanmi V Idowu, the court noted that for possession of land to amount to constructive notice, it must have been continuous and undisturbed. In this case, although the respondent had been in possession for 20 years, he was not in possession at the time of sale. Therefore the purchaser was not negligent… constructive notice could not be imputed.
• Imputed: Where an agent of the purchaser acquires knowledge of an existing interest in the property in the course of transacting, such notice shall be imputed to the principal-Section 3 of the conveyancing Act. In B Olivant V Alakija his agents were present at the transaction and knew all the facts. The knowledge of the agent could be imputed on the principal. Except the agent deliberately conceals the facts with the intention of defrauding his principal.

PRIORITY.

Where there are two or more competing interest over the same property, the issue of priority shall arise. As has been noted in Ogunbambi V Abowaba that fraudulent landowners can sell the same piece of land at different times to different persons.

The temporal order rule: recognised both at common-law and equity. Qui est tempore, portior est jure. Simply means that interest in property is ranked in order of creation.

The question of priority can take the following dimensions:

*** Where two or more legal interest in a property conflict: The first in time prevails. In Adu Kofi V Adje, a single landed property was validly sold at two authorised auctions to different people at different times. The court held that the plaintiff who bought the property at the earlier auction obtained a better title[2].

*** Where an equitable and legal interest in a property conflicts: the legal interest shall prevail because where the equities are equal, the law prevails. Provided the subsequent legal encumberancer is a bona fide purchaser for value and without notice of the existing equitable interest-Folashade V Duroshola.

*** Where two or more equitable interest in a property conflicts: the first in time shall prevail. In fulfilment of the maxim, where the equities are equal, the first in time prevails. The cases of Cave V cave, Pilcher V Rawling, Rice V Rice, Ajose V Harworth are instructive on this.

Fraud, gross negligence and notice may postpone a prior legal or equitable interest to a subsequent equitable interest. Especially where injustice would be occasioned.

In Northern Counties of England Fire Insurance Company V Whipp the mortgagor (who had the key to the company’s safe) was able to steal his title deeds from the mortgagee company. He used the same title deeds to execute a mortgage. The court noted that the company’s prior interest still prevailed since they did not connive with the fraudster. In Oliver V Hinton, failure of the purchaser to ask for title deeds in respect of the property fixed him with constructive notice and postponed his interest. In Akingbade V Elemesho, constructive notice was also imposed upon the purchaser to postpone his interest as the court held that he had been negligent in the transaction. In Ogunbambi V Abowaba, constructive notice was imputed where the purchaser ought to have discovered that another was in possession of the land.

PARTICULAR EQUITABLE INTERESTS.

These are interests which arise principally out of transactions affecting land therefore belonging primarily to real property law. They include:

• Estate contracts.
• Restrictive covenants.
• Mortgagor’s equity of redemption.
• Equitable mortgage.
• Equitable Charge.
• Equitable Lien.

These shall be briefly discussed.

ESTATE CONTRACTS: what this implies is that an agreement to sell or lease land creates an equitable interest in the land notwithstanding that the land has not actually been sold. Such interest is enforceable against all but a purchaser for value without notice (he can still sue for damages). At common-law, damages can be awarded for breach. In Equity, specific performance can be ordered to compel the contracting vendor to execute the conveyance or lease. Specific performance would not be ordered where the plaintiff had notice of an existing interest over the property. In Olowu V Oshinubi, notice on the defendant’s part made the prior interest prevail. In Orasanmi V Idowu, the court noted that for possession of land to amount to constructive notice, it must have been continuous and undisturbed. In this case, although the respondent had been in possession for 20 years, he was not in possession at the time of sale.

RESTRICTIVE COVENANTS: as was noted in Tulk V Moxhay occurs where the vendor of a land enters into a contract mandating the buyer not to use the land sold (adjoining a land retained by the vendor) in a certain way. Equity permits such covenants to run with land thereby binding subsequent purchasers and constituting an exception to privity of contract (that only parties to a contract can be bound by it). Except a bonfide purchaser without notice of the restrictive covenant purchases such land. These shall be discussed in more detail later.

MORTGAGOR’S EQUITY OF REDEMPTION: At common-law, where the mortgagor fails to repay the amount of loan plus interest at the agreed date, he loses the right to redeem mortgaged property. However, the equity of redemption allows a mortgagor to redeem his property after the contractual redemption date has lapsed[3].

EQUITABLE MORTGAGE: an equitable mortgage is created in any of the following situations:

• Where a mortgagor mortgages his equitable interest in property: he cannot pass anything more than the equitable interest he has over the property. Nemo dat quad non habet. For example where a beneficiary mortgages trust property.
• An agreement to create a legal mortgage: gives the purchaser an equitable interest over the property. Specific performance can be ordered to compel its execution. Except there had been prior notice. As equity regards as done, that which ought to be done.
• Where title deeds are deposited to secure loan, an equitable mortgage would be presumed: In British and French Bank ltd V Akande, the court noted that there must be a contract stipulating the terms of deposit.
• When legal mortgage is created without complying with formalities like Section 22 of the Land Use Act requiring Governor’s consent. Savannah Bank V Ajiloh.

EQUITABLE CHARGE: A written agreement whereby property is to be regarded as security for a loan… in such a situation, an equitable charge may arise.

EQUITABLE LIEN: a vendor who has conveyed property and has not been fully paid, can have a lien over the property pending when the buyer has fully paid.. A subsequent bona fide purchaser for value may acquire a better title than the vendor-Ayorinde V Scott.

Where one with legal mortgage conveys his fee simple to another: he then has only equitable interest in the property and can only create other equitable interests.

REQUIREMENT OF REGISTRATION.

The “bona fide purchaser for value without notice” has been limited by statutes. The Statutes (like English Land Charges Act 1925, Land Registration Law of Eastern State, and so on) mandate that all registrable equitable interest in documents affecting land must be registered. Failure to register renders the document void as against a subsequent purchaser whether he had notice or not.

Interests shall rank according to the date of registration-Crayem V C.A.S.T … Section 151 of the Property and Conveyancing Law of Western Nigeria. It can be concluded that since the registration book is open to the public, registration of an interest in land can create constructive notice.

 

[1] Meaning except

[2] As was noted in Northern Counties England Fire Insurance V Whipp, such situations (where two legal interests clash) seldom occurs and where such occurs, it is usually linkable to fraud, concealment, misrepresentation and the likes. In practice, one may go to the land registry to inquire for the survey plan and determine the one that was first created.

[3] This right can be transferred just like any other interest in property.